-----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, QY36FBo89UCWVQAsm8iKgZswoTpfN1kjVflEnne869Ih6uLXeFT6VhFsIgv/oBQV UHo4lnIgynSSJ7CvVnuMig== 0000892569-97-001029.txt : 19970416 0000892569-97-001029.hdr.sgml : 19970416 ACCESSION NUMBER: 0000892569-97-001029 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970415 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-23602 FILM NUMBER: 97581470 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 10-K405 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 29, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K --------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________ to ______________ -------------------- Commission File Number 0-23602 THE CERPLEX GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 33-0411354 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1382 BELL AVENUE, TUSTIN, CALIFORNIA 92780 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 258-5600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of voting stock held by non-affiliates of the registrant on April 4, 1997 based on the closing price of the Common Stock on the Over-The-Counter Bulletin Board was approximately $5,855,247. Indicated below is the number of shares outstanding of each class of the registrant's Common Stock as of April 4, 1997. Title of Each Class of Common Stock Number of Outstanding - ----------------------------------- --------------------- Common Stock, $.001 par value 21,122,034 2 THE CERPLEX GROUP, INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Page ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . 10 Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 22 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 23 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 24
2 3 PART I ITEM 1. BUSINESS The Cerplex Group, Inc. (the "Company" or "Cerplex"), is a leading provider of service outsourcing to the high technology industry. The Company's core capabilities are electronic parts repair, spare parts sales and management and value added logistics management. The Company has developed specialized competencies in these areas, focusing on computer and peripheral, office automation and telecommunication markets. Primary services include product repair, remanufacturing and reutilization, parts sales, guaranteed availability and advanced exchange, returns processing, and materials management. The Company's network of facilities in the U.S. and Europe enables it to support the diverse service needs of its global customers. In the computer marketplace, the Company primarily services display terminals, printed circuit boards, laptops, inter-networking equipment, workstations, mass storage devices and power supplies. In the office automation marketplace, the Company services printers, scanners, fax machines, and high value products such as copiers, automatic transfer machines (ATMs), and other paper-handling equipment. In the telecommunication marketplace, the company primarily services simple and complex switching systems, payphones, video conferencing products, multiplexers, mobile communications, transmission equipment, hubs and modems. COMPANY SERVICES The Company has extensive capabilities in servicing products throughout the process of life cycle management for the Company's targeted industries. All of the Company's services are focused on reducing its customers' costs while maintaining high quality services for enhanced end-user satisfaction. Based on an infrastructure of transportation hubs and dedicated facilities, the Company can provide one-stop shopping with fast turn around times at affordable rates. The Company's primary services include: DEPOT REPAIR SERVICES. Through an infrastructure of transportation hubs and specialized depot repair facilities, Cerplex provides manufacturers and service providers a complete process for product repair, remanufacturing, conversion and upgrades. Large manufacturers and multivendor service organizations historically have maintained in-house repair centers dedicated to servicing specific proprietary products or product lines. Frequently, these repair centers are cost centers with minimal dedicated resources. Cerplex has those resources that provide an outsourced solution for some or all of an OEM's repair requirements. SPARE PARTS BUSINESS. Cerplex is a source for repaired, new and reclaimed parts due to the Company's volume of business in depot repair services. The Company makes available for the marketplace components, sub-systems and full systems for sale, lease or for use as spares in repair programs. The Company provides full outsourcing solutions in this area giving customers the benefit of reduced overhead, and the ability to reallocate internal resources toward their core capabilities. The Company has three main spare parts programs. Parts Sales provides multivendor parts sourcing on industry commodity items. Through a network of experienced parts sales representatives, electronic access to inventory, and marketing programs, the Company can support selling its customer's inventory to the marketplace. Guaranteed Availability provides service providers and Third Party Manufacturers ("TPM's") with restock of field replacement units. Using new and refurbished products, the Company can source and deliver parts within 24 to 48 hours on high-valued products which are either in-warranty or out-of-warranty. Advanced exchange offers service providers and TPM's fixed rate or lease programs 3 4 on swaps for new and refurbished parts. Cerplex provides same or next day shipping on these products, which are exchanged with field replaceable units ("FRUs") that are processed in the Company's depot repair programs for repair, remanufacturing, conversion or upgrade. VALUE ADDED LOGISTICS SERVICES. Logistics involves the management and coordination of a variety of activities to ensure the customer has the necessary parts and products at the right place at the right time. Logistics management is critical in ensuring the availability of spare parts and repaired products to meet the OEMs' customer demands. This is especially true in the global marketplace as the inability of an OEM to provide an international customer with timely repair services in that market can adversely affect an OEM's sales efforts. The Company integrates parts, repair, transportation and product management to provide its customers with a comprehensive logistics solution. OTHER SERVICES. The Company offers a variety of ancillary services to support and complement its key service offerings. These ancillary services include help desk services, product return processing, and remanufacturing and remarketing. The Company's help desk services include hardware support and order processing. The Company's remanufacturing and remarketing services offer an OEM turnkey solution for the repair, refurbishment and remarketing of products returned to an OEM. CUSTOMERS, SALES AND MARKETING The Company markets primarily to large manufacturers and service providers in the computer and peripheral, office automation and telecommunications industries. The Company's direct sales teams are geographically located in the United States, United Kingdom and France. Some of the Company's global customers include British Telecommunications plc ("BT"), Bay Networks, Canon, Cisco, Digital, Hewlett-Packard, IBM, Siemens Nixdorf, Xerox and Unisys. EMPLOYEES As of December 31, 1996, Cerplex had a work force of approximately 2,100 employees at multi-site operations engaged in management, administrative and support functions, engineering and repair. The approximately 900 employees of Cerplex Ltd. and Cerplex SAS, the Company's wholly-owned subsidiaries in Europe, are currently covered by collective bargaining agreements. Almost all recruitment activity is focused locally in the surrounding communities, representing all skill levels and positions ranging from entry-level trainee to skilled professional and senior-level management. RISK FACTORS This report may contain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below. LOSSES AND ACCUMULATED DEFICIT. For the quarter and fiscal year ended December 31, 1996, the Company reported a net loss of $13.6 million and $27.4 million, respectively, including an operating loss of $8.8 million and $15.3 million, respectively. As of December 31, 1996, the Company had an accumulated deficit of $74.4 million. The Company anticipates additional losses in the first quarter of 1997. There can be no assurance that the Company will operate profitably in the future. Continued losses could materially and adversely affect the Company's business and the value of, and the market for, the Company's equity securities. FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company's ability to maintain its current revenue base and to grow its business is dependent on the availability of adequate capital. Without sufficient capital, the Company's growth may be limited and its existing operations may be adversely affected. During portions of 1995 and 1996, the Company was in default under its senior credit agreement and subordinated note agreement. While the Company has renegotiated amendments to such agreements, the terms of the senior credit facility have resulted in a reduced borrowing base which will be further reduced over the next twelve months and the Company currently has limited borrowing ability under such facility. The Company is required to use a portion of cash generated from operations, and 4 5 from sales of assets to further reduce its borrowing base under the senior credit agreements. As a result, the Company currently has limited capital. In addition, the terms of such agreements restrict the Company's ability to incur additional indebtedness and could adversely affect the Company's ability to obtain additional financing. General market conditions and the Company's future performance, including its ability to generate profits and positive cash flow, will also impact the Company's financial resources. The failure of the Company to obtain additional capital when needed could have a material adverse effect on the Company's business and future prospects. No assurance can be given that the Company will be able to maintain its current credit facilities or that additional financing will be available or, if available, will be on acceptable terms. IMPACT OF SERIES B PREFERRED STOCK; LACK OF AUTHORIZED CAPITAL. In June 1996, the Company issued 8,000 shares of Series B Stock at $1,000 per share in a private placement. The Series B Stock is convertible into Common Stock of the Company at the option of each holder at the lower of $5.07 per share or 80% of the average closing bid price over a ten-day period ending three days prior to the date of conversion. The Series B Stock has certain rights, privileges and preferences, including preferential voting rights and a $2,000 per share preference in the event of a sale of the Company. The Board of Directors may not pay dividends to the holders of the Company's Common Stock unless and until the Board has paid an equivalent divided to the holders of Series B Stock based upon the number of shares of Common Stock into which each share of Series B Stock is convertible. As of April 11, 1997, 5,930 shares of the Series B Preferred Stock had been converted into approximately 16,150,000 shares of Common Stock. Due in part to the decreases in the trading price of the Company's Common Stock, the conversion rights of the Series B Preferred Stock have resulted in, and may in the future result in, dilution to the holders of Common Stock. In addition, due to the conversion of the Series B Preferred Stock, the Company has insufficient authorized Common Stock to effect the conversion of additional outstanding Series B Preferred Stock or to issue the Common Stock issuable upon exercise of outstanding options and warrants. The lack of authorized capital, as well as the existence of the Series B Preferred Stock, could impact adversely the ability of the Company to consummate an equity financing. The Company's Board of Directors recently approved an increase in the Company's authorized Common Stock from 30,000,000 to 60,000,000 shares. The Company intends to submit this increase to the Company's stockholders for approval. Failure to receive such approval by July 1997 constitutes an event of default under the Company's senior credit facility. DISPUTE WITH LUCENT TECHNOLOGIES. The Company acquired inventory consisting of used telephones from Lucent. At December 31, 1996, the Company had $5.9 million of inventory, production cost commitments and assets, related to the telephones acquired from Lucent, which were subsequently sold to a Company that specializes in worldwide corporate bartering. In June 1996, the Company executed a promissory note bearing interest at 9.75% in the amount of $4.6 million payable on September 15, 1996 in favor of Lucent, reflecting a portion of the amount invoiced to the Company by Lucent. Lucent has invoiced the Company for an additional $0.6 million. Due to the quality of the inventory and the lack of availability of spare parts to effect repairs, the Company believes it has claims against Lucent. The Company currently does not intend to pay the Lucent note or other Lucent invoices. If the Company is required to pay the Lucent note and other Lucent invoices in full, it would have a material adverse effect on the Company's financial resources. On October 7, 1996, the Company filed a lawsuit against Lucent in the Orange County Superior Court seeking to have the Lucent note declared invalid. On November 6, 1996, Lucent filed a cross-complaint seeking payment of the Lucent Note, alleging damages for breach of contract and seeking a constructive trust on any proceeds from the sale of the telephones. The Company's failure to have the Lucent note declared invalid, or the loss to Lucent of any of the material claims asserted by the Company, could materially and adversely affect the Company. RISK OF EXCESS AND UNUSABLE INVENTORY;DECREASED VALUE OF ASSETS. At December 31 1996, inventory constituted approximately 17% of the Company's assets. Any decrease in the demand for the Company's repair services could result in a substantial portion of the Company's inventory becoming excess, obsolete or otherwise unusable. During the last few years, the Company wrote down a significant amount of inventory and a significant amount of other assets, including receivables, securities and goodwill. Changes in the Company's business, as well as the business of third parties, could adversely affect the value of assets remaining, possibly resulting in write-offs. The existence, amounts and timing of any such additional write-offs will be dependent upon various factors including, without limitation, the volume and profitability of future operations, market conditions as well as the operations of the above-mentioned third parties. In addition, the Company became entitled to receive an aggregate of approximately 370,000 shares of Common Stock of Pen Interconnect, Inc. in connection with the sale of its InCirT division which were valued at $5.40 per share. The trading price of such shares has subsequently decreased substantially and the Company wrote off $1.1 million. There can be no assurance that the Company will not be required to write down additional amounts of its investment with respect to such shares in the future. In October 1996, the Company sold all of its inventory of phones purchased from Lucent to Atwood Richards, Inc. ("ARI"). The consideration paid to the Company from ARI was up to $7.5 million in trade credits. As of December 31, 1996, the Company had $5.9 million of inventory, production, cost commitments and assets related to the telephones acquired from Lucent. The Company has no prior experience in using trade credits and there can be no assurance the Company will realize the value of the trade credits. There can be no assurance that the Company will not be required to write down significant amounts of its inventory or other assets in the future, which could have a material adverse effect on the Company's business and results of operations. 5 6 DEPENDENCE ON KEY CUSTOMERS. During 1996, Rank Xerox, IBM and BT accounted for approximately 17%, 12%, and 11%, respectively, of continuing operations revenues. During 1995, IBM significantly decreased orders for certain programs which materially and adversely affected the Company and its results of operations. A significant portion of the Company's net sales attributable to IBM in 1995 were from discontinued operations, and, as such, the Company expects net sales attributable to IBM to continue to account for a decreasing percentage of the Company's net sales. Also, an agreement with IBM for spare parts (which accounted for approximately 7% of the Company's net sales from continuing operations through September 29, 1996) expired in September 1996. Although the Company will not provide spare parts under this agreement after September 1996, the Company believes it will continue to provide services to IBM under other programs. Sales to BT significantly decreased during 1996 to approximately $21.0 million representing a 24% decrease from 1995 and it is expected that sales during 1997 will decrease from the 1996 levels. There can be no assurance that major customers of the Company will not terminate any or all of their arrangements with the Company; significantly change, reduce or delay the amount of services ordered from the Company; or significantly change the terms upon which the Company and these customers do business. Any such termination, change, reduction or delay could have a material adverse effect on the Company's business. DEPENDENCE ON CUSTOMERS IN THE ELECTRONICS INDUSTRY. The Company is dependent upon the continued growth, viability and financial stability of its customers and potential customers in the electronics industry, particularly the computer industry. The computer industry has been characterized by rapid technological change, compressed product life cycles and pricing and margin pressures. The factors affecting segments of the electronics industry in general, and the Company's OEM customers in particular, could have an adverse effect on the Company's business. During 1995 and 1996, several of the Company's customers experienced severe financial difficulty resulting in significant losses to the Company as a result of write downs of receivables and other assets. There can be no assurance that existing customers or future customers will not experience financial difficulty, which could have a material adverse effect on the Company's business. RELIANCE ON SHORT-TERM PURCHASE ORDERS. The Company's customer contracts are typically subject to termination on short notice at the customer's discretion and purchase orders under such contracts typically only cover services over a 90-day period. The termination of any material contracts or any substantial decrease in the orders received from major customers could have a material adverse effect on the Company's business. COMPETITION. The Company competes with the in-house repair centers of OEM'S and TPM'S for repair services. There is no assurance that these entities will choose to outsource their repair needs. In certain instances, these entities compete directly with the Company for the services of unrelated OEM'S and TPM'S. In addition to competing with OEM'S and TPM'S, the Company also competes for depot repair business with a small number of independent organizations similar in size to the Company and a large number of smaller companies. Many of the companies with which the Company competes have significantly greater financial resources than the Company. There can be no assurance that the Company will be able to compete effectively in its target markets. MANAGEMENT OF GROWTH. The Company's growth has placed, and will continue to place, a strain on the Company's managerial, operational and financial resources. These resources may be further strained by the geographically dispersed operations of the Company. The Company's ability to manage growth effectively will require it to continue to improve its operational, financial and management information systems; to develop the management skills of its managers and supervisors; and to train, motivate and 6 7 effectively manage its employees. The Company's failure to effectively manage growth could have a material adverse effect on the Company's business. Due to factors associated with the Company's business and financial condition, there can be no assurance that the Company's growth in net sales will continue into the future. EXPANSION OF INTERNATIONAL SALES. During 1996, approximately 41% of the Company's sales were international. There can be no assurance that the Company will be able to successfully market, sell and deliver its products and services in these markets. In addition to the uncertainty as to the Company's ability to expand its international presence, there are certain risks inherent in doing business on an international level, such as unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency exchange rates and potentially adverse tax consequences, which could adversely impact the success of the Company's international operations. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's international operations and, consequently, on the Company's business, operating results and financial condition. DEPENDENCE ON ACQUISITION STRATEGY. Certain of the Company's repair programs result in decreasing net sales as the installed base of the particular products under such programs decreases over time. An important component of the Company's strategy to maintain its revenue and to grow its business has been the acquisition of repair programs and complementary businesses. Competition for these types of transactions is likely to intensify. The Company's ability to effect any significant transactions requiring capital will be limited by the Company's lack of working capital and by the terms of the Company's senior credit facility and subordinated notes. There can be no assurance that the Company will be able to acquire additional repair programs or complementary businesses or, if acquired, that such operations will prove to be profitable. DISCONTINUED OPERATIONS; CHANGE IN STRATEGY. In September 1995, Cerplex adopted a plan to discontinue its end-of-life programs, a line of business which historically generated a significant percentage of the Company's total sales, but which experienced declining sales. Net sales from end-of-life programs declined from approximately $33 million in 1994 to $20 million in 1995. In connection with discontinuing its end-of-life business, the Company changed certain elements of its business strategy and is undergoing changes in management and operations, is developing a direct sales force and terminating the majority of its outside sales representatives, is reducing its emphasis on inventory acquisitions and is focusing on targeted customers in specific industries. There can be no assurance that such changes will positively impact the Company's business and results of operations in the short or long term. RISK ASSOCIATED WITH THE ABILITY OF EXISTING STOCKHOLDERS TO CONTROL THE COMPANY. As of April 4, 1997, the officers, directors, principal stockholders and their affiliates owned greater than a majority of the outstanding common stock. Although there are currently no voting agreements or similar arrangements among such stockholders, if they were to act in concert, they would be able to elect a majority of the Company's directors, determine the outcome of most corporate actions requiring stockholder approval and otherwise control the business affairs of the Company. The Board of Directors of the Company has the authority under the Company's Restated Certificate of Incorporation to issue shares of the Company's authorized preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any unissued shares of preferred stock. The issuance of Preferred Stock may adversely affect the voting and dividend rights, rights upon liquidation and other rights of the holders of Common Stock. The issuance of preferred stock and the control by existing stockholders, if they were to act in concert, may have the effect of delaying, deferring or preventing a change in control of the Company. In April 1997, William A. Klein acquired approximately 3,663,898 shares of Common Stock upon the conversion of Series B Preferred Stock, Richard C. Davis acquired approximately 178,000 shares of Common Stock upon the conversion of Series B Preferred Stock and the Sprout Growth, II L.P. acquired approximately 7,665,541 shares of Common Stock upon the conversion of Series B Preferred Stock. 7 8 DEPENDENCE ON KEY PERSONNEL. The Company's future success depends, to a large extent, upon the efforts and abilities of key employees. Competition for qualified personnel in the industry is intense. The loss of services of certain of these key employees could have a material adverse effect on the Company's business. During the last year, the Company has lost the services of several of its key executive officers and members of management. While the Company has filled several positions, the Company is currently searching for a new Chief Executive Officer and certain other key managers. William A. Klein, the Company's Chairman is currently acting as President and Chief Executive Officer, while the Company searches for a new Chief Executive Officer. The failure to engage a new Chief Executive Officer by May 30, 1997 will result in an event of default under the Company's senior Credit Facility. NO ASSURANCE OF PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the Company's initial public offering, there was no public market for the Common Stock. On February 20, 1997, the Company was removed from the NASDAQ National Market System and commenced trading on the NASDAQ OTC Bulletin Board. There can be no assurance of an active trading market for the Company's Common Stock. In addition, the trading price of the Common Stock has been, and in the future could be, subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant contracts, changes in management or new products or services by the Company or its competitors, general trends in the industry and other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations which have particularly affected the market price for many companies in similar industries and which have often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. 8 9 ITEM 2. PROPERTIES The Company leases certain office and warehouse facilities under operating leases and subleases which expire at various dates during the next eight years. The Company believes that the existing facilities are adequate for its current business. The Company's executive offices are located at the Tustin, California facility listed below. At April 11, 1997, a description of the facilities currently leased and subleased by the Company is as follows: SQUARE LOCATION FOOTAGE LEASE EXPIRATION - -------- ------- ---------------- Bracknell, England 3,100 December 1999 Carrollton, Texas 13,240 February 1998 Ft. Lauderdale, Florida 35,314 May 2005 Ft. Lauderdale, Florida 42,169 May 2005 Ft. Lauderdale, Florida 96,000 May 1997 Jeffersontown, Kentucky 77,000 December 2001 Koln, Germany 8,300 September 1997 Lawrence, Massachusetts 117,000 July 2000 Livermore, California 51,840 May 1998 Livermore, California 38,880 May 1997 Livermore, California 18,000 October 1997 Milpitas, California 23,371 March 1998 Newburgh, New York 57,300 July 1997 Poughkeepsie, New York 40,432 October 1998 Poughkeepsie, New York 27,500 Month-to-Month Rancho Cucamonga, California 68,900 June 2003 Redmond, Washington 37,040 May 1997 Tustin, California 120,300 December 2000 Hunslet Leeds, England 10,650 June 1997 In addition, European subsidiaries of the Company own land and buildings in Enfield, England and Lille, France. ITEM 3. LEGAL PROCEEDINGS The Company acquired inventory consisting of used telephones from Lucent. At December 31, 1996, the Company had $5.9 million of inventory, production cost commitments and assets, related to the telephones acquired from Lucent, which were subsequently sold to a Company that specializes in worldwide corporate bartering. In June 1996, the Company executed a promissory note bearing interest at 9.75% in the amount of $4.6 million payable on September 15, 1996 in favor of Lucent, reflecting a portion of the amount invoiced to the Company by Lucent. Lucent has invoiced the Company for an additional $0.6 million. Due to the quality of the inventory and the lack of availability of spare parts to effect repairs, the Company believes it has claims against Lucent. The Company currently does not intend to pay the Lucent note or other Lucent invoices. If the Company is required to pay the Lucent note and other Lucent invoices in full, it would have a material adverse effect on the Company's financial resources. On October 7, 1996, the Company filed a lawsuit against Lucent in the Orange County Superior Court seeking to have the Lucent note declared invalid. On November 6, 1996, Lucent filed a cross-complaint seeking payment of the Lucent Note, alleging damages for breach of contract and seeking a constructive trust on any proceeds from the sale of the telephones. The Company's failure to have the Lucent note declared invalid, or the loss to Lucent of any of the material claims asserted by the Company, could materially and adversely affect the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 9 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION As of February 20, 1997, Cerplex's Common Stock began trading on the Over-The-Counter Bulletin Board under the symbol CPLX. Prior to February 20, 1997, the Company's Common Stock traded on the NASDAQ National Market System. The following table sets forth the range of high and low sale prices for the Company's Common Stock for the fiscal quarters indicated. Year ended December 31, 1996 High Low - ---------------------------- ------ ----- First quarter $ 7.75 $5.03 Second quarter 7.13 5.75 Third quarter 7.25 4.88 Fourth quarter 5.13 0.66 Year ended December 31, 1995 High Low - ---------------------------- ------ ----- First quarter $12.00 $6.25 Second quarter 9.13 5.00 Third quarter 8.75 4.50 Fourth quarter 9.00 6.25 HOLDERS OF RECORD At December 31, 1996, Cerplex had approximately 216 stockholders of record of the Company's Common Stock. DIVIDENDS The Company has not paid dividends on its capital stock. The Company presently intends to retain earnings for use in its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of the Company's senior credit facility and the Company's subordinated notes restrict the ability of the Company to pay cash dividends. 10 11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data regarding the Company's results of operations. This information should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes included elsewhere herein.
(In thousands, except share data) 1996 1995 1994 1993 1992 - --------------------------------- -------- -------- -------- ------- ------- Net sales $191,493 $144,328 $ 94,006 $22,945 $ 6,584 Gross profit 26,245 16,511 17,039 4,678 789 Income (loss) from continuing operations before extraordinary items (27,388) (22,047) 1,195 (8,432) (7,745) Income (loss) from discontinued operations - (17,347) 1,500 13,998 7,768 Net income (loss) $(27,388) $(39,394) $ 684 $ 5,556 $ 23 Net income (loss) per share: Continuing operations $ (2.04) $ (1.68) $ 0.09 $ 0.16 Discontinued operations(2) - (1.33) 0.11 - Extraordinary item(3) - - (0.15) - -------- -------- ------- ------- Net income (loss) per share(1) $ (2.04) $ (3.01) $ 0.05 $ 0.16 ======== ======== ======= ======= Weighted average common and common equivalent shares outstanding 13,419 13,091 13,446 11,363 ======== ======== ======= =======
1996 1995 1994 1993 -------- -------- -------- ------- Total assets $105,494 $101,893 $120,707 $70,544 Long-term obligations (less current maturities 56,817 68,382 60,720 34,205
- -------------------------- (1) For 1993, net income per share is presented on a pro forma basis to reflect the provision for income taxes that would have been recorded had the Company's predecessor affiliated corporations been taxed as C Corporations under the Internal Revenue Code of 1986, as amended. (2) In September 1995, the Company discontinued its end-of-life programs, a segment of the business, through a liquidation of the remaining operations. Prior period financial statements have been restated to reflect discontinuance of this segment of the business. See Note 3 to Consolidated Financial Statements. (3) In May 1994, the Company extinguished early its Series B Subordinated Notes. As a result, $3.5 million ($2.0 million net of tax) of the original issue discount was recognized as an extraordinary item. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This report may contain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the "Business" section under "Risk Factors." OVERVIEW The Company is an independent provider of electronic parts repair, spare parts sales and management, and logistics. The Company's net sales have increased substantially over the last few years, primarily as a result of acquisitions. The Company is no longer permitted under the terms of its credit facility to engage in acquisitions. The Company's results of operations have been adversely affected over the last two years due to a variety of factors discussed below. During the third quarter of 1995, the Board of Directors approved a Liquidation Plan to discontinue its end-of-life programs, a segment of the Company, through liquidation of these operations. In its end-of-life programs, the Company assumed all responsibilities for the support and repair of products which are no longer manufactured or are being phased out of manufacturing. Generally, when the Company undertook an end-of-life program, it acquired substantially all of the unique test equipment, repair equipment and inventories needed to support the program. Services provided by the Company under end-of-life programs include repair, provision of spare parts for a defined period of time, plant return and parts reclamation, engineering and document control, warehousing, and vendor certification and management. The Company no longer undertakes these programs. The liquidation of end-of-life programs has been accounted for as discontinued operations and prior period financial statements have been restated to reflect the discontinuance of this segment of the business. The results of operations for 1996 reflect, to a large degree, the resolution of several matters that have been adversely impacting the Company. Specifically, the Company closed its unprofitable Texas operations and reached a settlement with the SpectraVision bankruptcy; it established reserves for the impairment of assets, and incurred additional losses on common stock received in settlement of various transactions; it closed its training operations and business, resulting in restructuring charges and asset write-downs; and, due to changes in the Company's business, or the business of third parties, the Company recorded charges for inventory write-downs, uncollectable receivables and other assets. RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS The following table sets forth items from the Company's Consolidated Statement of Operations as a percentage of net sales.
1996 1995 1994 ---------- ---------- ---------- Net sales 100.0% 100.0% 100.0% Cost of sales 86.3% 88.6% 81.9% ----- ----- ----- Gross profit 13.7% 11.4% 18.1% Selling, general and administrative expenses 20.6% 23.4% 12.6% Restructuring charges 1.1% -- -- ----- ------ ----- Operating income (loss) (8.0%) (12.0)% 5.5% ===== ====== =====
NET SALES Net sales for the year ended December 31, 1996 increased $47.2 million or 32.7% to $191.5 million from $144.3 million in 1995. The increase is primarily due to the acquisitions of Cerplex SAS in June 1996 and the remaining 51% interest in MODCOMP/Cerplex in April 1996, along with a full year of sales generated by Peripheral Computer Support, Inc. ("PCS") which was acquired in June 1995. The approximately $60 million year-to-year revenue increase from these acquisitions was partially offset by approximately $10 million decrease in net sales from the sale, early in 1996, of the Company's InCirT Division, and from lower sales due to: (1) the shutdown of the Company's Texas contract manufacturing facility and Washington computer training facility in September 1996, (2) reduced sales to BT and (3) decreased sales in the North American spare parts business. Net sales during 1995 increased $50.3 million or 53.5% to $144.3 million from $94.0 million in 1994. The increase in net sales is primarily due to the acquisition of a repair depot of BT and the acquisition of Apex Computer in the second half of 1994, the acquisition of PCS in June 1995 and, to a lesser extent, increased sales from new customers using existing facilities. 12 13 GROSS PROFIT Gross profit for 1996, as a percentage of net sales, increased to 13.7%, compared with 11.4% for the prior year. The improvement in the gross profit percentage is primarily attributable to the 1996 acquisitions of Cerplex SAS and the remaining 51% interest in MODCOMP/Cerplex, together with a full year of operations from the 1995 acquisition of PCS. This gross profit improvement, however, was adversely affected by a variety of factors primarily relating to the Company's North American operations including but not limited to the impact of unprofitable contracts or operations within the Company's Texas contract manufacturing and Washington computer training facilities which were closed during the third quarter and completion of certain other unprofitable contracts which the Company was winding down. The effect of these factors included approximately $2.5 million in inventory write-downs, and $4.9 million in charges related to the contract manufacturing operations in Texas, computer training operations in Washington and telephones purchased from Lucent. Gross profit as a percentage of net sales during 1995 decreased to 11.4% from 18.1% in 1994. The decrease in gross profit percentage from 1994 was primarily due to losses incurred on contracts the Company was renegotiating or winding down, a reduction in new orders from SpectraVision which filed for protection under Chapter 11 of the U.S. Bankruptcy Code in May 1995, and other miscellaneous inventory adjustments. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES During 1996, selling, general and administrative ("SG&A") expenses increased by $5.7 million to $39.5 million, while as a percentage of net sales decreased to 20.8% compared with 23.4% in 1995. The increase in dollar spending is primarily due to the addition of the Cerplex SAS and MODCOMP/Cerplex acquisitions in 1996 and a full year of expenses from PCS, acquired in 1995. Increased SG&A spending was partially offset by a $2.5 million decrease in bad debt provision to $4.8 million in 1996 compared with $7.3 million in 1995. SG&A expenses as a percentage of net sales in 1995 increased to 23.4% from 12.6% in 1994. SG&A expenses included a $9.8 million provision representing losses on receivables from three customers, two of which were operating under Chapter 11 of the U.S. Bankruptcy Code, and losses on an investment in a stock purchase warrant. SG&A expenses were also up due to additional headcount, higher insurance expenses, and increased sales commissions. RESTRUCTURING EXPENSES During the third quarter of 1996, the Company closed its contract manufacturing operations in Texas and its computer training operations in Redmond, Washington. In connection with the closure of these operations, the Company recorded restructuring charges of $2.1 million. The restructuring charges related to write-downs of property and equipment and other assets to net realizable value, accruals for lease commitments, severance pay for approximately 180 employees, and other costs needed to complete closure of the facilities. 13 14 OTHER INCOME AND EXPENSE Effective April 1996, the Company sold its contract manufacturing division in Tustin, California to Pen Interconnect for $3.5 million in cash and restricted common stock valued at approximately $2 million at the time of the acquisition. The gain on the sale of the InCirT Division was $0.5 million. Later in fiscal 1996, the Company determined that the value of the restricted common stock had been permanently impaired due to subsequent declines in market value and has reduced the value of these investments to the fair market value at December 31, 1996. The related loss of $1.1 million on the impairment of these investments was included in other expense. Equity in earnings from joint venture decreased by $2.0 million to $0.4 million in 1996 compared with $2.4 million in 1995 primarily due to the Company acquiring the remaining 51% in MODCOMP/Cerplex in April 1996 and consolidating the results of the operations and financial condition after that date. These earnings were attributed to the Company's 49% ownership in MODCOMP/Cerplex, L.P. which was formed in December 1994. INTEREST EXPENSE Interest expense for 1996 increased $3.2 million to $8.3 million from $5.1 million in 1995 as a result of increased average borrowings under the Company's credit facilities, a higher weighted average interest rate and amortization of loan discount and commitment fees. Average borrowings outstanding were $63.6 million during 1996 compared with $60.1 million during 1995. The effective interest rate on credit facilities increased to 10.0% in 1996 from 8.5% in 1995. Loan amortization costs were approximately $2.3 million during 1996. Interest expense for 1995 increased to $5.1 million from $4.1 million in 1994. The increase in interest expense is attributed to higher weighted average borrowings outstanding incurred to finance acquisitions, increased working capital requirements and the capital contribution to MODCOMP/Cerplex. Average borrowings outstanding were $60.1 million during 1995 compared with $37.6 million during 1994. Interest expense during 1994 included $0.5 million of amortization of original issue discount related to the Company's Series B Notes which were repaid in May 1994. The effective interest rate on long-term credit facilities decreased to 8.5% in 1995 from 9.8% in 1994. INCOME TAXES Total income tax expense for 1996, 1995, and 1994 was allocated as follows:
1996 1995 1994 ---------- ---------- ---------- (dollars in thousands) Income from continuing operations $1,718 $2,089 $ 542 Discontinued operations -- 42 1,086 Extraordinary items -- -- (1,457) ------ ------ ------- $1,718 $2,131 $ 171 ====== ====== =======
Income tax expense during 1996 and 1995 is primarily related to income taxes on earnings of the Company's operations in Europe. The effective tax rate differs from the statutory rate primarily as a result of the impact of not recording an income benefit related to operating losses in the United States. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company's valuation allowance reduces the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against net Federal and State deferred tax assets due to uncertainties surrounding their realization. The Company will evaluate the realizability of the deferred tax assets on a quarterly basis. 14 15 DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM In September 1995, the Company decided to discontinue its end-of-life programs segment through a liquidation of remaining operations. In connection with the decision to discontinue its end-of-life programs, the Company provided $15.4 million for the estimated loss from liquidation of these operations, primarily related to the disposition of inventory, fixed assets and other related assets. The liquidation of non-contract operations was completed during 1996 and the remaining contractual obligations with a final customer will be completed in 1997. A summary of operating results for discontinued operations is shown below: 1995 1994 ------- ------- (dollars in thousands) Net Sales $19,815 $32,882 ======= ======= Income (loss) from operations Income (loss) before taxes (1,924) 2,586 Provision for taxes 42 1,086 ------- ------- Net loss from discontinued operations (1,966) 1,500 Estimated loss from liquidation of Discontinued operations, no tax benefit recognized (15,381) -- -------- ------- Net income (loss) from discontinued operations $(17,347) $ 1,500 ======== ======= In May 1994, the Company extinguished early its Series B 9.0% Senior Subordinated Notes (the "Series B Notes") at the principal amount of $5.7 million. When the Series B Notes were issued in November 1993, they had detachable warrants to purchase 920,000 shares of common stock at $0.01 per share associated with them which were valued at $3.93 per warrant at the date of issuance. In connection with the issuance of the Series B Notes, the Company recorded an original issue discount for the difference between the fair value of the warrants at the time of issuance and the exercise price. The original issue discount was being amortized over a two year period. Pursuant to the early extinguishment of the Series B Notes the Company charged off as an extraordinary item $3.5 million ($2.0 million net of applicable taxes), or $0.15 per share during the quarter ended June 1994. LIQUIDITY AND CAPITAL RESOURCES Senior Credit Facility The Company's senior credit agreement was established in October 1994 (the "Credit Agreement") with a group of banks led by Wells Fargo Bank. During part of 1995 and part of 1996, the Company was in default of various covenants in the Credit Agreement, which resulted in a series of waivers and amendments to the agreement. In April 1996, the Company entered into an amended Credit Agreement that reduced the maximum amount under the line of credit from $60.0 million to $48.0 million and required reductions in the total commitments to $47.0 million by September 30, 1996, to $45.0 million by December 31, 1996 and to $43.0 million by March 31, 1997. The interest rate on the Agreement was increased to prime plus 2.25% and the maturity accelerated from October 1997 to March 31, 1997. In consideration for the amendment, the Company provided the lenders with warrants to purchase 125,000 shares of common stock at $6 per share and paid certain commitment fees and out-of-pocket expenses. In April 1997, the agreement was again amended to provide for borrowings comprising a revolver and a term loan. The revolver has a maximum amount available of $6.0 million. The interest rate on the revolver is the prime lending rate plus 2.25%. The term loan is for $38.9 million and carries an interest rate of prime lending rate plus 3.125%. In addition, the Company must use to pay down the term loan 66.67% of all cumulative cash flow in excess of $9.0 million during 1997, and generally the Company must use to pay down the term loan 66.67% of all proceeds from asset, stock investment and subsidiary sales, as well as 25% of the proceeds of any equity offerings. The Company reduced the term loan and the revolver by an aggregate of approximately $8.25 million on April 11, 1997 in connection with the sale of PCS described below. The amended Credit Agreement expires May 1, 1998. In consideration for the amendment to 15 16 the Credit Agreement, the Company was required to provide the lenders with warrants to purchase 750,000 shares of the Company's common stock at an exercise price of $0.60, and to pay certain commitment fees and out-of-pocket expenses. In addition, the warrants issued April 1996 were repriced to an exercise price of $0.60. The April 1997 Credit Agreement includes revised covenants for profitability, current ratio, minimum tangible net worth, leverage and working capital. In addition there is a covenant requiring the Company to hire a Chief Executive Officer by May 30, 1997. Subordinated Notes In November 1993, the Company sold $17.3 million in principal amount of its Series A 9.0% (changed to 9.5% in October 1994) Senior Subordinated Notes and $5.7 million in principal amount of its Series B 9.0% Senior Subordinated Notes with 920,000 detachable warrants to purchase common stock. The detachable warrants were issued at the option price of $.01 per share resulting in an original issue discount of $3.6 million on the Series B 9.0% Senior Subordinated Notes. The Series A Senior Subordinated Notes accrued interest at the rate of 9.5% per annum, payable quarterly, with principal amount thereof payable in three equal installments in November 1999, 2000 and 2001. The Company is subject to certain financial and other covenants which include restrictions on the incurrence of additional debt, payment of any dividends and certain other cash disbursements as well as the maintenance of certain financial ratios. During part of 1996 and 1997, the Company was in default of various covenants under the Note Purchase Agreement, which resulted in a series of waivers and amendments. In April 1996, the Company entered into an amendment to the Note Purchase Agreements which revised the covenants for maximum leverage, net worth and fixed charges. In consideration for the amendment to the Note Purchase Agreements, the Company was required to provide the Senior Subordinated Note Holders 1,000,000 warrants to purchase common stock at $6.00 per share. The warrants issued pursuant to the amended Note Purchase Agreements, and the amended Credit Agreement discussed above, were recorded at fair market value with such amount amortized as a charge against income over the period of the warrants. In November 1996, the Company entered into amendments to the Note Purchase Agreements which revised certain financial covenants. As compensation for the amendments, the company repriced the warrants issued in April 1996 from $6.00 per share to $2.50 per share. In April 1997, the Note Purchase Agreement was again amended revising certain covenants. Interest is now payable semi-annually instead of quarterly. The term of the Agreement is unchanged from the prior Agreement. In consideration for the amendment, the Company repriced the warrants issued in April 1996 to the April 4, 1997 market price of $0.60 per share of common stock. Miscellaneous Effective April 1, 1996, the Company sold its contract manufacturing operations in Tustin, California for $3.5 million cash and restricted Common Stock valued at approximately $2.0 million at the time of the acquisition. The Company was required to use $2.0 million of the proceeds from the sale of the InCirT Division to repay a portion of the borrowings under the Credit Agreement. In April 1996, the Company received a distribution from its earnings of MODCOMP/Cerplex of $3.0 million which was used to acquired the remaining 51% of this partnership. In May 1996, the Company acquired Rank Xerox Limited's subsidiary, Cerplex SAS, for $6.1 million, including estimated taxes, registration fees, legal, accounting, and other out-of-pocket expenses of $1.2 million. Under the terms of the Stock Purchase Agreement, the Company has agreed to certain financial covenants over a four-year period that limit the amount of dividends and payments in the nature of corporate charges paid by Cerplex SAS; the maintenance of Cerplex SAS' current ratio greater than one; and restrictions on guarantees with respect to Cerplex and its subsidiaries (excluding Cerplex SAS). Accordingly, the cash of Cerplex SAS is generally not available to Cerplex for financing operations outside of Cerplex SAS. In June 1996, the Company issued 8,000 shares of Series B Stock at $1,000 per share in a private placement. The Series B Stock is convertible into Common Stock of the Company at the option of each holder at the lower of $5.07 per share or 80% of the average closing bid price over a ten-day period ending three days prior to the date of conversion. The Series B Stock has certain rights, privileges and preferences, including a $2,000 per share preference in the event of a sale of the Company. The Board of Directors may not pay dividends to the holders of the Company's Common Stock unless and until the Board has paid an equivalent divided to the holders of Series B Stock based upon the number of shares of Common Stock into which each share of Series B Stock is convertible. As of April 11, 1997, 5,930 shares of the Series B Preferred Stock had been converted into approximately 16,150,000 shares of Common Stock. On April 11, 1997, the Company sold Peripheral Computer Support, Inc. ("PCS"), a subsidiary of the Company, for $14.5 million in cash and the cancellation of $500,000 of indebtedness. Of such amount, $8.25 million was used to pay down bank debt, $500,000 was placed into escrow, and approximately $750,000 was used to pay expenses associated with the transaction. The Company or it subsidiaries are required to pay BT 1.8 million pounds in 1999 or earlier if certain sales volumes are reached. 16 17 The Company acquired inventory consisting of used telephones from Lucent Technologies, Inc. ("Lucent"). At September 29, 1996, the Company had $7.0 million of inventory, production cost commitments and assets related to the telephones acquired from Lucent. In June 1996, the Company executed a promissory note bearing interest at 9.75% in the amount of $4.6 million payable on September 15, 1996 in favor of Lucent, reflecting a portion of the amount invoiced to the Company by Lucent (the "Lucent Note"). Lucent has invoiced the company for an additional $6.0 million. Due to the quality of the inventory and the lack of availability of spare parts to effect repairs, the Company believes it has the inventory and the lack of availability of spare parts to effect repairs, the Company believes it has claims against Lucent. The Company currently does not intend to pay the Lucent note or other Lucent invoices. If the Company is required to pay the Lucent Note and other Lucent invoices in full, it would have a material adverse effect on the Company's financial resources. On October 7, 1996, the Company filed a lawsuit against Lucent in the Orange County Superior Court seeking to have the Lucent Note declared invalid. On November 6, 1996, Lucent filed a cross-complaint seeking payment of the Lucent Note, alleging damages for breach of contract and seeking a constructive trust on any proceeds from the sale of the telephones. The Company's failure to have the Lucent Note declared invalid, or the loss to Lucent of any of the material claims asserted against the Company, could materially and adversely affect the Company. In October 1996, the Company entered into a transaction with Atwood Richards, Inc. ("ARI") pursuant to which the Company is obligated to continue to repair and refurbish the remaining telephones in inventory through December 31, 1996, and deliver 100% of the repaired product to ARI. The Company will receive trade credits for up to $7.5 million in goods and services depending on the number of telephones repaired. The trade credits received from ARI may be used to acquire various goods and services. There can be no assurance that the Company will be able to use the trade credits in the near term, if at all. The Company's primary source for liquidity is cash flow from operations and its ability to reduce working capital requirements. The Company has limited available capacity under its Credit Agreement. Management believes it will remain in compliance with the financial covenants set forth in the revised Credit Agreement throughout 1997, and that the borrowing capacity combined with the net proceeds from the sale of PCS and forecasted cash flow from operations will be sufficient to meet the working capital needs for 1997. There can be no assurance that the existing borrowing capacity and cash flow from operations will be adequate. 17 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and schedule appear in a separate section of this Annual Report on Form 10-K beginning on pages F-1 and S-1, respectively. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURES None 18 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below, as of March 31, 1997, for each director and executive officer of Cerplex is information regarding his age, the period he has served as a director or executive officer, position(s) with Cerplex, any family relationship with any other director or executive officer of Cerplex and the directorships currently held by him in corporations whose shares are publicly registered.
NAME, AGE AND FIRST YEAR AS DIRECTOR Richard C. Davis, 47, 1990 . . . . Richard Davis has served as a member of the Board of Directors of Cerplex since May 1990 and as the President of International Operations of Cerplex since October 1995. Prior to October 1995 Mr. Davis served as the President of Cerplex and in various executive positions since May 1990. Mr. Davis was the Chief Financial Officer of each of EMServe, Inc., Diversified Manufacturing Services, Inc. and InCirT Technology Incorporated from July 1991, June 1991 and February 1990, respectively, until September 1993 at which time such entities were consolidated with the Company. Mr. Davis was Vice President and Chief Financial Officer of Century Data, Inc. from 1986 until 1990. Prior to 1986, Mr. Davis held various financial, accounting and managerial positions within Xerox Corporation. Robert Finzi, 43, 1993 (1)(2). . . Mr. Finzi has been a Vice President of the Sprout Group, a division of DLJ Capital Corporation, which is the managing general partner of Sprout Growth II, L.P. and an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation since May 1991. Mr. Finzi is also a general partner of the general partner of a series of investment funds managed by the Sprout Group and a limited partner of the general partner of ML Ventures II, L.P. From 1984 to 1991, Mr. Finzi was a Vice President of Merill Lynch Venture Capital. Mr. Finzi also serves as a director of Platinum Software Corporation and a number of private companies. Robert W. Hughes, 44, 1997 . . . Mr. Hughes was appointed to the position of Senior Vice President and Chief Financial Officer on March 10, 1997. Prior to joining Cerplex, Mr. Hughes served as Vice President, Chief Financial Officer and Treasurer of Financial World Partners from November 1995 to May 1996. Mr. Hughes was Chief Financial Officer, International Operations at MAI Systems Corporation from February 1993 to November 1994. From May 1989 to August 1992, Mr. Hughes was Chief Financial Officer and Corporate Secretary of Focus Technologies, Inc. Prior to 1989, Mr. Hughes served as Senior Audit Manager of KPMG Peat Marwick, LLP for seven years.
19 20 Jerome Jacobson, 75, 1993 (1) . . . Mr. Jacobson serves as a Director of Datawatch Corporation and as an individual general partner of ML Ventures II, L.P. since 1987. Mr. Jacobson is President of Economic Studies, Inc. and an independent financial advisor and economic consultant. Mr. Jacobson was Executive Vice President of Bendix Corporation from 1974 to 1980 and was Vice Chairman of Burroughs Corporation from 1981 to 1984. Patrick S. Jones, 51, 1996 (1). . . Mr. Jones has served as Vice President/Corporate Controller for Intel Corporation since 1992. As such, he is responsible for worldwide accounting, international finance and administration at Intel's overseas locations, accounting services, external reporting, and all financial systems applications. Prior to 1992, Mr. Jones served as Vice President and Chief Financial Officer of LSI Logic Corporation. William A. Klein, 56, 1990 . . . . William Klein has been the Chairman of the Board of Directors of Cerplex since its inception in May 1990. Mr. Klein also served as the Company's Chief Executive Officer from August 1993 until October 1995 and again since October 1996. Mr. Klein was Chairman of InCirT Technology Incorporated from 1990 until September 1993 at which time such entities were consolidated with the Company. Mr. Klein was previously President and Chief Executive Officer of Century Data, Inc. from 1986 until 1990. Mr. Klein was the founder and Chief Executive Officer of Cybernex from October 1981 until its merger with Read-Rite in 1986. Prior to October 1981, Mr. Klein held various positions over a 19-year period with IBM in engineering, manufacturing and management. Mr. Klein serves as a director of Smartflex Systems Inc., and on the Boards of several private companies. Myron Kunin, 67, 1995 (1)(2) . . Mr. Kunin has served as Chairman of the Board of Regis Corporation since 1983. Mr. Kunin also served as the Chief Executive Officer until July 1995. From 1967 to 1987 he was President of Regis Corporation, and from 1954 to 1965 he served as its Vice President. Mr. Kunin has been a director of Regis Corporation since 1954. Mr. Kunin has been a director and major stockholder of Nortech Systems, Inc. since 1990. Mr. Kunin serves on the Board of Directors of Smartflex Systems Corporation and serves on the boards of several private companies. Philip E. Pietrowski, 52, 1995 Mr. Pietrowski was promoted to President of Cerplex North America Operations in January 1997. He joined the Company in October, 1995 as Vice President of Logistics and was promoted to Senior Vice President of North American Operations in January 1996. Mr. Pietrowski spent twenty- four years at Digital Equipment Corporation in Massachusetts, holding various senior level positions. The last position he held with Digital Equipment was Corporate Multivendor Services Business Manager, where Mr. Pietrowski was responsible for worldwide service logistics, repair of information systems and administration.
- ------------------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. 20 21 COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 There were no known filing delinquencies or failure to file with respect to reports on Forms 3, 4 and 5 which were required to be filed pursuant to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 by members of the Board of Directors, the executive officers of Cerplex, and beneficial owners of more than ten percent of the outstanding shares of the Company's Common Stock during 1996. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation awarded to, earned by or paid for services rendered to the Company in all capacities during the 1996, 1995, and 1994 fiscal years by (i) the Company's Chief Executive Officers during fiscal 1996 and (ii) the Company's four other most highly compensated executive officers who were serving as executive officers at the end of fiscal 1996 (together, the "Named Executive Officers"). No executive officer who would have otherwise been includable in such table on the basis of salary and bonus earned for the 1996 fiscal year resigned or terminated employment during the fiscal year. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
Compensation Annual Compensation Securities -------------------------------- Underlying All Other Name and Principal Position Year Salary($) Bonus($) Other($) Options(#) Compensation($)(1) - --------------------------- ---- --------- -------- -------- ------------ ------------------ William Klein(2) 1996 $400,036 -- -- -- 2,979 Chairman of the Board 1995 415,422 -- -- -- 791 1994 392,343 -- -- -- 660 James T. Schraith(3)(6) 1996 354,216 -- -- -- 1,197 President and 1995 84,612 -- -- 500,000 195 Chief Executive Officer 1994 -- -- -- -- -- Richard C. Davis 1996 217,624 -- 6,250 -- 2,979 President of International 1995 202,356 -- -- -- 791 Operations 1994 196,197 -- -- -- 660 James R. Eckstaedt(4)(6) 1996 74,038 -- -- -- 684 Senior Vice President and 1995 -- -- -- -- -- Chief Financial Officer 1994 -- -- -- -- -- Philip E. Pietrowski 1996 170,155 -- 7,500 -- 2,979 Senior Vice President 1995 89,250 20,000 1,000 -- 66 North American Operations 1994 -- -- -- -- -- Ray Robidoux(5)(6) 1996 116,308 12,500 6,000 -- 1,539 Senior Vice President 1995 -- -- -- -- -- Sales and Marketing 1994 -- -- -- -- --
(1) Reflects payments of term life insurance premiums for each Named Executive Officer. (2) Mr. Klein served as the Company's Chief Executive Officer until October 1995 and was re-appointed to such position in October 1996. (3) Mr. Schraith left the Company in October 1996. Had Mr. Schraith been employed by the Company for all of 1996 his salary would have been $400,000 and the amount of life insurance premiums paid by the Company would have been $2,979. 21 22 (4) Mr. Eckstaedt joined the Company in July1996. Had Mr. Eckstaedt been employed by the Company for all of 1996 his salary would have been $175,000 and the amount of life insurance premiums paid by the Company would have been $2,979. (5) Mr. Robidoux joined the Company in April 1996. Had Mr. Robidoux been employed by the Company for all of 1996 his salary would have been $175,000 and the amount of life insurance premiums paid by the Company would have been $2,979. (6) No longer employed by the Company. STOCK OPTIONS The following table sets forth, for the year ended December 31, 1996, information concerning the grant of options to purchase shares of Common Stock under the Company's 1993 Restated and Amended Stock Option Plan to the Named Executive Officers. No stock appreciation rights have been granted to any of the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR
Percent of Total Potential Realizable Number of Options Value at Assumed Securities Granted to Annualized Rates of Underlying Employees Exercise Of Stock Price Options in Fiscal Base Price Expiration ($) Appreciation Name Granted Year ($/Sh)(2) Date For Option Term(3) - ------------------ ---------- --------------- ----------- ---------- --------------------- 5% 10% James R. Eckstaedt 60,000 6.5% $6.58 07/16/06 248,216 629,028 50,000 5.4% $1.75 11/04/06 55,028 139,452 Philip E. Pietrowski 20,000 2.1% $6.63 01/23/06 83,329 211,171 50,000 5.5% $1.75 11/04/06 56,129 142,242 Ray Robidoux 40,000 4.3% $6.63 04/16/06 166,657 422,342 50,000 5.4% $1.75 11/04/06 55,028 139,452
(1) Based on option grants for an aggregate of 927,000 shares granted to employees in 1996, including the options granted to the Named Executive Officers. (2) The exercise price per share of the options granted represents the fair market value of the underlying shares of Common Stock on the date the options were granted, as determined by the Company's Compensation Committee. The exercise price may be paid in cash or in shares of the Company's Common Stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. The Company may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares and the federal and state income or employment tax liability incurred by the optionee in connection with such exercise. The optionee may be permitted, subject to the approval of the Compensation Committee, to apply a portion of the shares purchased under the option (or to deliver existing shares of Common Stock) in satisfaction of such tax liability. (3) Potential realizable value is based on the assumption that the price per share of Common Stock appreciates at the assumed annual rate of stock appreciation for the option term. There is no assurance that the assumed 5% and 10% annual rates of appreciation (compounded annually) will actually be realized over the term of the option. The assumed 5% and 10% annual rates are set forth in accordance with the rules and regulations adopted by the Securities and Exchange Commission and do not represent the Company's estimate of stock price appreciation. 22 23 OPTION EXERCISES AND HOLDINGS The table below sets forth information concerning unexercised options held as of the end of such year by the Named Executive Officers. No stock options or stock appreciation rights were exercised during such fiscal year and no stock appreciation rights were outstanding at the end of such fiscal year. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Unexercised Value of Unexercised in-the- Options at FY-End Money Options at FY-End(1) ---------------------------- ----------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- William A. Klein -- -- -- -- James T. Schraith 128,550 312,194 $ 0 $ 0 Richard C. Davis -- -- -- -- James R. Eckstaedt -- 110,000 -- $ 0 Philip E. Pietrowski 5,833 85,167 $ 0 $ 0 Ray Robidoux -- 90,000 -- --
- ---------------------- (1) Based upon the market price of $1.06 per share, which was the closing selling price per share of Common Stock on the Nasdaq National Market on December 27, 1996, the last business day of the 1996 fiscal year, less the option exercise price payable per share. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS None of the Company's executive officers have employment agreements with Cerplex, and their employment may be terminated at any time at the discretion of the Board of Directors. The Compensation Committee has the discretionary authority as administrator of the Company's 1993 Plan to provide for the accelerated vesting of the shares of Common Stock subject to outstanding options upon the happening of certain events, including, without limitation, a change in control of the Company whether by successful tender offer for more than 50% of the outstanding voting stock or by proxy contest for the election of Board members. The options held by each executive officer will vest and become immediately exercisable in the event of the termination of any executive officer within twelve months (12) following a change in control of the Company. In addition, certain of the Company's executive officers will be entitled to receive a payment equal to the base salary for one (1) year in the event of a change in control of the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Robert Finzi and Myron Kunin served as members of the Company's Compensation Committee during the 1996 fiscal year. -23- 24 COMPENSATION OF DIRECTORS Each director has received $6,000 per quarter as a retainer fee, $1,000 per Board meeting attended and $1,000 per committee meeting attended since January 1, 1994 In addition, each non-employee Board member is eligible to receive automatic option grants under the Company's 1993 Plan as follows: (i) each individual who is first elected or appointed a non-employee Board member at or after the 1996 Annual Stockholders Meeting will automatically be granted, on the date of such initial election or appointment, an option to purchase 20,000 shares of Common Stock and (ii) on the date of each Annual stockholders Meeting, each individual who is reelected to serve as a non-employee Board member will automatically be granted an option to purchase 10,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six months prior to the date of the Annual Meeting. The following directors were granted an option to purchase 10,000 shares of Common Stock at the 1996 Annual Meeting: Robert Finzi, Jerome Jacobson, and Myron Kunin. Patrick Jones was granted an option to purchase 20,000 shares of Common Stock at the 1996 Annual Meeting as he was first elected to the Board at such meeting. -24- 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to Cerplex regarding the ownership of Cerplex's Common Stock as of April 4, 1997 by (i) each Named Executive Officer of Cerplex (as such term is defined under the caption "Executive Compensation," (ii) each director and nominee for director of Cerplex, (iii) all current directors and executive officers of Cerplex as a group, and (iv) each stockholder known to Cerplex to be a beneficial owner of more than five percent (5%) of Cerplex's Common Stock. Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership(#) Class ------------------------ ------------ --------- William A. Klein(1) . . . . . . 8,654,281 43.2% Myron Kunin(2) . . . . . . . . 982,642 4.9 Richard C. Davis . . . . . . . 679,204 3.4 Jerome Jacobson(3) . . . . . . 45,105 * Robert Finzi(4) . . . . . . . . 33,500 * Patrick S. Jones(5) . . . . . . 20,000 * James R. Eckstaedt . . . . . . 0 * Philip E. Pietrowski . . . . . 0 * Ray Robidoux . . . . . . . . . 0 * James T. Schraith . . . . . . . 0 * All current directors and executive officers as a group (8 persons)(6) . . . . . . . . 10,437,232 51.8 DLJ Capital Corporation (7) . . 13,240,154 39.9 277 Park Avenue New York, NY 10172 Sprout Growth II, L.P. (8) . . 11,981,579 38.3 277 Park Avenue New York, NY 10172 - ------------------- * Less than 1% (#) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "Commission") and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options, warrants and shares of Series B Preferred Stock which are currently exercisable or convertible or which will become exercisable or convertible within sixty (60) days after April 4, 1997 are deemed outstanding for computing the beneficial ownership of the person holding such option, warrant or share of Series B Preferred Stock, but are not outstanding for computing the beneficial ownership of any other person or entity. The shares of Series B Preferred Stock are convertible into shares of Common Stock at a conversion rate which -25- 26 fluctuates based on the trading price of the Company's Common Stock. For the purposes of the foregoing table and the footnotes below, each share of Series B Preferred Stock is assumed to be convertible into 4,885 shares of Common Stock, which is the applicable conversion rate for a conversion effected on April 4, 1997. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. (1) Includes 2,442,599 shares of Common Stock held by the Klein Investments Family Limited Partnership (the "Partnership"), 1,271,299 shares of Common Stock held by the Klein 1994 Charitable Remainder Unitrust (the "Trust"), and 180,000 held by the Klein Foundation. Mr. Klein disclaims beneficial ownership of these shares except to the extent of his indirect interest in the shares held by the Partnership and the Trust. (2) Includes 30,000 shares of Common Stock issuable upon the exercise of immediately exercisable options. (3) Includes 20,000 shares of Common Stock issuable upon the exercise of immediately exercisable options. (4) Includes 40,000 shares issuable upon the exercise of immediately exercisable options held by Mr. Finzi for the beneficial ownership of DLJ Capital Corporation. Mr. Finzi disclaims beneficial ownership of these shares. The Sprout Growth II, L.P. purchased 2,269 shares of Series B Preferred and DLJ Capital Corporation purchased 231 shares of Series B Preferred. Robert Finzi, a director of the Company, serves as a Vice President of Sprout Group, a division of DLJ Capital Corporation, and is a general partner of one of the general partners of Sprout Growth II, L.P. As such, Mr. Finzi may be deemed the beneficial owner of the shares of Common Stock held by Sprout Growth II, L.P. Mr. Finzi disclaims such beneficial ownership except to the extent of his indirect partnership interest in Sprout Growth II, L.P. (5) These 20,000 shares of Common Stock are issuable upon the exercise of immediately exercisable options. (6) This number reflects the stock ownership of the Company's executive officers and directors as of April 4, 1997 (which are named in "Directors and Executive Officers of the Registrant" herein), which incorporates the shares and options referenced in footnotes (1) through (5) above. (7) Includes 11,931,579 shares beneficially owned by Sprout Growth II, L.P. (see footnote 8 below). DLJ Capital Corporation, as the managing general partner of Sprout Growth II, L.P., may be deemed to share voting and dispositive power with respect to these shares. DLJ Capital Corporation disclaims beneficial ownership of these shares except to the extent of its direct and indirect partnership interests in Sprout Growth II, L.P. Also includes 231 shares of Series B Preferred Stock which were convertible into 1,128,481 shares of Common Stock on April 4, 1997. Also includes 53,826 shares of Common Stock issuable upon the exercise of options held by Mr. Finzi for the beneficial ownership of DLJ Capital Corporation. See footnote (4) above. (8) Includes 2,269 shares of Series B Preferred Stock which were convertible into 11,084,514 shares of Common Stock on April 4, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company subleases certain real property for its operations in Irvine, California and in Newburgh, New York from WC Cartwright Corporation, a California corporation ("WC Cartwright"). Messrs. Klein and Davis and Ms. Carolyn J. Klein (the spouse of Mr. Klein) are officers, directors and principal shareholders of WC Cartwright. In 1996, the Company paid to WC Cartwright an aggregate of $540,000 in rent for use of the real property located in Irvine, California and $258,000 in rent for use of the real property located in Newburgh, New York. Under its subleases with WC Cartwright, the Company is obligated to remit monthly lease payments to WC Cartwright in the amount of $44,982 through January 1997 with respect to the Irvine, California property, and $22,204 to $21,010 per month (on a graduated rent basis) through July 1997 with respect to the Newburgh, New York real property. In June 1996, the Company issued 8,000 shares of Series B Preferred Stock at $1,000 per share in a private placement. The Sprout Growth II, L.P. purchased 2,269 shares of Series B Preferred and DLJ Capital Corporation purchased 231 shares of Series B Preferred. Robert Finzi, a director of the Company, serves as a Vice President of Sprout Group, a division of DLJ Capital Corporation, and is a general partner of one of the general partners of Sprout Growth II, L.P. -26- 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (A) DOCUMENTS FILED AS PART OF THIS REPORT: (1) FINANCIAL STATEMENTS The Company's financial statements appear on the pages referenced below:
Page ---- Independent Auditors' Report . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets as of December 31, 1996 and 1995 . F-2 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . F-3 Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1996, 1995 and 1994 . . . . F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . . . . . . . F-6
(2) FINANCIAL STATEMENT SCHEDULE: The Company's financial statement schedule appears on the page referenced below: SCHEDULE PAGE -------- ---- II - Valuation and Qualifying Accounts S-1 (3) EXHIBITS:
EXHIBIT NUMBER TITLE METHOD OF FILING - ------ ----- ---------------- 2.1 Agreement of Merger dated as of August 30, 1993, by and Incorporated herein by reference to among Cerplex Incorporated, Diversified Manufacturing Exhibit 2.1 to the Company's Services, Inc. ("DMS"), EMServe, Inc. ("EMServe"), Registration Statement on Form S-1 InCirT Technology Incorporated ("InCirT") and Testar, (File No. 33-75004) which was declared Inc. ("Testar"). effective by the Commission on April 8, 1994. 2.2 Agreement and Plan of Merger dated November 12, 1993, Incorporated herein by reference to between The Cerplex Group Subsidiary, Inc. and Exhibit 2.2 to the Company's Registrant (conformed copy to original). Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
27 28 2.3 Certificate of Ownership and Merger of Registrant with Incorporated herein by reference to and into The Cerplex Group Subsidiary, Inc. dated as of Exhibit 2.2 to the Company's November 12, 1993. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 2.4 Asset Purchase Agreement effective December 17, 1993 by Incorporated herein by reference to and between Certech Technology, Inc., a wholly-owned Exhibit 2.4 to the Company's subsidiary of the Registrant ("Certech"), and Registration Statement on Form S-1 Spectradyne, Inc. ("Spectradyne"). (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 2.5 Purchase and Sale Agreement dated as of July 29, 1994, Incorporated herein by reference to by and among The Cerplex Group, Inc., Cerplex Limited, Exhibit 2 to the Form 8-K filed July BT Repair Services Limited and BT. 29, 1994. 2.6 Contract for repair, calibration and warehousing of Incorporated herein by reference to certain items of BT Equipment dated as of July 29, Exhibit 10 to the Form 8-K filed July 1994, among The Cerplex Group and Cerplex Limited and 29, 1994. BT. 2.7 Formation and Contribution Agreement effective December Incorporated herein by reference to 1, 1994 by and among Modcomp/Cerplex L.P., Modular Exhibit 2.7 to the Company's Annual Computer Systems, Inc., Cerplex Subsidiary, Inc. and Report on Form 10-K for the fiscal The Cerplex Group, Inc. year ended January 1, 1995. 2.8 Contingent Promissory Note dated December 1, 1994 Incorporated herein by reference to issued by Modcomp/Cerplex L.P. to Modular Computer Exhibit 2.8 to the Company's Annual Systems, Inc. Report on Form 10-K for the fiscal year ended January 1, 1995. 2.9 Limited Partnership Agreement of Modcomp/Cerplex L.P. Incorporated herein by reference to effective December 1, 1994. Exhibit 2.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1995. 2.10 Put/Call Option Agreement effective December 1, 1994 by Incorporated herein by reference to and among Cerplex Subsidiary, Inc., The Cerplex Group, Exhibit 2.8 to the Company's Annual Inc., Modular Computer Systems, Inc. and Modcomp Joint Report on Form 10-K for the fiscal Venture Inc. year ended January 1, 1995. 2.11 Stock Purchase Agreement dated as of June 29, 1995 by Incorporated herein by reference to and among The Cerplex Group, Inc., Tu Nguyen and Phuc Exhibit 2.11 to the Company's Le. Quarterly Report on Form 10-Q for the quarter ended October 1, 1995.
-28- 29 2.12 Letter Agreement dated April 5, 1996 by and among Incorporated herein by reference to Modular Computer Systems, Inc., Modcomp Joint Venture, Exhibit 2.12 to the Company's Annual Inc., AEG Aktiengesellschaft, the Company, Cerplex Report on Form 10-K for the fiscal Subsidiary, Inc. and Modcomp/Cerplex L.P. year ended December 31, 1995. 2.13 Stock Purchase Agreement dated March 28, 1997 relating to all of the outstanding stock of Peripheral Computer Support, Inc. among the Company, PCS Acquisition Co., Inc., and Lincolnshire Equity Partners, L.P. 3.1 Restated Certificate of Incorporation of the Incorporated herein by reference to Registrant. Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 3.2 Bylaws of the Registrant Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.1 Stock Purchase Agreement dated as of November 19, 1993 Incorporated herein by reference to by and among the Registrant, the stockholders of the Exhibit 4.1 to the Company's Registrant identified in Part A of Schedule I thereto Registration Statement on Form S-1 and the purchasers of shares of the Registrant's Series (File No. 33-75004) which was declared A Preferred Stock identified in Schedule I thereto effective by the Commission on April (including the Schedules thereto; Exhibits omitted). 8, 1994. 4.2 Registration Rights Agreement dated as of November 19, Incorporated herein by reference to 1993, by and among the Registrant, the investors listed Exhibit 4.2 to the Company's on Schedule A thereto and the security holders of the Registration Statement on Form S-1 Registrant listed on Schedule B thereto, together with (File No. 33-75004) which was declared Amendment No.1. effective by the Commission on April 8, 1994. 4.3 Co-Sale Agreement dated as of November 19, 1993, by and Incorporated herein by reference to among the Registrant, the managers listed on Schedule A Exhibit 4.3 to the Company's thereto and the investors listed on Schedule B thereto. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.4 Warrant Agreement dated as of November 19, 1993, by and Incorporated herein by reference to among the Registrant and the purchasers listed in Annex Exhibit 4.4 to the Company's 1 thereto. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
29 30 4.5 Placement Agent Warrant Purchase Agreement dated as of Incorporated herein by reference to November 19, 1993, between the Registrant and Exhibit 4.5 to the Company's Donaldson, Lufkin & Jenrette Securities Corporation. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.6 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to 1993, between the Registrant and certain stock Exhibit 4.6 to the Company's purchasers. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.7 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to 1993, between the Registrant and certain note Exhibit 4.7 to the Company's purchasers. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.8 Note Purchase Agreement dated as of November 19, 1993, Incorporated herein by reference to by and among the Registrant and The Northwestern Mutual Exhibit 4.8 to the Company's Life Insurance Company, John Hancock Mutual Life Registration Statement on Form S-1 Insurance, Registrant and Bank of Scotland London (File No. 33-75004) which was declared Nominees Limited. effective by the Commission on April 8, 1994. 4.9 Amendment No. 2 to Registration Rights Agreement dated Incorporated herein by reference to as of April 6, 1994, by and among the Registrant and Exhibit 4.9 to the Company's certain of its Securities holders. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.10 Amendment to Note Purchase Agreement, dated as of Incorporated herein by reference to October 27, 1994, by and among the Company, Exhibit 4.10 to the Company's Annual Northwestern Mutual Life Insurance Company, John Report on Form 10-K for the fiscal Hancock Mutual Life Insurance Company and North year ended March 31, 1995. Atlantic Smaller Companies Trust P.L.C. (collectively, the "Noteholders"). 4.11 Waiver and Amendment Agreement dated April 15, 1996 by Incorporated herein by reference to and among Company, The Northwestern Mutual Life Exhibit 4.11 to the Company's Annual Insurance Company, John Hancock Mutual Life Insurance Report on Form 10-K for the fiscal Company and North Atlantic Smaller Companies Investment year ended December 31, 1995. Trust PLC. 4.12 Warrant Agreement dated as of April 15, 1996 by and Incorporated herein by reference to among Company, The Northwestern Mutual Life Insurance Exhibit 4.12 to the Company's Annual Company, John Hancock Mutual Life Insurance Company and Report on Form 10-K for the fiscal year North Atlantic Smaller Companies Investment Trust PLC. December 31, 1995.
30 31 4.13 First Amendment to Warrant Agreement dated April 15, Incorporated herein by reference to 1996 by and among Company and each of the holders of Exhibit 4.13 to the Company's warrants listed on Schedule A thereto, with respect to Annual Report on Form 10-K for the that certain Warrant Agreement dated November 19, 1993. fiscal year ended December 31, 1995. 4.14 First Amendment to Observation Rights Agreement dated Incorporated herein by reference to as of April 15, 1996 between Company and certain note Exhibit 4.14 to the Company's purchasers. Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 4.15 Third Amendment to Registration Rights Agreement dated Incorporated herein by reference to as of April 15, 1996 by and among Company, the Exhibit 4.15 to the Company's investors of Company listed on Schedule A thereto and Annual Report on Form 10-K for the the security holders of Company listed on Schedule B fiscal year ended December 31, 1995. thereto. 4.16 Warrant Agreement dated April 15, 1996 by and among Incorporated herein by reference to Company, Wells Fargo Bank, National Association, Exhibit 4.16 to the Company's Sumitomo Bank of California, BHF Bank Annual Report on Form 10-K for the Aktiengesellschaft and Comerical Bank-California. fiscal year ended December 31, 1995. 4.17 Waiver and Amendment Agreement dated October 31, 1996 Filed herein. by and among the Company and the Noteholders. 4.18 Waiver and Amendment Agreement dated December 9, 1996 Filed herein. by and among the company and the Noteholders. 4.19 Side Letter dated March 28, 1997 by and among the Filed herein. Company and the Noteholders. 4.20 Amended and Restated Note Purchase Agreement dated Filed herein. April 9, 1997 by and among the Company and the Noteholders. 4.21 Second Amendment to Warrant Agreement dated April 9, Filed herein. 1997, by and among the Company and each of the holders of warrants listed on Schedule A thereto, which Second Amendment amends the Warrant Agreement dated November 19, 1993 as amended by the First Amendment to Warrant Agreement dated April 15, 1996. 4.22 Second Amendment to Warrant Agreement dated April 9, Filed herein. 1997 by and among the Company and each of the holders of warrants listed on Schedule A thereto, which Second Amendment amends the Warrant Agreement dated April 15, 1996, as amended by a Waiver and Amendment Agreement dated October 31, 1996.
31 32 4.23 Amended and Restated Warrant Agreement dated April 9, Filed herein. 1997 by and among the Company; Wells Fargo Bank, National Association; BHF-Bank Aktiengesellschaft; and Citibank, N.A. 10.1 The Registrant's 1990 Stock Option Plan (the "1990 Incorporated herein by reference to Plan"). Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.2 Form of Stock Option Agreement pertaining to the 1990 Incorporated herein by reference to Plan. Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994 10.3 Form of Stock Purchase Agreement pertaining to the 1990 Incorporated herein by reference to Plan. Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.4 The Registrant's 1993 Stock Option Plan (the "1993 Incorporated herein by reference to Plan"). Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.5 Form of Stock Option Agreement (grants to employees) Incorporated herein by reference to pertaining to the 1993 Plan. Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.6 Form of Stock Option Agreement (grants to directors and Incorporated herein by reference to certain officers) pertaining to the 1993 Plan. Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.7 Form of Stock Purchase Agreement for Installment Incorporated herein by reference to Options pertaining to the 1993 Plan. Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
32 33 10.8 Form of Stock Purchase Agreement for Immediately Incorporated herein by reference to Exercisable Options pertaining to the 1993 Plan. Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.9 The Registrant's Restated 1993 Stock Option Plan (the Incorporated herein by reference to "Restated Plan"). Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.10 Form of Stock Option Agreement, together with Addenda, Incorporated herein by reference to pertaining to the Restated Plan. Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.11 Master Task Agreement dated December 1, 1991, by and Incorporated herein by reference to between International Business Machines Incorporated Exhibit 10.11 to the Company's ("IBM") and the Registrant, together with Amendment to Registration Statement on Form S-1 Master Agreement and Task Order. (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.12 Master Agreement dated May 6, 1992 by and between IBM Incorporated herein by reference to and the Company. Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.13 Technology Services Agreement effective March 1, 1993, Incorporated herein by reference to by and between Novadyne Computer Systems, Inc. Exhibit 10.13 to the Company's ("Novadyne") and Cerplex Incorporated (a California Registration Statement on Form S-1 corporation and a predecessor of the Registrant), (File No. 33-75004) which was declared together with Amendments Nos. 1 and 2. effective by the Commission on April 8, 1994. 10.14 Technology Services Agreement effective December 17, Incorporated herein by reference to 1993, by and between Spectradyne, Inc. ("Spectradyne") Exhibit 10.14 to the Company's and the Registrant. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
33 34 10.15 Repair Services Agreement dated January 1, 1994 by and Incorporated herein by reference to between Bull HN Information Systems, Inc. and the Exhibit 10.24 to the Company's Registrant. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.16 Form of Indemnity Agreement Incorporated herein by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.17 Lease Agreement dated April 1, 1992 by and between Incorporated herein by reference to Henry G. Page Jr., and Diversified Manufacturing Exhibit 10.16 to the Company's Services, Inc. ("DMS"). Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.18 Sublease dated January 1, 1994 by and between Bull and Incorporated herein by reference to Cerplex Group, Inc. (a Massachusetts corporation). Exhibit 10.17 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.19 Standard Industrial/Commercial Single-Tenant Lease - Incorporated herein by reference to Net dated November 29, 1990 by and among Kilroy Exhibit 10.18 to the Company's Building 73 Partnership, Cerplex Incorporated and Registration Statement on Form S-1 InCirT, together with Amendment No. 1. (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.20 Lease dated December 17, 1993 by and between Incorporated herein by reference to Spectradyne and Certech. Exhibit 10.19 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.21 Sublease dated March 1, 1993 by and between Novadyne Incorporated herein by reference to and the Registrant together with Lease Amendment dated Exhibit 10.20 to the Company's July 22, 1991 by and between McDonnell Douglas Realty Registration Statement on Form S-1 Company and Novadyne. (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
34 35 10.22 Standard Industrial/Commercial Lease - Net dated Incorporated herein by reference to September 4, 1991 by and between Proficient Food Exhibit 10.21 to the Company's Company and W.C. Cartwright Corporation ("Cartwright"), Registration Statement on Form S-1 together with Addendum and Sublease dated September 6, (File No. 33-75004) which was declared 1991 by and between Cartwright and the Registrant. effective by the Commission on April 8, 1994. 10.23 Sublease dated July 30, 1992 by and between Cartwright Incorporated herein by reference to and DMS. Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.24 Credit Agreement dated as of October 12, 1994 (the Incorporated herein by reference to "Credit Agreement") among The Cerplex Group, Inc., as Exhibit 10.24 to the Company's Annual Borrower; the lenders listed therein, as Lenders; and Report on Form 10-K for the fiscal Wells Fargo Bank, National Association, as year ended January 1, 1995. Administrative Agent; and those certain exhibits, schedules and collateral documents to such Credit Agreement. 10.25 Limited Waiver dated as of November 14, 1995 ("Waiver") Incorporated herein by reference to by and among The Cerplex Group, Inc. (the "Company"), Exhibit 10.25 to the Company's the financial institutions listed on the signature Quarterly Report on Form 10-Q for the pages thereof ("Lenders"), and Wells Fargo Bank, quarter ended October 1, 1995. National Association, as administrative agent for the Lenders ("Administrative Agent"), and for certain limited purposes, Certech Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc. and Peripheral Computer Support, Inc. (the "Subsidiaries"), which Waiver is made with reference to the Credit Agreement. 10.26 The Cerplex Group, Inc. Restated 1993 Stock Option Plan Incorporated herein by reference to (Restated and Amended as of January 13, 1995). Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1995. 10.27 The Cerplex Group, Inc. Automatic Stock Option Incorporated herein by reference to Agreement. Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1995. 10.28 First Amendment to Credit Agreement dated April 15, Incorporated herein by reference to 1996 by and among Company, the lenders whose signatures Exhibit 10.28 to the Company's Annual appear on the signature pages thereof, as Lenders; Report on Form 10-K for the fiscal Wells Fargo Bank, National Association, as year ended December 31, 1995. Administrative Agent; and the Subsidiaries for certain limited purposes.
35 36 10.29 Promissory Note dated June 21, 1996 payable by the Incorporated herein by reference to Company to Lucent Technologies. Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 10.30 Limited Waiver dated as of October 31, 1996 by and Incorporated herein by reference to among the Company, Lenders and Administrative Agent, Exhibit 10.29 to the Company's and for certain limited purposes, the Subsidiaries, Quarterly Report on Form 10-Q for the Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., quarter ended September 29, 1996. Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A., which waiver is made with reference to the credit Agreement. 10.31 Extension and Forbearance Agreement dated March 31, Filed herein. 1997 by and among the Company, the financial institutions listed on the signature pages thereof and Wells Fargo Bank, National Association. 10.32 Second Amendment to Credit Agreement dated November 30, Filed herein. 1996 (the "Second Amendment") by and among the Company, the financial institutions listed on the signature pages thereof ("Lenders") and Wells Fargo Bank, National Association, as administrative agent for the Lenders, and for certain limited purposes, Certech Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A., which Second Amendment amends the Credit Agreement dated October 12, 1994, as amended. 10.33 Third Amendment to Credit Agreement dated April 9, 1997 Filed herein. (the "Third Amendment") by and among the Company, the financial institutions listed on the signature pages thereof ("Lenders") and Wells Fargo Bank, National Association, as administrative agent for the Lenders, and for certain limited purposes, Certech Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A., which Third Amendment amends the Credit Agreement dated October 12, 1994, as amended. 21.1 List of Subsidiaries Filed herein. 23.1 Consent of KPMG Peat Marwick LLP, Independent Public Filed herein. Accountants.
-36- 37 (b) REPORTS ON FORM 8-K For the quarter ended December 31, 1996 the following Form 8-Ks were filed: 1. On October 15, 1996, a Form 8-K was filed disclosing the resignation of the Company's Chief Executive Officer. 2. On December 13, 1996, a Form 8-K was filed disclosing that the Company had completed borrowing amendments with its bank lenders and its sub-debt holders. No reports were filed on Form 8-K during the last quarter ended March 29, 1997. 37 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 10, 1997 THE CERPLEX GROUP, INC. By: /s/ WILLIAM A. KLEIN ---------------------------- William A. Klein Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ WILLIAM A. KLEIN Chairman of the Board April 10, 1997 - ---------------------- of Directors and William A. Klein Chief Executive Officer (Principal Executive Officer) /s/ ROBERT W. HUGHES Senior Vice President of Finance April 10, 1997 - ---------------------- and Chief Financial Officer Robert W. Hughes (Principal Accounting Officer) /s/ RICHARD C. DAVIS Director and April 10, 1997 - ---------------------- President of International Operations Richard C. Davis /s/ ROBERT FINZI Director April 10, 1997 - ---------------------- Robert Finzi /s/ JEROME JACOBSON Director April 10, 1997 - ---------------------- Jerome Jacobson /s/ PATRICK JONES Director April 10, 1997 - ---------------------- Patrick Jones /s/ MYRON KUNIN Director April 10, 1997 - ---------------------- Myron Kunin
38 39 INDEPENDENT AUDITORS' REPORT The Board of Directors The Cerplex Group, Inc.: We have audited the accompanying consolidated balance sheets of The Cerplex Group, Inc. and subsidiaries, as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 1996. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Cerplex Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," during 1996. KPMG Peat Marwick LLP Orange County, California February 21, 1997, except as to Notes 12(a), 12(b) and the first and second paragraphs of Note 18 which are as of April 9, 1997 and Note 20 which is as of April 11, 1997 F-1 40 THE CERPLEX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and per share data)
December 31, -------------------------- 1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 23,782 $ 3,807 Accounts receivable, net of allowances of $9,053 in 1996 and $7,583 in 1995 19,539 30,102 Inventories 17,326 27,789 Net assets of discontinued operations 1,681 2,597 Prepaid expenses and other current assets 8,146 2,267 ----- ----- Total current assets 70,474 66,562 Property, plant and equipment, net 28,039 17,988 Investment in joint venture -- 7,723 Goodwill, less accumulated amortization of $2,941 in 1996 and $1,065 in 1995 4,953 6,647 Other long-term assets 2,028 2,973 ----- ----- Total assets $105,494 $101,893 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 19,498 $ 17,024 Note payable 5,026 -- Accrued and other current liabilities 25,347 13,622 Current portion of long-term debt -- 536 Senior revolver 6,000 -- Income taxes payable 1,729 2,161 ----- ----- Total current liabilities 57,600 33,343 ------ ------ Long-term debt, less current portion 56,817 68,382 Long-term obligations 6,214 -- Commitments and contingencies Subsequent events Stockholders' equity (deficiency): Preferred Stock, par value $.001 per share; 3,066,340 shares authorized, none issued and outstanding; 8,000 shares designated Series B Convertible Preferred Stock of which 7,197 are issued and outstanding; aggregate liquidation preference of $14,394 7,197 -- Common Stock, par value $.001 per share; 30,000,000 shares authorized; 14,110,949 and 13,127,680 issued and outstanding in 1996 and 1995, respectively 14 13 Additional paid-in capital 51,648 47,528 Notes receivable from stockholders (139) (226) Unearned compensation (73) (143) Accumulated deficit (74,414) (47,026) Cumulative translation adjustment 630 22 --- -- Total stockholders' equity (deficiency) (15,137) 168 ------- --- Total liabilities and stockholders' equity (deficiency) $105,494 $101,893 ======== ========
See accompanying notes to consolidated financial statements. F-2 41 THE CERPLEX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data)
For The Years Ended December 31 ----------------------------------------- 1996 1995 1994 ---- ---- ---- Net sales $191,493 $144,328 $94,006 Cost of sales 165,248 127,817 76,967 -------- -------- ------- Gross profit 26,245 16,511 17,039 Selling, general & administrative expenses 39,488 33,805 11,850 Restructuring charges 2,084 -- -- -------- -------- ------- Operating income (loss) (15,327) (17,294) 5,189 Equity in earnings from joint venture 357 2,425 666 Gain on sale of InCirT division 450 -- -- Other expense, net 2,881 14 -- Interest expense, net 8,269 5,075 4,118 -------- -------- ------- Income (loss) from continuing operations before taxes (25,670) (19,958) 1,737 Provision for income taxes 1,718 2,089 542 -------- -------- ------- Income (loss) from continuing operations before discontinued operations and extraordinary items (27,388) (22,047) 1,195 -------- -------- ------- Discontinued operations, net of income taxes: Income (loss) from operations -- (1,966) 1,500 Estimated loss from liquidation of discontinued operations -- (15,381) -- -------- -------- ------- Income (loss) from discontinued operations -- (17,347) 1,500 -------- -------- ------- Income (loss) before extraordinary item (27,388) (39,394) 2,695 Extraordinary item, net of income taxes of $1,457 -- -- (2,011) -------- -------- ------- Net income (loss) $(27,388) $(39,394) $ 684 ======== ======== ======= Net income (loss) per share: Continuing operations $ (2.04) $ (1.68) $ .09 Discontinued operations -- (1.33) .11 Extraordinary item -- -- (.15) -------- -------- ------- Net income (loss) per share $ (2.04) $ (3.01) $ .05 ======== ======== ======= Weighted average common and common equivalent shares outstanding 13,419 13,091 13,446 ======== ======== =======
See accompanying notes to consolidated financial statements. F-3 42 THE CERPLEX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (dollars in thousands, except share and per share data)
Total Convertible Preferred Stock Common Stock Additional Stockholders ---------------------- ------------------- Paid-In Accumulated Equity Shares Amount Shares Amount Capital Other Deficiency (Deficiency) ----------- ------ ---------- ------ ----------- ------ ----------- ------------ BALANCE AT DECEMBER 31, 1993 1,876,667 $ 2 8,289,683 $ 8 $21,018 $(242) $ (8,316) $ 12,470 Issuance of common stock, net of offering costs - - 2,688,252 3 26,141 - - 26,144 Conversion of preferred to common stock (1,876,667) (2) 1,876,667 2 - - - - Stock options and warrants exercised - - 202,395 - 272 - - 272 Notes receivable from stockholders - - - - - (287) - (287) Net income - - - - - - 684 684 Unearned compensation - - - - 52 (52) - - Amortization of unearned compensation - - - - - 68 - 68 Translation adjustment - - - - - 134 - 134 ---------- ------ ---------- --- ------- ----- -------- -------- BALANCE AT DECEMBER 31, 1994 - - 13,056,997 13 47,483 (379) (7,632) 39,485 ---------- ------ ---------- --- ------- ----- -------- -------- Stock options exercised - - 70,683 - 45 - - 45 Notes receivable from stockholders - - - - - 73 - 73 Net loss - - - - - - (39,394) (39,394) Amortization of unearned compensation - - - - - 71 - 71 Translation adjustment 0 - - - - (112) - (112) ---------- ------ ---------- --- ------- ----- -------- -------- BALANCE AT DECEMBER 31, 1995 - - 13,127,680 13 47,528 (347) (47,026) 168 ---------- ------ ---------- --- ------- ----- -------- -------- Stock options and warrants exercised - - 348,276 - 3,459 - - 3,459 Notes receivable from stockholders - - - - - 87 - 87 Issuance of convertible preferred stock 8,000 8,000 - - - - - 8,000 Conversion of preferred stock (803) (803) 634,993 1 661 - - (141) Net loss - - - - - - (27,388) (27,388) Amortization of unearned compensation - - - - - 70 - 70 Translation adjustment - - - - - 608 - 608 ---------- ------ ---------- --- ------- ----- -------- -------- BALANCE AT DECEMBER 31, 1996 7,197 $7,197 14,110,949 $14 $51,648 $ 418 $(74,414) $(15,137) ---------- ------ ---------- --- ------- ----- -------- --------
See accompanying notes to consolidated financial statements. F-4 43 THE CERPLEX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Years Ended December 31 ------------------------------------ 1996 1995 1994 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(27,388) $(39,394) $ 684 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 9,815 8,315 6,241 Amortization and writedown of contract rights -- 562 2,100 Amortization of unearned compensation 70 71 68 Foreign currency transaction gain (43) (44) (132) Non-cash charges related to end-of-life programs -- 14,639 -- Non-cash charges for accounts receivable -- 6,820 -- Non-cash charge for loss on long-term investment 1,921 3,000 -- Equity in earnings from joint venture (357) (2,425) (666) Gain on sale of InCirT division (450) -- -- (Increase) decrease in: Accounts receivable 13,139 (5,817) (18,708) Inventories 10,548 (6,845) (5,566) Prepaid expenses and other 3,274 5,143 (4,958) Investment in other long-term assets (62) (1,345) (4,204) Net assets of discontinued operations 916 3,620 -- Increase (decrease) in: Accounts and notes payable 3,874 9,664 1,490 Accrued liabilities (8,572) 1,017 1,452 Income taxes payable (557) 222 (10) -------- -------- -------- Net cash provided by (used in) operating activities 6,128 (2,797) (22,209) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment, net (2,381) (7,549) (3,996) Acquisition of business, net of cash acquired 5,147 (4,500) (12,259) Investment in joint venture -- -- (4,625) Distribution of earnings in joint venture 3,090 -- -- Proceeds from sale of InCirT division 3,500 -- -- Proceeds from restricted money market investments -- -- 2,500 -------- -------- -------- Net cash provided by (used in) investing activities 9,356 (12,049) (18,380) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in notes payable to bank (2,431) 10,700 (3,126) Proceeds from long-term debt, net -- 45 38,294 Proceeds from issuance of common stock, net 107 -- 26,416 Proceeds from issuance of preferred stock 7,859 -- -- Decrease (increase) in notes receivables from stockholders 87 73 (287) Payments of long-term debt (700) (1,588) (21,099) -------- -------- -------- Net cash provided by financing activities 4,922 9,230 40,198 -------- -------- -------- Effect of exchange rate changes on cash (431) (19) 44 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 19,975 (5,635) (347) Cash and cash equivalents at beginning of year 3,807 9,442 9,789 -------- -------- -------- Cash and cash equivalents at end of year $ 23,782 $ 3,807 $ 9,442 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 6,875 $ 5,299 $ 4,595 ======== ======== ======== Income taxes $ 1,753 $ 1,122 $ 3,514 ======== ======== ======== Acquisition of businesses: Amount paid $ (8,977) $ (4,500) $(12,259) Cash acquired 14,124 -- -- -------- -------- -------- $ 5,147 $ (4,500) $(12,259) ======== ======== ======== Supplemental schedule of non-cash activities: Exchange of finished goods inventories for trade credits $ 6,239 $ -- $ -- ======== ======== ======== Purchase of assets for short term debt $ 600 $ -- $ -- ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 44 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) ORGANIZATION AND PRINCIPLES OF CONSOLIDATION The Cerplex Group, Inc. (the "Company") was incorporated in California in May 1990 and reincorporated in Delaware in November 1993. The Company is a leading independent provider of electronic parts repair, spare parts sales and management and logistics services. The Company has developed extensive capabilities in the repair, refurbishment, and testing of a wide range of electronic equipment for the computer and peripheral, telecommunications and office automation markets. The Company's extensive network of domestic and European facilities enables it to service the diverse needs of leading electronic equipment manufacturers. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. (B) CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. In May 1996, the Company acquired Cerplex SAS. As part of the acquisition, sufficient cash was provided to fund certain liabilities of Cerplex SAS. Under the terms of the Stock Purchase Agreement, the Company has agreed to certain financial covenants over a four year period that limit the amount of dividends and payments in the nature of corporate charges paid by Cerplex SAS. Accordingly, the cash of Cerplex SAS is generally not available for financing operations outside of Cerplex SAS. The cash balance of Cerplex SAS at December 31, 1996 was $18.1 million. (C) INVENTORIES Inventories are stated at the lower of cost (determined by the weighted-average method which approximates first-in, first-out) or market. (D) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation for the plants in the United Kingdom and France is provided utilizing the straight-line method over the estimated useful life of twenty-five years. Depreciation for equipment is provided utilizing the straight-line method over the estimated useful lives (primarily three to five years) of the respective assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or useful life. (E) GOODWILL AND OTHER LONG-LIVED ASSETS Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited. The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," during 1996. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of F-6 45 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. This Statement also requires that any such assets that are to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The Company has identified certain impairment losses with regard to certain goodwill and property, plant and equipment and has accordingly written down the related assets based on their fair market value. Related impairment losses of $1.2 million are included in the Company's 1996 loss from continuing operations. (F) OTHER ASSETS Long-term investments are recorded at cost. The Company periodically assesses whether there has been other than temporary decline in the market value below cost of an investment. Any such decline is charged to earnings resulting in the establishment of a new cost basis for the investment. Debt issuance costs incurred to obtain financing are capitalized and amortized using the straight-line method over the estimated life of the related debt. The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's reported other investments are classified as available-for-sale under SFAS 115. Accordingly, any unrealized holding gains and losses, net of taxes, are excluded from income and recognized as a separate component of equity (deficiency) until realized. At December 31, 1996, there were no significant unrealized holding gains or losses. Realized gains, realized losses and decline in value, judged to be other than temporary, are included in other income. (G) FOREIGN CURRENCY TRANSLATION The functional currency for each of the Company's foreign subsidiaries is their respective local currency. Assets and liabilities of foreign subsidiaries are translated at year-end rates of exchange and net sales and expenses are translated at the average rates of exchange for the year. Translation gains and losses are excluded from the measurement of net income and are recorded as a separate component of stockholders' equity (deficiency). Gains and losses resulting from foreign currency transactions are included in net income (loss). (H) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the use of the asset and liability method for financial accounting and reporting for income taxes, and further prescribes that current and deferred tax balances be determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. (I) FISCAL YEAR-END AND RECLASSIFICATIONS The Company's fiscal year is the 52 or 53 week period ending on the Sunday closest to December 31, which was December 29, 1996 for 1996, December 31, 1995 for 1995, and January 1, 1995 for 1994. For purposes of presentation, the Company has indicated its accounting year as ending on December 31. Certain reclassifications have been made to the 1995 and 1994 consolidated financial statements to conform to the 1996 presentation. F-7 46 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 (J) REVENUE RECOGNITION Sales are recognized upon shipment of product to customers. Sales relating to deferred service contracts are recognized over the related contract terms on a straight-line basis. (K) NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding. Common stock equivalents consist of convertible preferred stock, stock options and warrants, which were computed using the treasury stock method. Net loss per share excludes the effect of common stock equivalents, because their effect would be anti-dilutive. (L) FINANCIAL STATEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. (M) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. SFAS 107 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 1996 and 1995, the fair value of all financial instruments approximates carrying value. (N) STOCK OPTION PLAN The disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," were effective for transactions entered into in fiscal years that begin after December 15, 1995. This statement encourages entities to account for employee stock option or similar equity instruments using a fair value approach for all such plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Those entities which elect to remain with the accounting in APB No. 25 are required to include pro forma disclosures of net income (loss) and earnings (loss) per share as if the fair value-based method of accounting had been applied. The Company has elected to continue to account for such plans under the provisions of APB No. 25. Therefore, there was no effect on the Company's financial position and results of operations as a result of this pronouncement. F-8 47 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 2 -- ACQUISITIONS AND TRANSACTIONS During 1996, 1995 and 1994, the Company acquired businesses described below, which were accounted for by the purchase method of accounting. The results of operations of the acquired businesses are included in the Company's statement of operations for the periods in which they were owned by the Company. FISCAL 1996 In May 1996, the Company acquired Rank Xerox Limited's subsidiary ("RXL"), Cerplex SAS, for $6.1 million, including estimated taxes, registration fees, legal, accounting and other out-of-pocket expenses of $1.2 million. Cerplex SAS is the legal successor to Rank Xerox et Compagnie (Rank Xerox SNC), which was transformed immediately prior to the acquisition from societe en nom collectif (a type of partnership) into a societe par actions simplifee (a form of limited liability company), at which time its name was changed to Cerplex SAS. Cerplex SAS performs repair and refurbishment services primarily for large copiers in the northern region of France, near Lille. Based on the allocation of the purchase price to the fair value of the assets and liabilities (including long-term obligations for taxes and employment related matters) related to the acquisition, the Company reduced other long-term assets by the amount of negative goodwill ($1.5 million) in accordance with APB No. 16, Business Combinations. As part of the acquisition, RXL provided sufficient cash to fund certain liabilities of Cerplex SAS. Under the terms of the Stock Purchase Agreement, the Company has agreed to certain financial covenants over a four-year period that limit the amount of dividends and payments in the nature of corporate charges paid by Cerplex SAS; the maintenance of Cerplex SAS's current ratio greater than one; and restrictions on guarantees with respect to Cerplex and its subsidiaries (excluding Cerplex SAS). Accordingly, the cash of Cerplex SAS is generally not available to Cerplex for financing operations outside of Cerplex SAS. In addition, Cerplex SAS entered into a four-year Supply and Services Agreement with RXL to provide repair and refurbishment services with guaranteed levels of production hours (at standard rates) that decline over the period of the contract. Revenues and income before taxes of Cerplex SAS since the date of the acquisition were $33.4 million and $4.6 million, respectively. In April 1996, the Company acquired the remaining 51% interest in MODCOMP/Cerplex, L.P. ("MODCOMP/Cerplex") for $2.8 million. As a result of acquiring the remaining interest in MODCOMP/Cerplex, the Company consolidated the results of operations and financial position of this entity effective April 1996. Prior to April 1996, the Company recorded its 49% interest in MODCOMP/Cerplex using the equity method of accounting. The fair value of the assets and liabilities acquired exceeded the purchase price by approximately $2.0 million, resulting in negative goodwill. In accordance with APB No. 16, Business Combinations, the Company reduced other long-term assets to zero and recorded the remaining amount as negative goodwill ($0.5 million) which is being amortized into income over a five year period. Revenues and income before income taxes of MODCOMP/Cerplex since the date of the acquisition were $27.2 million and $2.0 million, respectively. F-9 48 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 MODCOMP/Cerplex condensed financial data is as follows:
Three Months Ended Year Ended Month Ended March 31, 1996 December 31, 1995 December 31, 1994 ------------------ ----------------- ----------------- (dollars in thousands) Net sales $ 9,583 $ 38,223 $ 4,366 Gross profit 2,430 14,816 1,976 Net income 728 4,950 1,358
At December 31 ---------------------------------------------- 1995 1994 ------------- ----------------- Total assets $ 23,732 $ 19,838 Current liabilities 8,043 8,545 Total partnership interest 15,689 10,593 Company's share of partnership interest 7,688 5,191
Assuming the two fiscal 1996 acquisitions occurred at the beginning of 1996, the pro forma results of operations of the Company for the year ended December 31, 1996 would have been as follows:
Pro Forma --------------- (in thousands, except for per share data) Net sales $ 226,182 Net loss (26,194) Net loss per share (1.95)
FISCAL 1995 In June 1995, the Company acquired 100% of the stock of Peripheral Computer Support, Inc. (PCS) for $4.5 million plus a contingent earnout up to an additional $1 million depending on future performance. Half of the earnout was paid in 1996 and the remaining half paid from proceeds of the sale in April 1997. PCS provides disk drive repairs and services in the United States and Europe. In connection with the acquisition, the Company recorded goodwill of $3.1 million. In April 1997, the Company sold this subsidiary for approximately $15.0 million in cash. FISCAL 1994 In December 1994, a wholly-owned subsidiary of the Company paid approximately $4.6 million to MODCOMP/Cerplex for a 49% ownership in the partnership. The Company's partner Modular Computer Systems, Inc. ("MODCOMP") owned by AEG/Daimler-Benz of North America ("AEG") contributed the assets and certain of the liabilities of MODCOMP to the partnership for a 51% ownership. The value of assets contributed by AEG exceeded the amount paid by the Company by approximately $2.8 million which is being amortized into income over the expected life of the partnership. As previously discussed, the acquisition of the remaining 51% interest in MODCOMP/Cerplex was completed in April 1996. F-10 49 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 In August 1994, a subsidiary of the Company acquired for cash of $4.1 million the net operating assets of Apex Computer Company, Inc. ("Apex"). Apex provides marketing of spare parts, technical training and repair services of UNIX based hardware. The net operating assets consisted primarily of receivables, inventories and equipment of $4.8 million and liabilities of $1.7 million. In connection with the acquisition, the Company recorded goodwill of $1.0 million. During the fourth quarter of fiscal 1996, in accordance with SFAS No. 121, goodwill relating to Apex was written down by $0.6 million. In July 1994, a wholly-owned subsidiary of the Company acquired substantially all of the assets used in the repair services business of BT for $7.8 million in cash and a long-term note payable for approximately $3.9 million. The operating assets consisted of inventories of $1.7 million and land, buildings and equipment of $8.6 million and resulted in goodwill of $1.4 million. Additionally, the Company entered into a five year repair services contract with BT to service a large portion of BT's telecommunications equipment. NOTE 3 -- DISCONTINUED OPERATIONS In September 1995, the Company decided to discontinue its end-of-life programs segment of the business through a liquidation of remaining operations. In connection with the decision to discontinue its end-of-life programs, the Company provided $15.4 million for the estimated loss from liquidation of these operations, primarily related to estimated losses from disposition of inventory and fixed assets and write-off of other related assets. The net assets of the discontinued operations at the end of December 1996 and 1995 were comprised of the following:
1996 1995 ------------ ------------ (dollars in thousands) Accounts receivable $ 821 $ 3,303 Inventories 297 2,950 Property and equipment, net -- 275 Other assets 599 257 Accounts payable (36) (1,652) Accrued liabilities -- (1,536) Accrued operating losses during the phase-out period -- (1,000) ------------ ------------ $ 1,681 $ 2,597 ============ ============
Discontinued operations include management's best estimate of the amounts expected to be realized through the liquidation of these operations. The liquidation of non-contract operations is substantially complete. The remaining contractual obligations with one customer will be completed by December 1997. F-11 50 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 The estimated loss on liquidation of its end-of-life programs has been accounted for as discontinued operations and prior period financial statements have been restated to reflect discontinuance of this segment of the business as shown below:
1995 1994 ------------- ----------- (dollars in thousands) Net sales $ 19,815 $ 32,882 ============= =========== Net income (loss) before taxes (1,924) 2,586 Provision for taxes 42 1,086 ------------- ----------- Net income (loss) from discontinued operations (1,966) 1,500 Estimated loss from liquidation of discontinued operations, no tax benefit recognized (15,381) -- ------------ ----------- Net income (loss) from discontinued operations $ (17,347) $ 1,500 ============ ===========
NOTE 4 -- EXTRAORDINARY ITEM In May 1994, the Company extinguished early its Series B 9.0% Senior Subordinated Notes ("Series B Notes") at the principal amount of $5.7 million. When the Series B Notes were issued in November 1993, they had detachable warrants to purchase 920,000 shares common stock at $0.01 per share associated with them which were valued at $3.93 per warrant at the date of issuance. In connection with the issuance of the Series B Notes, the Company recorded an original issue discount for the difference between the fair value of the warrants at the time of issuance and the exercise price. Pursuant to the early extinguishment of the Series B Notes, the Company charged off as an extraordinary item $3.5 million ($2.0 million net of applicable taxes), or $0.15 per share during the quarter ended June 1994. NOTE 5 -- SALE OF INCIRT DIVISION In April 1996, the Company sold its contract manufacturing division in Tustin, California ("InCirT Division") to Pen Interconnect for $3.5 million in cash and approximately $2.0 million in restricted common stock which was valued at fair market value at the time of sale. The gain on the sale of the InCirT Division was $450,000. As of December 31, 1996, the fair market value of the remaining shares of Pen Interconnect stock held by the Company was $0.8 million. Impairment losses of $1.1 million due to the permanent decline of the fair market value of the investments have been recognized in other expense. NOTE 6 -- RESTRUCTURING CHARGES During the third quarter of 1996, the Company closed its contract manufacturing operations in Texas and its computer training operations in Redmond, Washington. In connection with the closure of these operations, the Company recorded restructuring charges of $2.1 million. The restructuring charges were related to: (1) write-downs of property and equipment and other assets to future net cash flows expected to be generated by the assets; and (2) accruals for lease commitments, severance pay for approximately 180 employees and costs to complete closure of the facilities. During the fourth quarter of fiscal 1996, the restructuring provision was fully utilized. F-12 51 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 7 -- INVENTORIES Net inventories consist of the following:
1996 1995 -------------- ---------------- (dollars in thousands) Spare and repair parts $ 11,455 $ 18,001 Work-in-process 2,107 6,402 Finished goods 3,764 3,386 -------------- ---------------- $ 17,326 $ 27,789 ============== ================
NOTE 8 -- PREPAIDS AND OTHER ASSETS In October 1996, the Company entered into a transaction with a company that specializes in worldwide corporate bartering. The Company has traded all of its finished goods telephone inventories for trade credits and agreed to continue to repair and refurbish the remaining telephones and deliver all of the finished telephones to the barter company. The Company can receive up to $7.5 million in trade credits depending upon the number of finished telephones furnished to the barter company. The trade credits can be exchanged for goods and services and generally expire at the end of four years. In accordance with authoritative accounting literature regarding barter credits, the trade credits are stated at the fair market value of the inventory transferred, and are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets at December 31, 1996. NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is comprised of:
December 31 ----------------------------------- 1996 1995 --------------- ---------------- (dollars in thousands) Land $ 3,358 $ 2,329 Buildings 12,810 2,017 Office furniture and fixtures 1,672 1,118 Leasehold improvements 3,784 2,673 Machinery and equipment 10,244 11,713 Test equipment and tooling 1,740 907 Computer equipment 6,260 3,288 Other 1,109 2,033 -------------- --------------- 40,977 26,078 Less: accumulated depreciation and amortization (12,938) (8,090) -------------- --------------- $ 28,039 $ 17,988 ============== ===============
F-13 52 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 10 -- LUCENT LITIGATION AND OTHER The Company acquired inventory consisting of used telephones from Lucent. At December 31, 1996, the Company had $5.9 million of inventory, production cost commitments and assets, related to the telephones acquired from Lucent, which were subsequently sold to a Company that specializes in worldwide corporate bartering. In June 1996, the Company executed a promissory note bearing interest at 9.75% in the amount of $4.6 million payable on September 15, 1996 in favor of Lucent, reflecting a portion of the amount invoiced to the Company by Lucent. Lucent has invoiced the Company for an additional $0.6 million. Due to the quality of the inventory and the lack of availability of spare parts to effect repairs, the Company believes it has claims against Lucent. The Company currently does not intend to pay the Lucent note or other Lucent invoices. If the Company is required to pay the Lucent note and other Lucent invoices in full, it would have a material adverse effect on the Company's financial resources. On October 7, 1996, the Company filed a lawsuit against Lucent in the Orange County Superior Court seeking to have the Lucent note declared invalid. On November 6, 1996, Lucent filed a cross-complaint seeking payment of the Lucent Note, alleging damages for breach of contract and seeking a constructive trust on any proceeds from the sale of the telephones. The Company's failure to have the Lucent note declared invalid, or the loss to Lucent of any of the material claims asserted by the Company, could materially and adversely affect the Company. The Company is involved in legal proceedings from time to time in the ordinary course of its business. With the exception of risks associated with the pending Lucent litigation, management does not believe any other existing claims would have a material adverse effect upon the Company. NOTE 11 -- ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities are comprised of:
December 31 --------------------- 1996 1995 ------- -------- (dollars in thousands) Accrued payroll and benefits $11,063 $ 2,448 Contractual obligations 2,359 2,146 Accrued interest 1,411 824 Deferred revenue 66 2,869 Other 10,448 5,335 ------- ------- $25,347 $13,622 ======= =======
NOTE 12 -- LONG-TERM DEBT Long-term debt is comprised of:
December 31 --------------------- 1996 1995 ------- -------- (dollars in thousands) Senior Term Loan (a) $38,741 $47,700 Series A 9.5% Senior Subordinated Notes (b) 14,601 17,250 Secured note payable to customer (c) 2,970 2,970 Other 505 998 ------- ------- 56,817 68,918 Less current portion -- (536) ------- ------- Long-term debt $56,817 $68,382 ======= =======
F-14 53 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 (a) The Company's senior Credit Agreement was established in October 1994 with a group of banks led by Wells Fargo Bank. During part of 1995 and part of 1996, the Company was in default of various covenants in the Credit Agreement, which resulted in a series of waivers and amendments to the agreement. In April 1997, the agreement was again amended to provide for borrowings comprising a revolver and a term loan. The revolver has a maximum amount available of $6.0 million. The interest rate on the revolver is the prime lending rate plus 2.25%. The term loan is for $38.9 million and carries an interest rate of prime lending rate plus 3.125%. In addition, the Company must pay 66.67% of all cumulative cash flow in excess of $9.0 million during 1997, and generally the Company must pay 66.67% of all proceeds from asset, stock investment and subsidiary sales, as well as 25% of the proceeds of any equity offerings. The amended Credit Agreement expires May 1, 1998. In consideration for the amendment to the Credit Agreement, the Company was required to provide the lenders with warrants to purchase 750,000 shares of the Company's common stock at an exercise price of $0.60, and to pay certain commitment fees and out-of-pocket expenses. In April 1996, the Company entered into an amendment to the Note Purchase Agreements which revised the covenants for maximum leverage, net worth and fixed charges. In consideration for the amendment to the Note Purchase Agreements, the Company was required to provide the Senior Subordinated Note Holders 1,000,000 warrants to purchase common stock at $6.00 per share. The warrants issued pursuant to the amended Note Purchase Agreements, and the amended Credit Agreement discussed above, were recorded at fair market value with such amount amortized as a charge against income over the period of the warrants. In November 1996, the Company entered into amendments to the Note Purchase Agreements which revised certain financial covenants. As compensation for the amendments, the company repriced the warrants issued in April 1996 from $6.00 per share to $2.50 per share (and subsequently repriced to $.60 per share). The April 1997 Credit Agreement includes revised covenants for profitability, current ratio, minimum tangible net work, leverage and working capital. (b) In November 1993, the Company sold $17.3 million in principal amount of its Series A 9.0% (changed to 9.5% in October 1994) Senior Subordinated Notes ("Series B Notes") and $5.7 million in principal amount of its Series B 9.0% Senior Subordinated Notes with detachable warrants to purchase 920,000 shares of common stock at an option price of $0.01 per share. The Series A Senior Subordinated Notes accrued interest at the rate of 9.5% per annum, payable quarterly, with principal amount thereof payable in three installments of 33.33% of the principal outstanding in November 1999, 50.0% of the principal outstanding in November 2000 and the remaining principal outstanding in November 2001. In connection with the sale of the Series B Notes, the Company recorded an original issue discount for the difference between the fair value of the warrants at the time of issuance and the exercise price. The fair value of $3.5 million was recorded and is reflected as a reduction in the face value of the Series B Notes. In May 1994, the Company extinguished early its Series B at the principal amount of $5.7 million. The Company is subject to certain financial and other covenants which include restrictions on the incurrence of additional debt, payment of any dividends and certain other cash disbursements as well as the maintenance of certain financial ratios as defined in the Note Purchase Agreements pursuant to which the Senior Subordinated Notes were sold to the Company. In April 1996, the Company entered into amendments to the Note Purchase Agreements to amend certain financial ratio covenants. In consideration for the amendments the Company issued 1,000,000 warrants for the purchase of the Company's common stock at $6.00 per share. The previous interest rate and term were retained. In November 1996 the Company entered into amendments to the Note Purchase Agreements whereby certain financial ratio covenants were waived through March 31, 1997. In consideration for the amendments the Company repriced the warrants, issued in April 1996, to $2.50 from $6.00 per share. In April 1997, the Note Purchase Agreement was again amended revising certain covenants. Interest is now payable semi-annually instead of quarterly. The term of the Agreement is unchanged from the prior F-15 54 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Agreement. In consideration for the amendment, the Company repriced the warrants issued in April 1996 at $6.00 and subsequently repriced in November 1996 to $2.50, to $0.60 per share. The amount of principal payable under the Note Purchase Agreement increases monthly reflecting the warrant valuation. The accretion of the principal is charged to interest expense. (c) In July 1994, the Company acquired the operating assets of BT Repair Services for cash and a L2.5 million non-interest bearing note (approximately $3.9 million at December 31, 1994) secured by the land and buildings. The note is payable at the earlier of the point when orders from the customers reach a cumulative L78 million (approximately $122 million) or five years from the acquisition date. The Company is committed to pay BT L1.8 million (approximately $3.0 million as of December 31, 1996) in 1999 or earlier if certain sales volumes are reached. As of December 31, 1996, required sales volumes had not yet been met. It is currently estimated that the debt will not be repaid until 1999. Principal payments of borrowings are due as follows:
Year Ending (dollars in thousands) December 31 ----------- 1997 -- 1998 $38,741 1999 8,720 2000 8,625 2001 2,875 ------- Total $58,961 =======
F-16 55 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 13 -- INCOME TAXES Components of income (loss) before taxes consist of the following:
Years Ended December 31 ---------------------------------- (dollars in thousands) 1996 1995 1994 -------- -------- ---- North America $(30,557) $(40,185) $(92) International 4,887 2,922 947 -------- -------- ---- $(25,670) $(37,263) $855 ======== ======== ====
The income tax expense (benefit) consists of the following:
(dollars in thousands) Current: Federal $ -- $ -- $ 2,247 Foreign 1,451 1,911 510 State 40 65 747 -------- -------- ------- $ 1,491 $ 1,976 $ 3,504 Deferred: Federal $ 51 $ 32 $(2,307) Foreign 161 (4) (158) State 15 127 (868) -------- -------- ------- 227 155 (3,333) -------- -------- ------- $ 1,718 $ 2,131 $ 171 ======== ======== =======
The income tax expense was allocated as follows:
(dollars in thousands) Income from continuing operations $ 1,718 $ 2,089 $ 542 Discontinued operations -- 42 1,086 Extraordinary items -- -- (1,457) -------- -------- ------- $ 1,718 $ 2,131 $ 171 ======== ======== =======
F-17 56 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 The tax rate reconciliation is comprised of the following:
Years Ended December 31 ----------------------------------------------------------- (dollars in thousands) 1996 1995 1994 - ----------------------- -------------- ------------- -------------- Computed expected tax expense (benefit) $ (8,727) $ (12,684) $ 291 State income taxes, net of federal (509) (3,909) (6) Non-taxable income -- -- (209) Goodwill amortization -- (129) 64 Investments -- 268 -- Other Subpart F income 782 -- -- California net of operating loss not eligible for carryforward 347 824 -- Change in valuation allowance 9,421 17,703 -- Other 404 58 31 --------------- -------------- --------------- $ 1,718 $ 2,131 $ 171 =============== =============== ===============
F-18 57 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31 ---------------------------------- 1996 1995 (dollars in thousands) -------------- --------------- Deferred tax assets: Net operating loss carryforwards $ 16,396 8,289 Bad debts 3,150 1,802 Foreign tax credits 3,430 1,741 Inventories 991 1,712 Investments 1,200 1,402 Property, plant and equipment 844 940 Accrued liabilities 301 765 Discontinued operations 620 677 Amortization of intangibles 174 645 Minimum tax credit 157 157 Other 77 -------------- ---------------- Total gross deferred tax assets 27,263 18,207 Less valuation allowance (27,225) (17,804) -------------- ---------------- Net deferred tax asset 38 403 Deferred tax liabilities Accrued liabilities -- (97) Other (38) (79) -------------- ---------------- Total deferred tax liabilities (38) (176) -------------- ---------------- Net deferred tax assets $ -- $ 227 ============== ================
SFAS No. 109, "Accounting For Income Taxes," provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company's valuation allowance reduced the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against net federal and state deferred tax assets due to uncertainties surrounding their realization. At December 31, 1996, the Company had net operating loss carryforwards ("NOL's") of approximately $41.9 million for federal income tax purposes. If not utilized earlier, the federal NOL's will start expiring in the year 2009. At December 31, 1996, the Company had a NOL of approximately $7.0 million for California income tax purposes. The California NOL carryforward is limited to 50% of the apportioned California loss. If not utilized earlier, the California NOL's will start expiring in the year 2000. The Company also has Foreign Tax Credit carryforwards for federal income tax purposes of approximately $3.4 million which are available to offset federal income tax through the year 2000. In addition, the Company has Minimum Tax Credit carryforwards of approximately $0.2 million, which are available to reduce future regular federal income tax over an indefinite period. If certain substantial changes in the Company's ownership should occur, there would be an annual limitation on the amount of carryforwards which can be utilized. F-19 58 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 14 -- GEOGRAPHIC SEGMENTS The following table reflects information with respect to the Company's North America and International operations:
Years Ended December 31 ------------------------------------------------------------ 1996 1995 1994 (dollars in thousands) --------------- -------------- --------------- Net sales: North America $ 112,594 $ 107,795 $ 76,942 International 78,899 36,533 17,064 --------------- -------------- --------------- $ 191,493 $ 144,328 $ 94,006 =============== ============== =============== Net income (loss): North America $ (30,851) $ (41,247) $ 91 International 3,463 1,853 593 --------------- -------------- --------------- $ (27,388) $ (39,394) $ 684 =============== ============== =============== Identifiable assets: North America $ 48,617 $ 83,630 $ 103,260 International 59,927 21,058 23,179 Eliminations (3,050) (2,795) (5,732) --------------- -------------- --------------- $ 105,494 $ 101,893 $ 120,707 =============== ============== ===============
NOTE 15 -- INVESTMENT AND RETIREMENT PLANS During 1995, the Company established a 401(k) Retirement Savings Plan for its U.S. employees. Each participant may contribute up to 15% of his compensation into the Plan subject to maximum limitations based on compensation and Internal Revenue Service regulations. The Company does not make any matching contributions into the Plan. In the event of a Plan termination, all participants are entitled to receive a distribution equal to their account balance at that date. During 1995, the Company also established a defined benefit pension plan for employees of Cerplex Ltd., a wholly-owned subsidiary of the Company operating in the United Kingdom ("U.K. Pension Plan"). Company contributions rates have been actuarially assessed and are being amortized over the estimated employees' working lives with the Company. Benefits are determined based on employees final pensionable pay. Pension expense and contributions to the UK Pension Plan during 1996 were $1.1 million and $1.0 million, respectively, and for 1995 were $1.7 million and $1.2 million, respectively. F-20 59 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 16 -- COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases the majority of its office and warehousing facilities and certain equipment under noncancellable operating leases which expire at various dates during the next eight years. Rental expense, net of sublease income, for the years ended 1996, 1995 and 1994 was approximately $4.9 million, $4.3 million and $3.9 million, respectively. Future minimum lease payments as of December 31, 1996 are as follows:
Year Ending December 31 ------------- (dollars in thousands) 1997 $ 4,278 1998 3,411 1999 3,071 2000 2,250 2001 959 Thereafter 1,803 ------------- $ 15,772 =============
The Company subleases two of its facilities from a company which is owned by certain officers of the Company. One sublease is on a month-to-month basis and the other is scheduled to expire in July 1997. The Company incurred rental expense of $798,000, $785,000 and $774,000 in 1996, 1995 and 1994, respectively, on such subleases. NOTE 17 -- STOCK-BASED COMPENSATION PLANS The Company has two stock options plans, the Restated 1993 Stock Option Plan ("The 1993 Plan") and the 1990 Stock Option Plan ("The 1990 Plan"). The Company accounts for these plans under APB No. 25, under which no employee compensation cost has been recognized in the statement of operations. THE 1993 PLAN The 1993 Plan was adopted in December 1993. A total of 2,000,000 shares of Common Stock have been authorized for issuance under the 1993 Plan. Individuals eligible to receive option grants are employees (including officers) and consultants of the Company. The 1993 Plan is administered by a committee of two or more non-employee members of the Board of Directors ("Committee"). Eligible individuals may be granted Incentive Stock Options at 100% of fair market value of such shares on the grant date or nonstatutory options at no less than 85% of fair market value. F-21 60 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Two types of stock appreciation rights are authorized for issuance. As of December 31, 1996, no stock appreciation rights were issued. Tandem rights provide the holders with the election to surrender their outstanding options for an appreciation distribution from the Company equal to the excess of (a) the fair market value of the vested shares of Common Stock subject to the surrendered option over (b) the aggregate exercise price payable for such shares. Limited rights may be granted to one or more officers of the Company subject to the short-swing profit restrictions of the federal securities laws which will become exercisable upon the acquisition of more than 50% of the Company's outstanding voting stock pursuant to a hostile tender offer. Each option with such a limited right outstanding for at least six months at the time of such tender offer will be canceled, to the extent such option is at the time exercisable for vested shares, in return for a cash distribution from the Company based upon the tender offer price. The maximum number of shares of Common Stock for which any one participant may be granted stock options and separately exercisable stock appreciation rights will not exceed 300,000 shares. THE 1990 PLAN In November 1990, the Company adopted the 1990 Plan which authorized the granting of options to employees, non-employee members of the Company's Board of Directors, consultants and independent contractors to purchase shares of the Company's Common Stock. Under the terms of the 1990 Plan, 2,095,225 options have been authorized. Options may have a maximum term of 10 years from the grant date, and may be exercisable over a period determined by the Plan Administrator. Under the 1990 Plan, two types of options may be granted: (a) Incentive Stock Options, which may be granted only to employees at option prices per share equal to the fair market value of a share of Common Stock as determined by the Board of Directors on the date of grant; and (b) Non-statutory Stock Options, which may be granted at option prices per share at not less than eighty-five percent (85%) of the fair market value of a share of Common Stock as determined by the Board of Directors on the date of the option grant. COMPENSATION AND OPTION DISCLOSURES Had employee compensation expense for these plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss per share would have been increased to the following pro forma amounts: 1996 1995 - ------------------------------------------------------------------------------------------------------ Net Loss: As Reported $ (27,388) $ (39,394) Pro Forma (28,363) (39,679) Loss per share As Reported (2.04) (3.01) Pro Forma (2.11) (3.03)
For purposes of the above pro forma calculation, the fair value of each option grant is estimated on the date of grant using the Black-Scholes single option pricing model using the following weighted-average assumptions for grants in 1996 and 1995, respectively: (a) risk-free interest rates of 6.6 and 5.5 percent, (b) expected lives of 5.5 and 5.0 years, (c) expected dividend yields of 0% for both years, and (d) a volatility rate of .93 and .84. F-22 61 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the Company's two stock option plans at the end of December 1996, 1995, and 1994, and changes during the years then ended is as follows:
1996 1995 1994 ---------------------- --------------------- ------------------------ Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg. (000) Ex. Price (000) Ex. Price (000) Ex. Price ---------------------- --------------------- ------------------------ Outstanding, beginning 1,232,659 $ 4.79 669,951 $ 2.63 725,345 $ 1.32 Granted 927,000 3.73 715,000 6.66 122,000 12.21 Exercised (348,276) 0.27 (67,683) 0.67 (140,394) 1.93 Forfeited (201,208) 5.10 (84,609) 6.74 (37,000) 11.20 --------- ---------- -------- ---------- --------- ------------ Outstanding, ending 1,610,175 $ 5.12 1,232,659 $ 4.79 669,951 $ 2.63 --------- ---------- -------- ---------- --------- ------------ Exercisable at end of year 340,147 $ 6.37 451,370 $ 1.66 401,602 $ 0.10 Weighted average fair value of options granted $ 3.73 $ 6.66 $ 12.21 Weighted average contractual life 9.0 Years 8.2 Years 7.4 Years
NOTE 18 -- STOCKHOLDERS' EQUITY (DEFICIENCY) CONVERTIBLE PREFERRED STOCK In June 1996, the Company issued 8,000 shares of Series B Preferred Stock ("Series B Stock") at $1,000 per share in a private placement. The Series B Stock is convertible into Common Stock at the option of each holder at the lower of $5.07 per share or 80% of the average closing bid price over a ten-day period ending three days prior to the date of conversion. The Series B Stock will automatically convert into Common Stock on the earlier of five years from the date of issuance or such date as the Company's Common Stock has traded above $19.13 per share for a specified period of time. The Series B Stock has certain rights, privileges and preferences, including a $2,000 per share preference in the event of a sale of the Company. The Board of Directors may not pay dividends to the holders of the Company's Common Stock unless and until the Board has paid an equivalent dividend to the holders of Series B Stock based upon the number of shares of Common Stock into which each share of Series B Stock is convertible. At December 31, 1996, 803 shares of Series B Preferred Stock had been converted into 634,993 shares of Common Stock. During the period from January 1, 1997 to April 11, 1997, 5,127 shares of Series B Preferred Stock were converted into 15,515,007 shares of Common Stock. STOCK WARRANTS In April 1996, the Company issued 1,000,000 detachable warrants in connection with amendments to the Note Purchase Agreements related to its Senior Subordinated Notes and issued 125,000 detachable warrants in connection with an amendment to the Credit Agreement. The warrants were exercisable when issued. The warrants provided the holders the right to purchase 1,125,000 shares of common stock at $6.00 per share. As a result of the issuance of the warrants, the Company discounted the book value of the debt outstanding and increased paid-in capital by the fair market value of the warrants by $3.0 million based on an intrinsic warrant value of $2.70 per share. In November 1996, the Company, as consideration for amendments to the Note Purchase F-23 62 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Agreements and Credit Agreement, repriced the exercise price of the warrants from $6.00 to $2.50 per share. The repricing of the warrants provided an additional $0.3 million of intrinsic value to the warrant holders, and accordingly, the Company discounted the book value of the debt outstanding and increased paid-in capital by $0.3 million. The discounts are being amortized as additional interest expense over the period of the related debt on the interest method. In April 1997, when the Credit Agreement and the Note Purchase Agreement were again amended, the warrants were repriced at the current market value of $0.60 per warrant. At December 31, 1996, 855,000 warrants were outstanding to purchase an equivalent number of shares of common stock at $0.01 per share. These warrants were issued to the holders of the Series B Notes and expire in May 2002. When the Series B Notes were issued in November 1993, they had 920,000 detachable warrants which were valued at $3.93 per warrant at the date of issuance. In connection with the issuance of the Series B Notes, the Company recorded an original issue discount of $3.6 million for the difference between the fair value of the warrants at the time of issuance and the exercise price, which wasflected as a reduction in the face value of the Series B Notes. No warrants were exercised in 1996. At December 31, 1996, 56,993 warrants were outstanding and exercisable to purchase an equivalent number of shares of common stock at $8.80 per share. These warrants expire in November 2002. No warrants were exercised in 1996. NONRECURRING COMPENSATION RELATED TO EXCHANGE OF COMMON STOCK In November 1993, certain officers, directors and employees of the Company exchanged 1,200,000 shares of Common Stock for 1,200,000 shares of Series A Preferred Stock. Based upon the difference between the fair market value of the Common Stock and the Series A Preferred Stock as of such date, the Company recorded a non-recurring noncash compensation charge of $4.3 million which is being amortized through December 1997. NOTE 19 -- RELATED PARTY TRANSACTIONS In December 1993, the Company purchased for $3.0 million a preferred stock warrant from an affiliate of Novadyne which was written off in 1995. During 1996, 1995 and 1994, sales of repaired parts and services to Novadyne were $1.4 million, $3.8 million and $5.9 million, respectively. Receivables as of December 1996, 1995, and 1994 were $3.9 million, $1.3 million, and $2.2 million, respectively. As of December 31, 1996 because of the uncertainty of collection of receivables due from Novadyne, the Company provided an allowance for the balance of $3.9 million. In addition, in January 1994, the Company began earning a management fee of $83,000 per month for thirty six months from Novadyne. In May 1994, the Company purchased for $2.7 million electronic parts from a third party and leased such parts to Novadyne. The Company received rental income of $62,000 per month through September 1996. F-24 63 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 The Company subleases certain real property for its operations in Irvine, California and in Newburgh, New York from WC Cartwright Corporation, a California corporation ("WC Cartwright"). Messrs. Klein and Davis and Ms. Carolyn J. Klein (the spouse of Mr. Klein) are officers, directors and principal shareholders of WC Cartwright. In 1996, the Company paid to WC Cartwright an aggregate of $540,000 in rent for use of the real property located in Irvine, California and $258,000 in rent for use of the real property located in Newburgh, New York. Under its subleases with WC Cartwright, the Company is obligated to remit monthly lease payments to WC Cartwright in the amount of $44,982 through January 1997 with respect to the Irvine, California property, and $22,204 to $21,010 per month (on a graduated rent basis) through July 1997 with respect to the Newburgh, New York real property. NOTE 20 -- SUBSEQUENT EVENT On April 11, 1997, the Company sold 100% of the stock of PCS to the management team that was led by an investment banking group. The sale was for cash and net proceeds to the Company were approximately $13.0 million. PCS provides disk drive repairs and related services. Net sales and income before taxes of PCS for the year ended December 31, 1996 were $29.5 million and $2.2 million, respectively. PCS's total assets at December 31, 1996 were approximately $8.3 million, net of intercompany accounts. Net sales and income before taxes of PCS for the period from acquisition at June 1, 1995 to December 31, 1995 were $10,732 and $1,549, respectively. NOTE 21 -- CONCENTRATION OF CREDIT RISK The Company's revenues are primarily with OEM's or TPM's in the computer and peripheral, telecommunications and office automation industries located principally in the United States and Europe. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Credit risk is affected by conditions or occurrences within the economy and the computer and peripheral, telecommunications and office automation markets. F-25 64 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 A substantial portion of the Company's business, including activities of discontinued operations, was conducted with five major customers during 1996, 1995 and 1994.
Year Ended December 31 ----------------------------- Dollars in thousands 1996 1995 1994 ------- ------- ------- IBM --- Net Sales $23,672 $32,037 $42,575 Accounts receivable 1,863 6,044 4,310 BT -- Net Sales 21,447 33,449 16,878 Accounts receivable 1,692 6,406 5,226 SpectraVision ------------- Net Sales 6,007 9,863 19,389 Accounts receivable -- 1,235 4,650 Wang (formerly Bull) ------------------- Net Sales 1,621 7,030 9,882 Accounts receivable 219 634 2,045 Rank Xerox ---------- Net Sales 33,400 -- -- Accounts receivable -- -- --
F-26 65 THE CERPLEX GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 22 -- QUARTERLY INFORMATION Unaudited quarterly information for the quarters ended March 31, June 30, September 30 and December 31 are as follows:
(in thousands, except per share data) 1996 First Second Third Fourth - ---- ------- ------- -------- -------- Net sales $40,846 $51,339 $ 50,636 $ 48,672 Gross profit 6,931 10,969 3,751 4,594 Operating income (loss) 144 1,981 (10,102) (7,350) Net income (loss) (1,573) 702 (12,940) (13,577) Earnings (loss) per share $(0.12) $0.05 $(0.96) $(0.99) 1995 - ---- Net sales $34,001 $32,488 $ 35,381 $ 42,458 Gross profit 6,042 6,009 2,931 1,529 Operating income (loss) 965 774 (10,260) (8,773) Net income (loss) 830 282 (24,997) (15,509) Earnings (loss) per share $0.06 $0.02 $(1.91) $(1.18)
During the fourth quarter of 1996, the Company took charges to income totaling $9.6 million which represented adjustments to net realizable value of long-term assets, reserves for excess and obsolete inventory and accounts receivable, impairment of goodwill and miscellaneous writeoffs of plant and equipment and other assets. F-27 66 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Charged Balance at to costs Charged Balance ALLOWANCE FOR Beginning and against at end of DOUBTFUL ACCOUNTS of period expenses accounts Other period ----------------- ---------- -------- -------- ------- --------- Year ended December 31, 1994 $ 61 $ 304 $ (100) $ $ 265 Year ended December 31, 1995 265 7,293 (89) 114 7,583 Year ended December 31, 1996 7,583 4,785 (4,263) 948 9,053
S-1 67 THE CERPLEX GROUP, INC. EXHIBIT INDEX Fiscal Year Ended December 29, 1996
Sequential Page Exhibit Description of Exhibits Number - ------- ----------------------- ---------- 2.13 Stock Purchase Agreement dated March 28, 1997 relating to all of the outstanding stock of Peripheral Computer Support, Inc. among the Company, PCS Acquisition Co., Inc., and Lincolnshire Equity Partners, L.P. 4.17 Waiver and Amendment Agreement dated October 31, 1996 by and among the Company and the Noteholders 4.18 Waiver and Amendment Agreement dated December 9, 1996 by and among the Company and the Noteholders 4.19 Side Letter dated March 28, 1997 by and among the Company and the Noteholders 4.20 Amended and Restated Note Purchase Agreement dated April 9, 1996 by and among the Company and the Noteholders 4.21 Second Amendment to Warrant Agreement dated April 9, 1997, by and among the Company and each of the holders of warrants listed on Schedule A thereto, which Second Amendment amends the Warrant Agreement dated November 19, 1993 as amended by the First Amendment to Warrant Agreement dated April 15, 1996
68 4.22 Second Amendment to Warrant Agreement dated April 9, 1997 by and among the Company and each of the holders of warrants listed on Schedule A thereto, which Second Amendment amends the Warrant Agreement dated April 15, 1996, as amended by a Waiver and Amendment Agreement dated October 31, 1996 4.23 Amended and Restated Warrant Agreement dated April 9, 1997 by and among the Company; Wells Fargo Bank, National Association; BHF-Bank Aktiengesellschaft and Citibank, N.A. 10.31 Extension and Forbearance Agreement dated March 31, 1997 by and among the Company, the financial institutions listed on the signature pages thereof and Wells Fargo Bank, National Association 10.32 Second Amendment to Credit Agreement dated November 30, 1996 (the "Second Amendment") by and among the Company, the financial institutions listed on the signature pages thereof ("Lenders") and Wells Fargo Bank, National Association, as administrative agent for the Lenders, and for certain limited purposes, Certech Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A., which Second Amendment amends the Credit Agreement dated October 12, 1994, as amended 10.33 Third Amendment to Credit Agreement dated April 9, 1997 (the "Third Amendment") by and among the Company, the financial institutions listed on the signature pages thereof ("Lenders") and Wells Fargo Bank, National Association, as administrative agent for the Lenders, and for certain limited purposes, Certech Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A., which Third Amendment amends the Credit Agreement dated October 12, 1994, as amended 21.1 List of Subsidiaries 23.1 Consent of KPMG Peat Marwick LLP, Independent Public Accountants 27.1 Financial Data Schedule
EX-2.13 2 STOCK PURCHASE AGREEMENT DATED MARCH 28, 1997 1 EXHIBIT 2.13 STOCK PURCHASE AGREEMENT RELATING TO ALL OF THE OUTSTANDING STOCK OF PERIPHERAL COMPUTER SUPPORT, INC. 2 TABLE OF CONTENTS 1. Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Purchase Price for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . 3 (a) Ownership and Delivery of the Shares and Execution and Effect of Agreement 3 (b) Organization; Good Standing; Authority . . . . . . . . . . . . . . . . . . 4 (c) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (d) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (e) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (f) No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (g) Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 5 (h) Title to Properties; Absence of Encumbrances . . . . . . . . . . . . . . . 5 (i) Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . 6 (j) Patents, Trademarks and Copyrights . . . . . . . . . . . . . . . . . . . . 6 (k) Contracts, Leases and Commitments . . . . . . . . . . . . . . . . . . . . 6 (l) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (m) Accounts Receivable; Accounts Payable . . . . . . . . . . . . . . . . . . 7 (n) Permits; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 7 (o) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (p) Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (q) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (r) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (s) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (t) Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (u) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 12 (v) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (w) Illegal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (x) Officers and Directors; Bank Accounts, etc. . . . . . . . . . . . . . . . 13 (y) Expenses Related to this Agreement . . . . . . . . . . . . . . . . . . . . 13 (z) Accuracy of Documents and Information . . . . . . . . . . . . . . . . . . 13 6. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . 13 (a) Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . 13 (b) Execution and Effect of Agreement . . . . . . . . . . . . . . . . . . . . 14 (c) Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
i 3 7. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (a) Access by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (b) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (c) Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (d) Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 16 (b) Best Efforts to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9. Conditions Precedent to Obligations of Purchaser . . . . . . . . . . . . . . . 16 (a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 16 (b) Performance of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (c) Delivery of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (d) Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (e) Opinion of Counsel to Seller . . . . . . . . . . . . . . . . . . . . . . . 17 (f) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (h) Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (i) Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (j) Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (k) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 17 (l) Intercompany Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 17 (m) No Payments to Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . 18 (n) Tax Allocation Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 18 (o) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 10. Conditions Precedent to Obligations of Seller . . . . . . . . . . . . . . . . 18 (a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 18 (b) Performance by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 18 (c) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (d) Opinion of Counsel to Purchaser . . . . . . . . . . . . . . . . . . . . . 18 (e) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (g) Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (h) Tax Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 19 (i) Lender Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (j) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (k) Payment of Permitted Intercompany Transactions . . . . . . . . . . . . . . 19 11. Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (a) Deliveries of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (b) Deliveries of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 20 (c) Deliveries to the Escrow Agent . . . . . . . . . . . . . . . . . . . . . . 20 12. Restrictive Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ii 4 13. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14. Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . 20 15. Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . . . . . 21 16. Further Provisions Regarding Indemnification . . . . . . . . . . . . . . . 21 (a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (b) Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (c) Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (d) Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (e) Calculation of Damages . . . . . . . . . . . . . . . . . . . . . . . . 22 (f) Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 17. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 18. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 19. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 20. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 21. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 22. Other Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 23. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 25. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 26. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 27. Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 28. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (a) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (b) Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
iii 5 INDEX OF SCHEDULES AND EXHIBITS Schedules 5(a) - Ownership and Delivery of the Shares 5(c) - Capitalization 5(e) - Liabilities 5(g) - Customers and Suppliers 5(h) - Encumbered Properties and Assets 5(i) - Real and Personal Property 5(j) - Patents, Trademarks and Copyrights 5(k) - Material Contracts, Leases and Commitments 5(l) - Inventory 5(m) - Accounts Receivable/Accounts Payable 5(n) - Governmental Licenses, Permits and Authorizations 5(o) - Employees 5(p) - Employee Benefit Plans 5(q) - Insurance 5(r) - Litigation 5(s) - Environmental Matters 5(t) - Restrictions 5(u) - Transactions with Affiliates 5(x) - Officers and Directors; Bank Accounts 7(d) - Employment Exhibits A - Draft Audited Financials B - Escrow Agreement C - Tax Allocation Agreement D - BPH Opinion iv 6 STOCK PURCHASE AGREEMENT dated March 28, 1997, among PCS ACQUISITION CO., INC., a Delaware corporation ("Purchaser"), THE CERPLEX GROUP, INC., a Delaware corporation ("Seller") and Lincolnshire Equity Partners, L.P., a Delaware limited partnership ("Lincolnshire"). Peripheral Computer Support, Inc., a California corporation (the "Company"), is engaged in the business of repairing, refurbishing and remarketing hard disk and CD-ROM drives, as well as other storage devices for the personal computer industry. Seller wishes to sell all of the shares (the "Shares") of common stock of the Company ("Common Stock"), and Purchaser wishes to purchase the Shares, for the purchase price and upon the terms and subject to the conditions described below. Lincolnshire agrees to guarantee all of Purchaser's obligations hereunder up to and through the Closing, and at the time the Closing is consummated Lincolnshire's obligations hereunder shall terminate. Notwithstanding anything contained in this Agreement to the contrary, Lincolnshire's maximum liability under this Agreement shall be TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00). The parties hereby agree as follows: 1. Sale of Shares. At the Closing, Seller shall sell, assign, transfer and deliver to Purchaser, and Purchaser shall purchase from Seller, the Shares. 2. Closing. (a) The Closing of the transactions contemplated by this Agreement (the "Closing") shall be held at the offices of Brobeck, Phleger & Harrison LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California, at 11:00 A.M., Pacific Standard Time, on the first (second if Lincolnshire does not have notice of the fulfillment of the HSR Condition prior to noon Central Standard Time on the date such condition is fulfilled) business day following fulfillment of the HSR Condition (as defined in Section 9) (the "Closing Date"); provided, however, if the HSR Condition is fulfilled prior to April 10, 1997, the Closing shall be delayed until April 11, 1997 if Lincolnshire shall have not received the cash required to close under the funding referenced in Section 8(b) prior to such date. The obligation to close on the Closing Date shall be subject to the fulfillment of the conditions set forth in Sections 9 and 10. (b) This Agreement may be terminated at any time prior to the Closing: (i) by a written agreement among all the parties hereto; (ii) by Purchaser, if any condition specified in Section 9 shall not have been fulfilled by Seller or waived in writing by Purchaser on or before the Closing Date; or (iii) by Seller, if any condition specified in Section 10 shall not have been fulfilled by Purchaser or waived in writing by Seller on or before the Closing Date; or (iv) by Purchaser pursuant to Section 7(c), clause (y). Notwithstanding the foregoing, however, either Purchaser or Seller shall have the right to terminate this Agreement (i) after 8:00 p.m., EST, on April 2, 1997 if Purchaser has not 7 notified Seller in writing that it has satisfied the condition set forth in Section 9(i) hereof or waived it in writing prior to such time; and (ii) after 8:00 p.m. EST on April 4, 1997 if Purchaser has not notified Seller in writing that it has satisfied the condition set forth in Section 9(d) hereof or waived it in writing prior to such time, in either case without liability to Purchaser, Lincolnshire and Seller (and any of their affiliates) under this Agreement. Purchaser's and Seller's right to effect such termination pursuant to the preceding sentence may be exercised by delivering written notice on or prior to the fifth day following the applicable date specified above. 3. Financial Statements. (a) Seller has delivered to Purchaser (i) a draft dated March 27, 1997 of an audited balance sheet of the Company as at December 31, 1996 ("Draft Audited Balance Sheet"), and (ii) a draft dated March 27, 1997 of audited statements of income, stockholders' equity and cash flows of the Company for the fiscal year ended December 31, 1996 (collectively, the "Draft Audited Financials"), all of which are attached hereto as Exhibit A. (b) At least five business days prior to the Closing, Seller will deliver to Purchaser an audited balance sheet of the Company as at December 31, 1996 ("Audited Balance Sheet") and audited statements of income, stockholders' equity and cash flows of the Company for the fiscal year ended December 31, 1996 (collectively, the "Audited Financials"), accompanied by the unqualified reports thereon of KPMG/Peat Marwick ("KPMG"). (c) After the date hereof, Seller, the Company and KPMG shall give Purchaser and its officers, directors, accountants, representatives, advisers and employees, including those of its affiliates, free and full access during normal business hours to the Company's assets, premises and books and records, including the audit work papers of KPMG, and such other information as Purchaser or its officers, directors, accountants and employees, including those of its affiliates, may from time to time reasonably request, relating to the Draft Audited Balance Sheet, Draft Audited Financials, Audited Balance Sheet and Audited Financials. 4. Purchase Price for Shares. (a) In full consideration for the Shares, Purchaser shall pay to Seller an aggregate purchase price (the "Purchase Price") equal to FIFTEEN MILLION DOLLARS ($15,000,000). Purchaser may elect to reduce the purchase price by FIVE HUNDRED THOUSAND DOLLARS ($500,0000) provided Purchaser delivers to Seller at Closing a release executed by Tu Nguyen of Seller's obligation to pay the $500,000 earn out payment payable to Tu Nguyen under the original acquisition agreement pursuant to which Seller acquired the Company from Tu Nguyen. The Purchase Price shall be payable as follows: (i) An amount equal to FOURTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($14,500,000) (subject to reduction of $500,000 if Purchaser delivers to Seller the Nguyen release as contemplated in (a) above) at the Closing, by 2 8 delivery to Seller by wire transfer to an account specified by Seller no less than one business day prior to the Closing. (ii) An amount (the "Escrowed Amount") equal to FIVE HUNDRED THOUSAND DOLLARS ($500,000) at the Closing, by delivery, to a mutually agreed upon entity as escrow agent (the "Escrow Agent"), pursuant to an escrow agreement in the form attached hereto as Exhibit B ("Escrow Agreement"), of a certified or official bank check or wire transfer. (iii) If the Company is required in connection with obtaining a consent from the Landlord of the Company's principal headquarters at 2219 Old Oakland Road, San Jose, California to incur any expense or is obligated to increase a security deposit, then at the Closing Seller will authorize the use of up to $150,000 of funds otherwise due to be placed in Escrow to be used for such purpose for a one year period, following which one year period the amount so applied, with interest at the rate specified in the Escrow Agreement, shall be returned by Purchaser to the Escrow Agent for use in accordance with such Escrow Agreement or to Seller if no claims are outstanding under the Escrow Agreement. The form of Escrow Agreement shall be revised, to the extent necessary, to reflect the above agreement. 5. Representations and Warranties of Seller. Seller represents, warrants and agrees as set forth below. All references to "Seller's Knowledge" shall mean solely to the knowledge of Seller's Chief Executive Officer, President, Chief Financial Officer, President of International Business and President of North American Operations. All references to "Nguyen's Knowledge" shall mean solely to the knowledge of Tu Nguyen. (a) Ownership and Delivery of the Shares and Execution and Effect of Agreement. Seller is the record and beneficial owner of all of the Shares. The Shares constitute all of the issued and outstanding shares of capital stock of the Company, and, except as set forth on Schedule 5(a), are free and clear of any and all liens, pledges, security interests, options, encumbrances, charges, agreements or claims of any kind whatsoever ("claims"). Seller has the full right, power and authority to enter into and to perform this Agreement, the Tax Allocation Agreement between Purchaser and Seller and attached hereto as Exhibit C (the "Tax Allocation Agreement"), the Escrow Agreement and all other agreements, certificates and documents executed or delivered, or to be executed or delivered, by Seller in connection herewith (collectively, with this Agreement, "Seller's Documents"). On the Closing Date, Seller will have the full right, power and authority to sell, assign, transfer and deliver all of the Shares as provided in this Agreement, and such delivery will convey to Purchaser lawful, valid and marketable title to the Shares, free and clear of any and all liens, claims and encumbrances. This Agreement has been duly authorized, executed and delivered by Seller, and Seller's Documents are (or when executed and delivered will be) legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except to the extent enforceability may be limited by equitable principles or by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights. 3 9 (b) Organization; Good Standing; Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has full power and authority to own and lease its assets and properties and to conduct its business as it is presently being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which the conduct of its business or the ownership or leasing of its assets requires such qualification. The copies of the Company's Articles of Incorporation, as amended (certified by the Secretary of State of the State of California), and By-Laws (certified by the Secretary of the Company) which have been previously delivered to Purchaser are correct and complete. (c) Capitalization. The authorized capital stock of the Company consists solely of 1,000,000 shares of common stock, of which 235,866 shares are issued and outstanding. All of the outstanding shares of common stock of the Company are duly authorized, validly issued and outstanding, fully paid and nonassessable and, except for such shares, there are no outstanding shares of capital stock or other securities of the Company. There is no existing option, warrant, call, commitment or other agreement requiring the issuance or sale of any additional shares of stock or other securities of the Company and no shares of stock or other securities of the Company are reserved for issuance for any purpose. Except as set forth on Schedule 5(c), there are no agreements, commitments or restrictions relating to ownership, pledges, voting or transfer of any shares of stock or other securities of the Company. The Company has no subsidiaries and has no equity interest in any corporation, partnership, joint venture or other entity. The Company has conducted its business only through the Company and Peripheral Computer Support GmbH, a German corporation and former subsidiary of the Company. (d) Financial Statements. Seller previously has delivered to Purchaser the Draft Audited Balance Sheet, the Draft Audited Financials, and monthly reports of the Company for the months of January and February, 1997. Each of the Draft Audited Financials and Draft Audited Balance Sheet have been, and each of the Audited Financials and the Audited Balance Sheet will be, prepared in accordance with the Company's books and records, present or will present fairly the financial position and results of operations of the Company as at the dates and for the fiscal year indicated and, in the case of the Draft Audited Financials and the Draft Audited Balance Sheet have been, and in the case of the Audited Financials and Audited Balance Sheet will be, prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The monthly reports for the months of January and February 1997 have been prepared in accordance with the Company's books and records. (e) Liabilities. There are no material liabilities or contingencies of the Company (whether accrued, unmatured, contingent or otherwise, and whether due or to become due), except (i) as set forth or adequately reserved against on the face of the Draft Audited Balance Sheet or the Audited Balance Sheet or the footnotes thereto; (ii) as expressly referred to in Schedule 5(e) hereto; and (iii) trade payables and other current liabilities (other than funded indebtedness, monetary guaranties and liabilities under contracts involving the receipt or expenditure of more than $25,000) incurred since December 31, 1996 in the ordinary course of business and which are not, individually or in the aggregate, material and 4 10 adverse. On the Closing Date and assuming fulfillment of the condition set forth in Section 10(k), there will be no liabilities or indebtedness or contingencies of the Company whatsoever (whether accrued, unmatured, contingent or otherwise and whether due or to become due) to Seller, Cerplex S.A.S. or any of their affiliates. Other than as provided above, to Seller's Knowledge there is no basis for the assertion against the Company of any other material liability or loss contingency. (f) No Adverse Change. Since December 31, 1996, the Company has operated its business only in the ordinary course of business as theretofore conducted, and there has been no: (i) material adverse change in the business, properties, assets, liabilities, commitments, earnings, financial condition or prospects of the Company or, taking the Company's revenues and expenses as a whole, the Company's gross profit margins; (ii) property damage or destruction resulting in a loss or cost to the Company of more than $10,000 in the aggregate, whether or not covered by insurance; or (iii) act or omission which, if taken or omitted after the date of this Agreement and before the Closing would violate Section 7(b) below. Since December 31, 1996, there has been no material adverse change in the ratio and composition of current assets to current liabilities from that set forth in the Draft Audited Balance Sheet. (g) Customers and Suppliers. Schedule 5(g) hereto contains a list of the Company's ten largest customers and suppliers (measured by dollar volume of purchases and sales, as applicable) and the dollar amount and percentage of the Company's business which each such customer or supplier represented during the fiscal year ending December 31, 1996. Except as disclosed on Schedule 5(g), to Seller's Knowledge, the Company is engaged in no material disputes with such customers or suppliers, and no such customer or supplier has informed Seller or the Company of any intention to terminate business or change the manner in which it is presently doing business with the Company. To Seller's Knowledge, no customer or supplier listed on Schedule 5(g) is considering termination, non-renewal or any adverse modification of its arrangements with the Company, and, except for the consents set forth on Schedule 5(t), to Seller's Knowledge the transactions contemplated by this Agreement will not have a material adverse effect on the Company's relationship with any of such suppliers or customers. (h) Title to Properties; Absence of Encumbrances. The Company has good and marketable title to or, in the case of leases and licenses, valid and subsisting leasehold interests or licenses in, all of its properties and assets of whatever kind used in the operation of the Company and its subsidiaries (whether real, personal or mixed, tangible or intangible) (collectively, the "Assets") including, without limitation (i) cash, accounts receivable, inventory, equipment, office furniture and furnishings, trade names, trademarks and patents, all operating contracts, agreements, licenses and leases; (ii) all properties and assets that are shown on the Audited Balance Sheet or the Draft Audited Balance Sheet (except for assets sold in the ordinary course of business since December 31, 1996) and (iii) properties and assets that are shown on any schedule hereto, in each case free and clear of any and all liens, mortgages, pledges, security interests, prior assignments, claims and encumbrances of any kind whatsoever, except as may be set forth in Schedule 5(h) hereto and except for other immaterial liens, claims or encumbrances incurred in the ordinary course of business which 5 11 would not impair in any respect the Company's use or operation of its properties and Assets in the ordinary course of business. All Assets, properties and rights relating to the Company's business are held by, and all material agreements, obligations and transactions relating to the Company's business have been entered into, incurred and conducted by, the Company rather than Seller or any of its affiliates. (i) Real and Personal Property. The Company owns no real property, building or other like structures. Schedule 5(i) hereto contains a complete and correct list of all real property (including buildings and structures) leased by the Company. All such real property, buildings and structures, and the equipment therein, and the operations and maintenance thereof, comply with any applicable agreements and restrictive covenants and conform to all applicable legal requirements (as defined in Section 5(t) below) affecting the use or enjoyment of the real property leased by the Company, including those relating to the environment, health and safety, land use and zoning. All work required to be done by the Company as tenant has been duly performed. To Seller's Knowledge, Seller and the Company have received no notice of any condemnation or other proceeding, pending or threatened, which would affect the use of any such property by the Company. Schedule 5(i) hereto contains a complete and correct list and brief description of all equipment, machinery, computers, furniture, leasehold improvements, vehicles and other personal property owned or leased by the Company and all interests therein as of the date specified on such schedule. The Company's equipment and other assets (whether leased or owned) are in good operating condition and repair, subject to ordinary wear and tear. (j) Patents, Trademarks and Copyrights. The Company has no registered trademarks, tradenames or service marks and, to Seller's Knowledge, has no pending applications or registrations with respect to the foregoing. The Company uses "Peripheral Computer Support," "PCS" and the Company's logo (collectively, the "Trademarks") as tradenames and for trademarks and/or service marks. Seller may have common law rights to the Trademarks. To Seller's Knowledge, the Company has not received notice from any third party that the use of the Trademarks by the Company infringes the rights of third parties. While the Company believes that its processes, pricing, business plans and other confidential information are important to its business and may be deemed to be trade secrets, the Company has no patents, copyrights or other intellectual property that it deems proprietary, and no such rights of third parties are used in the Company's business except for standard third party noncustom software (e.g., Windows 95, etc.) which the Seller believes the Company has adequate rights to use. To Seller's Knowledge, the Company is not infringing, or otherwise unlawfully using, patents, copyrights or other intellectual property rights of third parties. The Company is using no other trademarks or trade names other than the Trademarks and Seller's name in its business. (k) Contracts, Leases and Commitments. Seller has furnished to Purchaser true copies of the contracts, leases and commitments listed in Schedule 5(k) hereto, including summaries of the terms of any unwritten commitments. To Seller's Knowledge and to Nguyen's Knowledge (other than with respect to any leases), except as set forth in that Schedule: (1) the Company and the other parties thereto have complied in all material respects with such contracts, leases and commitments, all of which are valid and enforceable; 6 12 (2) such contracts, leases and commitments are in full force and effect and there exists no event or condition which with or without notice or lapse of time would be a default thereunder, give rise to a right to accelerate or terminate any provision thereof or give rise to any lien, claim, encumbrance or restriction on any of the Assets of the Company; and (3) all of such contracts, leases and commitments have been entered into on an arm's-length basis. To Seller's Knowledge and to Nguyen's Knowledge (other than with respect to any leases), the Company is not a party, nor are any of its Assets or business subject, to any contract, open purchase order, lease or commitment not listed in such Schedule (including without limitation purchase or sales commitments, license agreements, financing or security agreements or guaranties, repurchase agreements, agency agreements, manufacturers representative agreements, commission agreements, employment or collective bargaining agreements, pension, bonus or profit-sharing agreements, group insurance, medical or other fringe benefit plans, and leases of real or personal property), other than (i) contracts terminable without penalty on not more than 30 days' notice that do not involve, individually or in the aggregate, the receipt or expenditure of more than $50,000 in any one year, and (ii) immaterial contracts for leases and standard services which do not, individually, require payments of more than $2,000 per month or, in the aggregate, require payments in the aggregate exceeding $50,000 per year. If any of the contracts listed in Schedule 5(k) should provide for expiration or be subject to termination before the Closing, Seller after consultation with Purchaser shall cause the Company to use all reasonable efforts to extend such contracts on reasonable terms in accordance with the Company's past practice. (l) Inventory. Schedule 5(l) hereto contains a list of the Company's inventory as at December 31, 1996, setting forth a brief description of each item by category and quantity, and by unit and aggregate values. Except for inventory that has been adequately reserved against on the Company's Draft Audited Financial Statements or spare parts which are used by the Company in the normal course of its business, the Company's inventory is in good and marketable condition and is saleable in the normal course of the Company's business. Each item of the Company's inventory will be carried on the Audited Balance Sheet, and is carried on the Draft Audited Balance Sheet, at the lower of cost or market, with cost determined on a first-in, first-out basis in accordance with United States generally accepted accounting principles. Inventory conforming to this representation and warranty shall be deemed "Eligible Inventory." (m) Accounts Receivable; Accounts Payable. Schedule 5(m) hereto is an accurate aged list of the Company's accounts receivable as at December 31, 1996. Except as set forth on Schedule 5(m) hereto, the Company's accounts receivable arose in the ordinary course of business for goods or services delivered or rendered, constitute only valid, undisputed claims, and are not subject to counterclaims or setoffs. Except as set forth on Schedule 5(m) hereto, all of the Company's accounts payable arose in the ordinary course of business for goods or services delivered or rendered to the Company and all of the Company's material accounts payable have been paid in a reasonably timely manner and there has been no material change in the aging of payables since December 31, 1996. (n) Permits; Compliance with Laws. The Company holds the governmental licenses, permits and authorizations listed in Schedule 5(n) hereto which, 7 13 except as set forth in that Schedule, are valid and unimpaired, will be unaffected by a transfer of all of the Shares of the Company to Purchaser, and constitute all of the licenses, permits and authorizations required for the ownership or occupancy of its properties and Assets and the operation of its business. The Company's business is and has been operated in compliance therewith in all material respects and all laws and regulations (federal, state, local and foreign) applicable to it, and all required reports and filings with governmental authorities have been properly made. The consummation of the transactions contemplated by this Agreement will not give rise to any liability of the Company for severance pay or termination pay. Except as set forth on Schedule 5(n), since June 29, 1995 and, to Seller's Knowledge, for the fourteen (14) months prior thereto, the Company has not entered into any agreement with, had any material dispute with, or been investigated by, any governmental authority or like third party. (o) Employees. Schedule 5(o) hereto contains a list of the names, office locations, compensation and dates of hire for all employees of the Company as at December 31, 1996 with compensation in excess of $50,000. Except as disclosed on Schedule 5(o) hereto, to Seller's Knowledge and to Nguyen's Knowledge, there have been no efforts within the last three years to attempt to organize the Company's employees, and no strike or labor dispute involving the Company has occurred during the last three years or, to Seller's Knowledge and to Nguyen's Knowledge, is threatened. Except as set forth on Schedule 5(o), the Company has complied in all material respects with applicable wage and hour, equal employment, safety and other legal requirements relating to its employees. (p) Employee Benefit Plans. Neither the Company nor any member of any controlled group (within the meaning of Section 4001(a)(14) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 414(b), (c), (m) or (o) of the Code of which the Company was at any time a member (a "Controlled Group Member"), has ever maintained or presently maintains or has any obligation or liability with respect to any "employee benefit plan" subject to Title IV of ERISA or Section 412 of the Code. Neither the Company nor its predecessors or a Controlled Group Member has ever contributed to or otherwise participated in or has any obligation or liability with respect to or has been required to contribute to or otherwise participate in any "multiemployer plan", as defined in Section 4001(a)(3) of ERISA or any single employer pension plan (within the meaning of Section 400(a)(15) of ERISA) which is subject to Sections 4063 and 4064 of ERISA. Schedule 5(p) contains a true and complete list of each employee benefit plan within the meaning of Section 3(3) of ERISA and any other pension, retirement, profit-sharing, deferred compensation, option, bonus, stock, welfare, medical, disability, insurance, severance, incentive or other benefit plan, whether written or oral, maintained by the Company or a Controlled Group Member, or to which the Company contributes, for any of the Company's employees or under which the Company has or could have any obligation or liability (each a "Plan" and, collectively, the "Plans"), setting forth the name of the Plans and the names and addresses of the trustees, and the basis of the Company's contributions. True and complete copies of each of the Plans and related trusts are available for review by Purchaser. There has also been furnished the three most recent actuarial report required to be prepared with respect to any of such Plans, the most recent Internal Revenue Service 8 14 ("Service") determination letter, the most recent Summary Plan Description and the most recent Annual Report on Form 5500 series. The Company is not liable for and will not be liable for any liability of any other Controlled Group Member (including predecessors) with regard to any "employee benefit plan" (within the meaning of Section 3(3) of ERISA) including, without limitation, withdrawal liability. The Company, each Controlled Group Member, each Plan and each "plan sponsor" or "administrator" (within the meaning of Section 3(16) of ERISA) of each "welfare benefit plan" (within the meaning of Section 3(1) of ERISA) has complied in all material respects with the requirements of Section 4980B of the Code and Title I, Subtitle B, Part 6 of ERISA. With respect to each of the Plans on Schedule 5(p): (i) with respect to each Plan intended to be qualified under Section 401(a) of the Code, the Plan is so qualified, and a determination letter from the Service has been received to the effect that the Plan is qualified under Section 401(c) of the Code and any trust maintained pursuant thereto is exempt from federal income taxation under Section 501 of the Code, and Seller and the Company know of no event or circumstances which has occurred or will occur through the Closing Date (including without limitation the transactions contemplated by this Agreement) which would cause the loss of such qualification or exemption or the imposition of any penalty or tax liability; (ii) all contributions required by the Plan or by law with respect to all periods through the Closing Date shall have been made by such date (or provided for by the Company by adequate reserves on its financial statements) including, without limitation, the discretionary profit sharing contribution determined to be made by the Company's Board of Directors with respect to the plan year ending December 31, 1996; (iii) there are no violations of ERISA with respect to the filing of applicable reports, documents and notices regarding the Plan with the Secretary of Labor or Secretary of the Treasury or furnishing such documents to participants or beneficiaries, as the case may be which in the aggregate would give rise to a material liability; (iv) except as disclosed on Schedule 5(p), no material claim, lawsuit, arbitration or other material action has been threatened in writing, asserted or instituted against the Plan, any trustee or fiduciary thereof, Seller, the Company or any of the assets of any trust or the Plan, other than routine claims for benefits; (v) all amendments required to bring the Plan into conformity with any of the applicable provisions of ERISA and the Code have been duly adopted; (vi) any bonding required with respect to the Plan in accordance with applicable provisions of ERISA has been obtained and is in full force and effect; 9 15 (vii) the Plan has been maintained in all material respects in accordance with its terms and related documents and the terms and the provisions of all applicable laws, including without limitation, ERISA (and the rules and regulations thereunder); (viii) neither Seller, the Company, nor to the knowledge of Seller and the Company, any other party has engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, with respect to the Plan (and the transactions contemplated by this Agreement will not constitute or directly or indirectly result in such a "prohibited transaction") which could subject the Company, Seller or the Purchaser, or any officer, director or employee of any of the foregoing, or any trustee, administrator or other fiduciary of the Plan, to a material tax or penalty on prohibited transactions imposed by ERISA or the Code; (ix) Seller has not been notified of an audit of any Plan by the Service or the Department of Labor; and (x) the Company is not obligated to maintain, contribute to, or in any way provide for any post-employment benefits of any kind whatsoever (other than under Section 4980B of the Code, the Federal Social Security Act or a plan qualified under Section 401(a) of the Code) to any current or future retiree or terminee. (xi) No Plan is "Voluntary employees beneficiary association" within the meaning of Code Section 501(c)(9) or a "Welfare benefit" within the meaning of Section 419 of the Code. (q) Insurance. Schedule 5(q) hereto contains a complete and correct list of all policies of insurance of any kind or nature covering the Company, including without limitation policies of life, fire, theft, casualty, product liability, workmen's compensation, business interruption, employee fidelity and other casualty and liability insurance, indicating the type of coverage, name of insured, the insurer, the premium, the expiration date of each policy and the amount of coverage. All such policies (i) are with insurance companies reasonably believed by Seller to be financially sound and reputable and are in full force and effect; (ii) are sufficient for compliance with all requirements of law and of all applicable agreements; (iii) are valid, outstanding and enforceable policies; and (iv) provide adequate insurance coverage for the assets and operations of the Company for all risks normally insured against by persons carrying on the same business as the Company. All premiums payable with respect to such policies have been paid. Complete and correct copies of such policies have been furnished to Purchaser. Prior to the Closing, Seller shall cause the Company to maintain in full force and effect all such policies of insurance or comparable insurance coverage. Since December 31, 1993, the Company has not been denied any insurance coverage which it has requested or made any material reduction in the scope or change in the nature of its insurance coverage. The products liability and personal injury insurance maintained by the Company has been on a "claims made" basis during the two-year period prior to the Closing Date. 10 16 (r) Litigation. Schedule 5(r) hereto contains a complete and correct list of all actions, suits, proceedings, claims or governmental investigations pending or, to Seller's Knowledge and to Nguyen's Knowledge, threatened against, the Company or any of its Assets, or, in connection with the Company's business, Seller or any of the Company's officers, directors or employees. Except as set forth on Schedule 5(r) hereto, neither the Company nor, in connection with the Company's business, Seller or any of the Company's officers, directors or employees, is subject or party to any judgment, order, or other direction of or stipulation with any court or other governmental authority or tribunal, or, to the Seller's Knowledge, in violation of any other legal requirements (as defined in subparagraph 5(t) below), and, to Seller's Knowledge, no reasonable basis for a claim of such a violation exists. To the Seller's Knowledge, there are no proposed legal requirements that might adversely affect in any material respect the operation or prospects of the Company's business. (s) Environmental Matters. (i) Definitions. As used herein, the following terms shall have the following meanings: (A) "Environmental Laws" shall mean all federal, state, local or common laws, rules, regulations, ordinances and directives relating to the protection of human health and the environment and any permits, licenses, authorizations or approvals issued thereunder; (B) "Hazardous Materials" shall mean any substance subject to regulation under Environmental Laws as a hazardous substance, hazardous waste, hazardous material, toxic substance, pollutant or contaminant or similar denomination intended to classify substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity and includes pesticides and petroleum and petroleum-derived products and chlorinated solvents. (ii) To Seller's Knowledge and to Nguyen's Knowledge, the Company has not caused or permitted to exist, as a result of an intentional or unintentional action or omission, a disposal, discharge, emission, release or threatened release of a Hazardous Material on, from or under any property now or previously owned or operated by the Company, or by any entity from which the Company may have acquired liability contractually or by operation of law, other than in compliance with the Environmental Laws or a permit or approval issued thereunder. (iii) To Seller's Knowledge and to Nguyen's Knowledge, there are no underground storage tanks, asbestos containing material, polychlorinated biphenyls or Hazardous Materials at any property now or previously owned by the Company or leased or operated by the Company, other than Hazardous Materials maintained in small quantities and in their original containers for use in the ordinary course of business. (iv) To Seller's Knowledge and to Nguyen's Knowledge, there are no conditions existing at any real property now or previously owned or operated by the Company, or by any entity from which the Company may have acquired liability contractually or by operation of law, which require, or which with the giving of notice or the passage of time or both would require, remedial action, removal or closure by the Company pursuant to Environmental Laws. 11 17 (t) Restrictions. The authorization, execution, delivery and performance of Seller's Documents and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate any of the provisions of the Company's Articles of Incorporation or By-Laws, (ii) except as set forth on Schedule 5(t), violate, conflict with, result in a breach of or constitute a default under, require any notice or consent under, give rise to a right of termination of, or accelerate the performance required by, any terms or provisions of any agreement, instrument or writing of any nature to which the Company or Seller is a party or is bound, or any of their Assets or business is subject, (iii) subject to compliance with the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), violate, or result in a breach of, conflict with, or require any notice, filing or consent under, any statute, rule, regulation or other provision of law, or any order, judgment or other direction of a court or other tribunal, or any other governmental requirement, permit, registration, license or authorization applicable to the Company, Seller or any of their Assets or business, in each case whether foreign or domestic (collectively, "legal requirements"), or (iv) result in the creation of any lien, claim, encumbrance or restriction on any of the Company's Assets or properties. Except as set forth on Schedule 5(t), the Company is not party to any non-compete or similar agreement which in any way restricts the operation of the Company's business. (u) Transactions with Affiliates. (i) Since December 31, 1996, the Company has made no dividends in respect of its capital stock or other distributions or payments of any kind whatsoever whether in cash or other property to Seller or any of its subsidiaries or affiliates, except (w) payments to Seller for payroll and payroll taxes, insurance and similar matters where the payment to Seller is equal to the amount paid by Seller to the Company or to the Company employees or to an unaffiliated third party on behalf of the Company, (x) payments made for commercial repair transactions at arms length pricing in the ordinary course of the Company's business and consistent with past practice and which do not adversely affect the Company, (y) the payment to Seller of $2,192,261 (inclusive of payment made through the Closing Date) relating to the Cerplex S.A.S. inventory and (z) the $180,000 payment to Seller made in January 29, 1997 relating to the transfer of profits for preceding quarters ("Permitted Intercompany Transactions"). No payment made to Seller with respect to the Cerplex S.A.S. inventory pursuant to clause (y) above shall (1) result in the creation of any lien, claim, encumbrance or restriction on any of the Company's Assets or properties, (2) result in the creation of any obligation on the part of the Company to Cerplex S.A.S. or any other affiliate or subsidiary of Seller or any third party or (3) violate any legal requirement (as defined in subparagraph 5(t) above). (ii) Except as set forth in Schedule 5(u) hereto and except for ordinary dealings with its employees and employment arrangements, since June 29, 1995, Seller and, to Seller's Knowledge, the Company have had no direct or indirect dealings with Tu Nguyen or with any other key employee of the Company or with any of their affiliates, associates or relatives. Except as set forth in Schedule 5(u) and except for employment arrangements with its employees, the Company has no obligation to or claim against Tu Nguyen or any other key employee of the Company, or any of their affiliates, associates or 12 18 relatives, and no such person or entity has any obligation to or claim against the Company. To Seller's Knowledge, Schedule 5(u) reasonably describes the nature and extent of any products, services or benefits provided to the Company by any such person or entity without a corresponding charge equal to the fair market value of such products, services or benefits. To Seller's Knowledge, neither Tu Nguyen, any other key employee of the Company, nor any of their affiliates, associates or relatives has any direct or indirect interest of any kind in any business or entity which is competitive with the Company. (v) Books and Records. The books and records of the Company from which the Company's financial statements are prepared are complete and correct in all material respects. The minute books of the Company, as previously made available to Purchaser, contain complete and accurate records of all meetings and accurately reflect all other corporate action of the shareholders and board of directors of the Company. (w) Illegal Payments. To Seller's Knowledge and to Nguyen's Knowledge, the Company and its officers, directors, employees and agents have not made any illegal payments to, or provided any illegal benefit or inducement for, any governmental official, supplier, customer or other person, in an attempt to influence any such person to take or to refrain from taking any action relating to the Company. (x) Officers and Directors; Bank Accounts, etc. Schedule 5(x) hereto lists all officers, directors and fiduciaries of the Company; all bank accounts and safe deposit boxes maintained by the Company and all authorized signatories therefor, specifying their respective authority; and all credit cards under which employees of the Company may incur liability, and the persons holding such cards. No person or entity holds any general or special power of attorney from the Company. (y) Expenses Related to this Agreement. The Company has not paid for any expenses incident to the negotiation or preparation of Seller's Documents or for any broker's, finder's or similar fee. (z) Accuracy of Documents and Information. To Seller's Knowledge, no representations or warranties made by Seller in this Agreement, nor any schedule, certificate or exhibit attached to this Agreement or furnished by Seller as required by Section 10 hereof, contains or will contain as of the Closing any untrue statement of a material fact, or omits or will omit as of the Closing to state a material fact necessary to make the statements or facts contained herein or therein not misleading. 6. Representations and Warranties of Purchaser. Purchaser and Lincolnshire represent, warrant and agree that: (a) Organization and Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has not conducted any business prior to the date hereof, and has no material assets or liabilities. Lincolnshire is a limited partnership organized under the State of Delaware. 13 19 (b) Execution and Effect of Agreement. Each of Purchaser and Lincolnshire, as appropriate, has the full right, power and authority to enter into and perform this Agreement, the Tax Allocation Agreement, the Escrow Agreement and all other agreements, certificates and documents executed or delivered or to be executed or delivered by Purchaser in connection herewith (collectively, with this Agreement, "Purchaser's Documents"). Each of Purchaser and Lincolnshire, as appropriate, has taken all actions necessary to authorize it to execute, deliver and perform Purchaser's Documents. This Agreement has been duly executed and delivered by Purchaser and Lincolnshire and Purchaser's Documents are (or when executed and delivered by Purchaser and Lincolnshire, will be) legal, valid and binding obligations of Purchaser and Lincolnshire, enforceable in accordance with their respective terms. (c) Restrictions. The authorization, execution, delivery and performance of Purchaser's Documents and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate any of the provisions of Lincolnshire's partnership agreement or Purchaser's Certificate of Incorporation or By-Laws, (ii) violate, conflict with, result in a breach of or constitute a default under, require any notice or consent under, give rise to a right of termination of, or accelerate the performance required by, any terms or provisions of any agreement, instrument or writing of any nature to which Purchaser or Lincolnshire is a party or is bound or any of its Assets or business is subject, or (iii) subject to compliance with the HSR Act, violate, conflict with or result in a breach of, or require any notice, filing or consent under, any statute, rule, regulation or other provision of law, or any order, judgment or other direction of a court or other tribunal, or any other governmental requirement, permit, registration, license or authorization applicable to Purchaser or Lincolnshire. 7. Covenants of Seller. Seller covenants and agrees that between the date hereof and the Closing: (a) Access by Purchaser. Purchaser and its officers, directors, employees, accountants, representatives and advisers, and those of its affiliates, shall have free and full access during normal business hours (upon prior notice to the Company) to the Company's assets, premises, books and records, key employees and accountants, including the audit work papers of KPMG, and its customers and suppliers, and the Company shall furnish Purchaser with such information and copies of such documents as Purchaser may reasonably request. In addition to the requirements of Section 3 hereof, Seller or the Company shall promptly furnish to Purchaser all financial statements of the Company that are prepared in the ordinary course of business, including without limitation monthly reports of sales, revenue and cash flow and quarterly and monthly balance sheets. (b) Conduct of Business. Except as expressly permitted or required below, the business of the Company shall be conducted only in the ordinary course, consistent with the present conduct of its business, and Seller and the Company shall use all reasonable efforts to maintain, preserve and protect the Assets and goodwill of the Company. The Company shall not, without the prior written consent of Purchaser, take or commit to take any of following actions: (i) amend its By-Laws or Certificate of Incorporation, (ii) issue 14 20 any additional shares of capital stock or issue, sell or grant any option or right to acquire or otherwise dispose of any of its authorized but unissued capital stock or other corporate securities, (iii) declare or pay any dividends or make any other distribution in cash or property on its capital stock other than Permitted Intercompany Transactions, (iv) repurchase or redeem any shares of its capital stock, (v) incur, or perform, pay or otherwise discharge, any obligation or liability (absolute or contingent), except for current obligations and liabilities incurred in the ordinary course of business consistent with past practice, (vi) enter into any employment agreement with, or become liable for any bonus, profit-sharing or incentive payment to, or increase the compensation or benefits of, any of its officers, directors or employees, except pursuant to presently existing plans, arrangements or agreements disclosed herein or in a schedule hereto, other than normal year-end bonuses and year-end salary increases, (vii) sell, transfer or acquire any properties or Assets, tangible or intangible, other than in the ordinary course of business, (viii) make any material changes in its customary method of operations, including marketing, selling and pricing policies and maintenance of business premises, fixtures, furniture and equipment, (ix) modify, amend or cancel any of its existing leases or enter into any contracts, agreements, leases or understandings other than in the ordinary course of business or enter into any loan agreements, (x) make any investments other than in certificates of deposit or short- term commercial paper, (xi) make any payments or incur any liability in connection with expenses incident to the negotiation or preparation of Seller's Documents, (xii) accelerate or discount the collection of accounts receivable, nor delay the payment of accounts payable or (xiii) make any dividend, cash distribution or payment to Seller or any of its subsidiaries or affiliates other than Permitted Intercompany Transactions. Notwithstanding the foregoing, the Company shall make the payment to Seller of the unpaid balance on the original amount of $2,192,261 relating to the Cerplex S.A.S. Inventory prior to Closing. (c) Supplements. If any representation, warranty or statement of Seller, or any schedule delivered to Purchaser, shall be or become incorrect, Seller, as the case may be, shall deliver to Purchaser a supplement in order that, if possible, said representation, warranty, statement, or schedule, as so supplemented, shall be true and correct. It is understood and agreed that the delivery of such a supplement to Purchaser shall not in any manner constitute a waiver by Purchaser of any of its rights under this Agreement, provided that if (i) a representation, warranty or statement of Seller prior to the Closing, or any schedule delivered to Purchaser, shall become incorrect after the date hereof, (ii) Seller as soon as possible delivers to Purchaser at least five (5) business days prior to the Closing (in accordance with Section 18 hereof) a supplement in order that said representation, warranty, statement, or schedule, as so supplemented, shall be true and correct, and (iii) Seller provides Purchaser with such other information as Purchaser may reasonably request in connection with such supplement, then Purchaser shall, at its sole option, elect (x) to consummate the Closing and thereby cure and correct for all purposes any breach of representation, warranty or statement which would have existed by reason of Seller not having made such supplement or (y) if Purchaser determines in its sole discretion that such representation, warranty or statement was material, to terminate this Agreement, without further liability on the part of the parties hereto. 15 21 (d) Employment. If Purchaser fails to continue to employ all employees listed on Schedule 7(d) at each employee's current pay for at least thirty (30) days and institute a severance policy which complies with the requirements of ERISA, Purchaser will cause the Company to be responsible for any and all liabilities associated with such failure and the limitations under Section 16 shall not apply to any breach of this Section. The Company will retain all liability for payment of the accrued but unused vacation, floating holidays and occasional absence accruals on Schedule 7(d). 8. Covenants of Purchaser. Purchaser covenants and agrees that between the date hereof and the Closing: (a) Representations and Warranties. Purchaser will not take any action which would cause any of the representations and warranties made by it in Purchaser's Documents not to be true and correct in all material respects on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. (b) Best Efforts to Close. Purchaser and Lincolnshire acknowledge that time is of the essence for Seller with respect to the Closing of this Agreement, and agree to use their best efforts to cause the Closing to occur as soon as practicable after the date hereof. Such efforts shall include good faith efforts to expedite to the extent reasonably possible the receipt of financing from their equity and debt sources without requiring its equity sources to fund more quickly than required by its existing agreements. 9. Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or before the Closing, of each of the following conditions, any of which may be waived by Purchaser in writing, and Seller shall use its best efforts to cause such conditions to be fulfilled: (a) Representations and Warranties. Each of the representations and warranties of Seller in Seller's Documents shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except to the extent that any of such representations and warranties refers specifically to a date other than the Closing Date, in which case such representations and warranties shall be true and correct in all material respects on and as of such date. (b) Performance of Seller. Seller shall have, or shall have caused the Company to have, performed and complied in all material respects with all agreements, covenants and conditions required by Seller's Documents to be performed or complied with by Seller or the Company at or before the Closing. (c) Delivery of Shares. All of the Shares shall have been delivered to Purchaser for purchase by it on the Closing Date in accordance with Section 11(a)(i) hereof. 16 22 (d) Employment Agreement. Tu Nguyen shall have entered into an employment agreement, management stockholders agreement, subscription agreement and noncompete agreement (collectively, the "Employment Agreement"). (e) Opinion of Counsel to Seller. Seller shall have delivered to Purchaser an opinion of Brobeck Phleger & Harrison LLP, counsel to Seller, dated the Closing Date, in the form attached hereto as Exhibit D (the "BPH Opinion"). (f) Certificate. Purchaser shall have received a certificate executed by Seller dated the Closing Date, certifying as to the fulfillment of the conditions set forth in Sections 9(a), (b), (c), (g), (j), (k), (l) and (m) ("Seller's Certificate"). (g) Litigation. No action or proceeding shall be pending or threatened before any court, tribunal or governmental body, and no claim or demand shall have been made against Purchaser, Seller or the Company, seeking to restrain or prohibit or to obtain damages or other relief in connection with the consummation of the transactions contemplated by Seller's Documents or Purchaser's Documents, or which might materially affect the business of the Company. (h) Escrow Agreement. Seller shall have entered into the Escrow Agreement with Purchaser and the Escrow Agent in the form of Exhibit B hereto. (i) Financing. Purchaser shall have obtained bank financing (the "Financing") for the purchase of the Shares contemplated by this Agreement on terms and conditions reasonably satisfactory to it. (j) Release of Liens. Purchaser shall have received evidence (the "Release Evidence") reasonably satisfactory to Purchaser, of the termination of all loan agreements and security agreements relating to the Assets of the Company or the Shares, of the termination and release of all liens and security interests in the Assets of the Company and in the Shares and of the termination of any UCC financing statements except with respect to equipment leased to the Company, the existence of which are not material. (k) No Material Adverse Change. Purchaser shall have received at least five (5) business days prior to the Closing Date, the Audited Financials and Audited Balance Sheet. There shall have been no material adverse change in the financial condition, results of operations, business or prospects of the Company described in the Audited Financials and Audited Balance Sheet from the financial condition, results of operations, business or prospects of the Company described in the Draft Audited Financials and Draft Audited Balance Sheet, except for the elimination of (i) "Due from parent" of $1,152,292 and (ii) "Due from affiliates" of $1,363 from the Assets shown on the Draft Audited Balance Sheet and the corresponding reduction in total stockholders' equity. (l) Intercompany Indebtedness. Since December 31, 1996, there shall have been no intercompany transactions between the Company and Seller or its affiliates other than Permitted Intercompany Transactions. 17 23 (m) No Payments to Affiliates. Since December 31, 1996 and up to and including the Closing Date, the Company shall have made no dividends, distributions or payments whatsoever, whether in cash or other property, to Seller or any of its subsidiaries or affiliates, other than Permitted Intercompany Transactions. (n) Tax Allocation Agreement. Seller shall have entered into the Tax Allocation Agreement with Purchaser in the form of Exhibit C hereto. (o) HSR Act. The expiration or early termination of the applicable waiting period under the HSR Act shall have occurred (the "HSR Condition"). 10. Conditions Precedent to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or before the Closing, of each of the following conditions, any of which may be waived by Seller in writing, and Purchaser shall use its best efforts to cause such conditions to be fulfilled: (a) Representations and Warranties. The representations and warranties of Purchaser and Lincolnshire in Purchaser's Documents shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date, except to the extent that any of such representations and warranties refers specifically to a date other than the Closing Date, in which case such representations and warranties shall be true and correct in all material respects on and as of such date. (b) Performance by Purchaser. Purchaser shall have performed and complied in all material respects with the agreements, covenants and conditions required by Purchaser's Documents to be performed or complied with by it at or before the Closing. (c) Purchase Price. The Purchase Price shall have been paid as provided in Section 4(a) above. If applicable, the Nguyen release shall be unconditional and in form and substance reasonably satisfactory to Seller. (d) Opinion of Counsel to Purchaser. Purchaser shall have delivered to Seller an opinion of Proskauer Rose Goetz & Mendelsohn LLP, counsel to Purchaser, dated the Closing Date, in form and substance reasonably satisfactory to Seller and its counsel (the "PRG&M Opinion"). (e) Certificate. Seller shall have received a certificate executed by Purchaser, dated the Closing Date, certifying as to the fulfillment of the conditions set forth in Sections 10(a), (b), (c) and (f). (f) Litigation. No action or proceeding shall be pending or threatened before any court, tribunal or governmental body, and no claim or demand shall have been made against Purchaser, Seller or the Company, seeking to restrain or prohibit or to obtain 18 24 damages or other relief in connection with the consummation of the transactions contemplated by Purchaser's Documents or Seller's Documents. (g) Escrow Agreement. Purchaser shall have entered into the Escrow Agreement with Seller and the Escrow Agent in the form of Exhibit B attached hereto. (h) Tax Allocation Agreement. Purchaser shall have entered into the Tax Allocation Agreement with Seller in the form of Exhibit C hereto. (i) Lender Consents. Seller shall have obtained all consents and/or waivers required under the loan agreements with Seller's senior and/or subordinated lenders in connection with the execution, delivery and performance of Seller's Documents and the transactions contemplated thereby. (j) HSR Act. The expiration or early termination of the applicable waiting period under the HSR Act shall have occurred (the "HSR Condition"). (k) Payment of Permitted Intercompany Transactions. All Permitted Intercompany Transactions, which include the remaining balance of the $2,192,261 relating to the Cerplex S.A.S. Inventory, shall be paid on or prior to Closing. 11. Closing Deliveries. (a) Deliveries of Seller. At the Closing, Seller shall deliver, or shall cause to be delivered, to Purchaser, the following: (i) Certificates representing the Shares, without legends, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, as Purchaser may designate, together with any required stock transfer tax stamps affixed and cancelled and all taxes on such transfer, if any, paid in full, all at the expense of Seller. Such Shares shall be delivered to Purchaser, free and clear of all claims. (ii) The Tax Allocation Agreement. (iii) The BPH Opinion. (iv) Seller's Certificate. (v) Escrow Agreement. (vi) The Release Evidence. (vii) Duly executed resignations of such officers, directors and fiduciaries of the Company as Purchaser shall designate at least two days prior to the Closing. 19 25 (b) Deliveries of Purchaser. At the Closing, Purchaser shall deliver or cause to be delivered to Seller the following: (i) The Purchase Price, less the Escrowed Amount, by certified or official bank check or by wire transfer, as Seller may select. (ii) The PRG&M Opinion. (iii) Purchaser's Certificate. (iv) Escrow Agreement. (v) The Tax Allocation Agreement. (c) Deliveries to the Escrow Agent. At the Closing, Purchaser shall deliver or cause to be delivered to the Escrow Agent, the Escrowed Amount. 12. Restrictive Covenant. For two years (five years in the case of Tu Nguyen) after the Closing Date, each of Seller and Purchaser shall not, and shall not permit its affiliates, to directly or indirectly solicit the services of (whether as an employee, officer, consultant, independent contractor or otherwise), any person who is then (or was at any time within one year (two years in the case of Tu Nguyen) prior to the time of such solicitation) an employee, officer, sales representative or agent of the Company or of Seller, respectively. Because the breach or attempted or threatened breach of this restrictive covenant will result in immediate and irreparable injury to Purchaser or Seller, as the case may be, for which Purchaser or Seller, as the case may be, will not have an adequate remedy at law, Purchaser or Seller, as the case may be, shall be entitled, in addition to all other remedies, to a decree of specific performance of this covenant and to a temporary and permanent injunction enjoining such breach, without posting bond or furnishing similar security. The provisions of this Section 12 are in addition to and independent of any agreements or covenants contained in any other agreement between the Company and Seller. 13. Brokers. Each party represents to the other that it has had no dealings with any broker or finder in connection with the transactions contemplated by this Agreement. Should any other claim be made for a broker's, finder's or similar fee, on account of any actions or dealings by a party or its agents, such party shall indemnify and hold the other party harmless from and against any and all liability and expenses, including reasonable attorneys' fees incurred by reason of any claim made by such broker. 14. Indemnification by Seller. Subject in all respects to Section 16, Seller shall indemnify, defend and hold harmless Purchaser and its affiliates (including the Company), promptly upon demand at any time and from time to time, against any and all losses, liabilities, claims, actions, damages and expenses, including without limitation reasonable attorneys' fees and disbursements (collectively, "Losses"), arising out of or in connection with any of the following: (a) any misrepresentation or breach of any warranty made by Seller in any of Seller's Documents, (b) any breach or nonfulfillment of any 20 26 covenant or agreement made by Seller in any of Seller's Documents and (c) the sale of Peripheral Computer Support GmbH, a German corporation and a former subsidiary of the Company. 15. Indemnification by Purchaser. Subject in all respects to Section 16, Purchaser and Lincolnshire shall indemnify, defend and hold harmless Seller, promptly upon demand at any time and from time to time, against any and all Losses arising out of or in connection with any of the following: (a) any misrepresentation or breach of any warranty made by Purchaser in any of Purchaser's Documents and (b) any breach or nonfulfillment of any covenant or agreement made by Purchaser in Purchaser's Documents. 16. Further Provisions Regarding Indemnification. (a) Survival. Subject to Section 16(b), all representations, warranties, indemnities, covenants and agreements made by Seller and Purchaser in Seller's or Purchaser's Documents shall survive the Closing, notwithstanding any examination or investigation made by or for any party; provided, however, (i) that the representations and warranties made by Seller (other than Sections 5(a), 5(c) and 5(s)) and Purchaser in this Agreement shall expire on the first anniversary of the Closing Date, (ii) the representations and warranties made by Seller in Section 5(a) and Section 5(c) hereof shall not expire, (iii) the representations and warranties made by Seller in Section 5(s) shall expire on the date that all applicable statute of limitations with respect to Environmental Laws have expired and (iv) the survival of representations and warranties, covenants and obligations contained in the Tax Allocation Agreement shall be as set forth in Section 5.2 of the Tax Allocation Agreement; and provided further, however, that any claims for indemnification that have been made before such dates shall survive until the final resolution thereof. (b) Limitations. (i) Neither Seller nor Purchaser (each sometimes being hereinafter referred to in this Section 16 as a "party") shall be entitled to indemnification for Losses arising out of matters referred to in Section 14(a) or Section 15(a), as applicable, unless it shall have given written notice to the other party, setting forth its claim for indemnification in reasonable detail, prior to the expiration of the applicable representation, warranty, obligation, covenant or agreement as set forth in Section 16(a) above or the Tax Allocation Agreement. (ii) Notwithstanding anything contained in this Agreement to the contrary, Seller (1) shall have no obligation hereunder to provide indemnification for the first $100,000 of Losses (without counting Losses from Immaterial Claims, as defined below), (2) shall have no further indemnification obligation hereunder once Seller has paid to Purchaser a total of $4,000,000 in Losses for all claims other than Ownership Claims, Capitalization Claims, Tax Claims and Environmental Claims (each as defined below), (3) Seller shall have no further indemnification obligation hereunder for all claims for Losses (inclusive of claims regarding a breach of Section 5(a) hereof (an "Ownership Claim"), Section 5(c) hereof (a "Capitalization Claim"), Section 5(s) hereof (an "Environmental Claim"), and the Tax 21 27 Allocation Agreement (a "Tax Claim")) once Seller has paid to Purchaser an amount equal to $15,000,000 and (4) in no event shall Seller or Purchaser have any liability for any singular incident or fact involving a breach, inaccuracy or omission of Seller or Purchaser, as applicable, if the Losses from such singular incident or fact are equal to or less than $2,500 (an "Immaterial Claim"); and provided further, however, that the foregoing limitation on Seller's indemnification obligation set forth in clause 1 above shall not apply to Losses arising out of or in connection with any misrepresentation or breach of any warranty made by Seller in Sections 5(a), 5(c), 5(r) (to the extent Seller or Tu Nguyen actually knows of a threatened claim), 5(s) and 5(w) and Section 13 hereof and in the Tax Allocation Agreement. (c) Defense. An indemnified party shall promptly give written notice to the indemnifying party after the indemnified party has knowledge that any legal proceeding has been instituted or any claim has been asserted in respect of which indemnification may be sought under the provisions of Section 14 or 15. If the indemnifying party, within 10 days after the indemnified party has given such notice (or within such shorter period of time as an answer or other responsive motion may be required), shall have acknowledged in writing his or its obligation to indemnify, then the indemnifying party shall have the right to control the defense of such claim or proceeding, and the indemnified party shall not settle or compromise such claim or proceeding without the written consent of the indemnifying party, which consent shall not unreasonably be withheld or delayed. The indemnified party may in any event participate in any such defense with his or its own counsel and at his or its own expense. Notwithstanding the foregoing, the right to indemnification hereunder shall not be affected by any failure of an indemnified party to give such notice (or by delay by an indemnified party in giving such notice) unless, and then only to the extent that, the rights and remedies of the indemnifying party shall have been prejudiced as a result of the failure to give, or delay in giving, such notice. (d) Payments. Each amount payable to Purchaser by Seller under Section 14 (an "Indemnification Amount") shall be paid by Purchaser and Seller directing the Escrow Agent, pursuant to the terms of Escrow Agreement, to deliver to Purchaser an amount equal to the Indemnification Amount. Subject to the limitations on Purchaser's right to indemnification set forth in Section 16(b), any Indemnification Amount remaining unsatisfied after delivery of amounts held by the Escrow Agent shall be paid promptly in cash, certified check or wire transfer to Purchaser by Seller (it being understood that Purchaser's source of payment of Indemnification Amounts under Section 14 are not limited to the Escrowed Amount). Each amount payable to Purchaser by Seller under Section 14 shall be paid promptly in cash, certified check or wire transfer to Purchaser by Seller. (e) Calculation of Damages. An indemnified party shall be entitled to recover the full amount of any Loss incurred due to the matter for which indemnification is sought, but any recovery shall be net of any benefit received by the indemnified party due to such Loss, including, without limitation, any tax benefit, insurance proceeds or warranty reimbursements. (f) Certain Events. Neither Lincolnshire nor Purchaser shall have any liability under this Agreement if Purchaser fails to close because LaSalle National Bank (the 22 28 "Lender") fails to close with respect to the financing due to a bona fide, material environmental liability of the Company identified prior to the Closing Date or the failure of Seller to remove any liens on, or security interests in, the Assets of the Company or the Shares by the Closing Date. 17. Further Assurances. The parties shall cooperate and take such actions, and execute such other documents, at the Closing or subsequently, as either may reasonably request in order to carry out the provisions or purpose of this Agreement. 18. Notices. All notices or other communications in connection with this Agreement shall be in writing and shall be considered given when personally delivered, telecopied (provided that telecopy is supplemented by overnight original copy delivery), mailed by overnight courier or three business days after being mailed by registered or certified mail, postage prepaid, return receipt requested, as follows: If to Seller: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92780 Attn: President With a copy to: Brobeck, Phleger & Harrison LLP 4675 MacArthur Court, Suite 1000 Newport Beach, California 92660 Attn: Frederic A. Randall, Jr., Esq. Fax: (714) 752-7535 If to Purchaser: PCS Acquisition Co., Inc. c/o Lincolnshire Management, Inc. 780 Third Avenue, 45th Floor New York, New York 10017 Attn: C. Kenneth Clay Fax: (212) 755-5457 With a copy to: Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, New York 10036 Attn: Arnold J. Levine, Esq. Fax: (212) 969-2900 23 29 19. Entire Agreement. This Agreement (which includes the schedules and exhibits hereto) sets forth the parties' final and entire agreement with respect to its subject matter and supersedes any and all prior understandings and agreements. This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by a written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, change or waiver is sought. 20. Successors. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns; provided, however, that neither this Agreement nor any right or obligation hereunder may be assigned or transferred, except that Purchaser may assign this Agreement and its rights hereunder to any affiliate or any direct or indirect wholly-owned subsidiary of Purchaser and either Purchaser or Seller may assign this Agreement to financial institutions. 21. Section Headings. The section headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 22. Other Discussions. Unless this Agreement shall have been terminated, neither Seller nor the Company shall enter into any negotiations regarding the acquisition of any assets or capital stock of the Company. 23. Fees and Expenses. Each of the parties hereto shall pay their own respective expenses in connection with the transactions contemplated herein, including without limitation the preparation and negotiation of this Agreement and its schedules and exhibits and the costs, fees and expenses of their respective advisors and lenders. No costs, fees or expenses incurred by Purchaser or Seller shall be borne by the Company. 24. Severability. If any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, invalid or unenforceable, such provision shall be construed and enforced as if it had been more narrowly drawn so as not to be illegal, invalid or unenforceable, and such illegality, invalidity or unenforceability shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 25. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the internal law of the State of California (without reference to its rules as to conflicts of law). 26. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 27. Third Parties. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person or entity other than Seller and Purchaser any rights or remedies under or by reason of this Agreement. 24 30 28. Other Agreements. (a) Confidentiality. Whether or not the Closing occurs, each of the parties will treat in confidence all documents, materials and other information disclosed by any other party, whether during the course of the negotiations leading to the execution of this Agreement or thereafter, in its investigation of the other parties and in the preparation of agreements, schedules and other documents relating to the consummation of such transactions contemplated hereby. If this Agreement is terminated, Purchaser and Seller will each use its reasonable efforts to return to the other all originals and copies of non-public documents and materials which have been furnished in connection with this Agreement. (b) Publicity. Prior to the Closing, Purchaser, on the one hand, and Seller, on the other hand, shall consult with and obtain the consent of the other before issuing any press release or making any similar disclosure concerning this Agreement or the transactions referred to in this Agreement, unless, in the reasonable judgment of the party issuing the release or making the disclosure, the release or disclosure is required as a matter of law (in which case it or they shall consult as set forth above prior to issuing the release or making the disclosure). Purchaser acknowledges that Seller will make a press release promptly following the execution of this Agreement. 25 31 IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. PCS ACQUISITION CO., INC. By: /s/ C. KENNETH CLAY --------------------------------------- C. Kenneth Clay Title: THE CERPLEX GROUP, INC. By: /s/ RICHARD C. DAVIS --------------------------------------- Richard C. Davis President of International Business LINCOLNSHIRE EQUITY PARTNERS, L.P. By: Lincolnshire Equity Partners, L.P. its general partner By: /s/ C. KENNETH CLAY ----------------------------------- C. Kenneth Clay Title: 26 32 DISCLOSURE SCHEDULES to the Stock Purchase Agreement dated March 28, 1997 relating to the purchase of all of the Outstanding Stock of Peripheral Computer Support, Inc. 27 EX-4.17 3 WAIVER AND AMENDMENT AGREEMENT DATED 10/31/96 1 EXHIBIT 4.17 WAIVER AND AMENDMENT AGREEMENT WAIVER AND AMENDMENT AGREEMENT (this "Agreement"), dated as of October 31, 1996, by and among THE CERPLEX GROUP, INC., a Delaware corporation (together with its successors and assigns, the "Company"), THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC (collectively, the "Noteholders"). RECITALS: A. The Company has entered into those certain separate Note Purchase Agreements, each dated as of November 19, 1993 (collectively, as amended pursuant to the terms of each of the amendment agreements set forth in Schedule A to this Agreement, the "Note Purchase Agreement" ), with each of the Noteholders, pursuant to which the Company originally issued and sold to the Noteholders (i) an aggregate principal amount of Seventeen Million Two Hundred Fifty Thousand Dollars ($17,250,000) of the Company's Series A 9.00% Senior Subordinated Notes Due November 19, 2001 (as amended, the "Notes"), and (ii) an aggregate principal amount of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000) of the Company's Series B 9.00% Senior Subordinated Notes Due November 19, 2001 (the "Series B Notes"). The Company has prepaid the Series B Notes and such Series B Notes are no longer issued and outstanding. B. The Noteholders are the current holders of one hundred percent (100%) of the Notes outstanding as of the Effective Date. C. The Company and the Noteholders have entered into that certain Warrant Agreement (the "Existing 1996 Warrant Agreement," and as amended hereby, the "Amended 1996 Warrant Agreement"), dated as of April 15, 1996, pursuant to which the Company issued one million warrants of the Company to the Noteholders. D. Pursuant to a notice to the Noteholders dated September 23, 1996, the Company notified the Noteholders of certain Defaults and Events of Defaults under Section 6.3 and Section 6.4 of the Note Purchase Agreement (the "Noticed Events of Default," such term to include, for purposes of avoidance of doubt, all Defaults and Events of Defaults under Section 6.3 and Section 6.4 of the Note Purchase Agreement that may have existed prior to the date of such notice or after the date of such notice and prior to the Effective Date (as hereinafter defined)) and the Company has requested that the Noteholders waive the Noticed Events of Default. E. In consideration of the aforesaid waivers, the Company has agreed that the Existing 1996 Warrant Agreement shall be amended by changing the definition of "Initial Purchase Price" therein from $6.00 to $2.50. F. The Noteholders are agreeable, subject to the terms and conditions set forth below, to granting the aforesaid waivers, and in connection therewith, each of the Company and the Noteholders has agreed to amend the Existing 1996 Warrant Agreement as set forth herein. 2 G. Unless otherwise expressly provided for herein, capitalized terms used herein and defined in the Note Purchase Agreement are used herein with the meanings ascribed to them in the Note Purchase Agreement. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. WAIVER. Subject to the satisfaction of the conditions set forth in Section 4, the Noteholders hereby waive, on the Effective Date, each of the Noticed Events of Default and agree that the effectiveness of Section 6.3 and Section 6.4 shall be temporarily suspended from and including the Effective Date to and including the earlier to occur of (a) the date that any holder of Senior Debt takes any action in respect of any default or any event of default under any Senior Credit Document and (b) November 30, 1996 (the "Reinstatement Date"). After the Reinstatement Date, Section 6.3 and Section 6.4 shall be in full force and effect. Except for the foregoing express waivers and suspensions, the terms of this Agreement shall not operate as a waiver of, or otherwise prejudice, the rights, remedies or powers of the Noteholders under the Note Purchase Agreement, under the Notes or under applicable law and all of such rights, remedies and powers are hereby expressly reserved. SECTION 2. AMENDMENT TO THE EXISTING 1996 WARRANT AGREEMENT; AFFIRMATION. 2.1 Amendment to the Existing 1996 Warrant Agreement. The Company and, subject to the satisfaction of the conditions set forth in Section 4, each of the Noteholders hereby amend and restate the definition of "Initial Purchase Price" in the Existing 1996 Warrant Agreement as set forth below: INITIAL PURCHASE PRICE -- means Two Dollars and Fifty Cents ($2.50). 2.2 AFFIRMATION OF OBLIGATIONS. The Company hereby acknowledges and affirms all of its obligations under the terms of the Note Purchase Agreement and under the Existing 1996 Warrant Agreement, as amended hereby. SECTION 3. WARRANTIES AND REPRESENTATIONS. To induce the Noteholders to enter into this Agreement, the Company warrants and represents to the Noteholders that as of the Effective Date: 3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company: 2 3 (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) has all legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted; (c) has all licenses, certificates, permits, franchises and other governmental authorizations necessary to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have such licenses, certificates and permits, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect; and (d) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing, as a foreign corporation in each state except where the failure to be so qualified or licensed and authorized and in good standing, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect. 3.2 COMPLIANCE WITH LAW. The Company: (a) is not in violation of any law, ordinance, governmental rule or regulation to which it is subject; and (b) has not failed to obtain any license. certificate, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain, either individually or in the aggregate, would have, or could reasonably be expected to have, a Material Adverse Effect. 3.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE. (A) AUTHORIZATION. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder are within the corporate powers of the Company and do not conflict with, result in any breach in any of the provisions of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of, any agreement, charter instrument, bylaw or other instrument to which it is a party or by which it or any of its Property may be bound. (B) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution and delivery by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company, and this Agreement has been executed and delivered by one or more duly authorized officers of the Company. This Agreement constitutes a legal, valid and binding 3 4 obligation of the Company, enforceable against the Company in accordance with its terms, except that the enforceability thereof may be: (i) limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or other similar laws affecting the enforceability of creditors' rights generally; (ii) subject to the availability of equitable remedies; and (iii) with respect to indemnity and contribution, limited by state or federal laws relating to Securities or by the public policy underlying such laws. 3.4 NO DEFAULTS. (A) NO OTHER DEFAULTS. No Defaults or Events of Default exist, other than the Noticed Events of Default. No Senior Nonpayment Default exists that has not been waived and no Senior Nonpayment Default Notice has been issued by any holder of Senior Debt. (B) AMENDED FINANCING DOCUMENTS. No event has occurred and no condition exists that, upon the execution, delivery and effectiveness of this Agreement would constitute a Default or an Event of Default other than in respect of the Noticed Events of Default. (C) CHARTER INSTRUMENT, OTHER AGREEMENTS. The Company is not in violation in any respect of any term of any charter instrument or bylaw. Except with respect to the failure of the Company to pay the promissory note payable to Lucent Technologies, Inc., the Company is not in violation in any material respect of any term in any agreement or other instrument to which it is a party or by which it or any of its Property may be bound, which would have, or could reasonably be expected to have, a Material Adverse Effect. SECTION 4. CONDITIONS. The waiver by the Noteholders set forth in Section 1 and the amendment described in Section 2 shall become effective on October 31, 1996 (the "Effective Date"), subject to all of the following conditions having been satisfied on or prior to such date: 4.1 EXECUTION AND DELIVERY OF THIS AGREEMENT. The Company and the Required Holders and all of the Warrantholders (as such term is defined in the Existing 1996 Warrant Agreement) shall have executed and delivered counterparts of this Agreement. 4.2 WAIVER BY HOLDERS OF SENIOR DEBT. The Company and each holder of Senior Debt whose consent is required therefor pursuant to the terms of the Senior Credit Documents shall have executed and delivered waivers with respect to all defaults and all events of default which exist under such Senior Credit Documents 4 5 (including, without limitation, each of such events that relate to each of the Noticed Events of Default). The Company shall have delivered to each Noteholder a copy of the Limited Waiver entered into among the Company and the holders of Senior Debt, in the form of the execution draft of the Limited Waiver previously delivered to each Noteholder, together with a certification by a Senior Officer of the Company stating that such copy is a true and correct copy and such Limited Waiver cures or waives all defaults and all events of default which exist under the Senior Credit Documents. 4.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE. After giving effect to Section 1 hereof, no Default or Event of Default under the Note Purchase Agreement shall exist and the warranties and representations set forth in Section 3 hereof shall be true and correct on the Effective Date. 4.4 AUTHORIZATION OF TRANSACTIONS. The Company shall have authorized, by all necessary corporate action, its execution, delivery and performance of this Agreement and the consummation of all transactions contemplated by this Agreement and evidence of the same shall have been delivered to the Noteholders. 4.5 EXPENSES. The Company shall have paid all costs and expenses of the Noteholders relating to this Agreement (including, without limitation, any fees and disbursements of their special counsel). 4.6 PROCEEDINGS SATISFACTORY. All proceedings taken in connection with this Agreement shall be satisfactory to the Noteholders and their special counsel. The Noteholders and their special counsel shall have received copies of such documents and papers as they may reasonably request in connection therewith, in form and substance satisfactory to them. SECTION 5. MISCELLANEOUS. 5.1 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW. 5.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 5 6 5.3 EFFECT OF THIS AGREEMENT. Except as specifically provided in this Agreement, no terms or provisions of the Note Purchase Agreement have been modified or changed by this Agreement and the terms and provisions of the Note Purchase Agreement shall continue in full force and effect. Except as specifically provided in this Agreement, no terms or provisions of the Existing 1996 Warrant Agreement have been modified or changed by this Agreement and the terms and provisions of the Existing 1996 Warrant Agreement, as amended hereby, shall continue in full force and effect. This Agreement and the waivers and amendments contained herein shall have and be in effect on and after the Effective Date. 5.4 WAIVERS AND AMENDMENTS OF THIS AGREEMENT. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 5.5 SECTION HEADINGS. The titles of the sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 5.6 COSTS AND EXPENSES. On the Effective Date, the Company shall pay all costs and expenses of the Noteholders related hereto, including, but not limited to, the statement for fees and disbursements of the Noteholders' special counsel presented to the Company on the Effective Date for matters in connection with this Agreement. The Company will also pay upon receipt of any statement thereof, each additional statement for fees and disbursements of the Noteholders' special counsel rendered after the Effective Date in connection with this Agreement. The obligations of the Company under this Section 5.6 shall survive the payment or prepayment of the Notes and the termination of the Note Purchase Agreement. 5.7 SURVIVAL. All warranties, representations, certifications and covenants made by the Company hereunder, or in any certificate or other instrument delivered pursuant hereto or thereto, shall be considered to have been relied upon by the Noteholders and shall survive the execution of this Agreement regardless of any investigation made by or on behalf of the Noteholders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company hereunder. [REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.] 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. THE CERPLEX GROUP, INC. By -------------------------------------- Name: James R. Eckstaedt Title: Senior Vice President and CFO Accepted: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By -------------------------------- Name: Title: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY BY________________________________ Name: Title: NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC By________________________________ Name: Title: [Signature page to the WAIVER AND AMENDMENT AGREEMENT among THE CERPLEX GROUP, INC. and the Noteholders listed therein.] 7 8 SCHEDULE A Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994. Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994. Amendment Agreement dated as of October 27, 1994. Waiver and Amendment Agreement dated as of April 15, 1996. Schedule A-1 EX-4.18 4 WAIVER AND AMENDMENT AGREEMENT DATED 12/9/96 1 EXHIBIT 4.18 ================================================================================ THE CERPLEX GROUP, INC. _____________________________ WAIVER AND AMENDMENT AGREEMENT _____________________________ DATED DECEMBER 9, 1996 $17,250,000 SERIES A SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001 ================================================================================ 2 WAIVER AND AMENDMENT AGREEMENT WAIVER AND AMENDMENT AGREEMENT (this "Agreement"), dated December 9, 1996, by and among THE CERPLEX GROUP, INC., a Delaware corporation (together with its successors and assigns, the "Company"), THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC (collectively, the "Noteholders"). RECITALS: A. The Company has entered into those certain separate Note Purchase Agreements, each dated as of November 19, 1993 (collectively, as amended pursuant to the terms of each of the amendment agreements set forth in Schedule A to this Agreement and as in effect prior to the effectiveness of this Agreement, the "Existing Note Purchase Agreement," and, as amended by this Agreement, the "Amended Note Purchase Agreement"), with each of the Noteholders, pursuant to which the Company originally issued and sold to the Noteholders (i) an aggregate principal amount of Seventeen Million Two Hundred Fifty Thousand Dollars ($17,250,000) of the Company's Series A 9.00% Senior Subordinated Notes Due November 19, 2001 (as amended, the "Notes"), and (ii) an aggregate principal amount of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000) of the Company's Series B 9.00% Senior Subordinated Notes Due November 19, 2001 (the "Series B Notes"). The Company has prepaid the Series B Notes and such Series B Notes are no longer issued and outstanding. B. The Noteholders are the current holders of one hundred percent (100%) of the Notes outstanding as of the Effective Date. C. Pursuant to a notice to the Noteholders dated September 23, 1996, the Company notified the Noteholders of certain Defaults and Events of Defaults under Section 6.3 and Section 6.4 of the Existing Note Purchase Agreement (the "Noticed Events of Default," such term to include, for purposes of avoidance of doubt, all Defaults and Events of Defaults under Section 6.3 and Section 6.4 of the Existing Note Purchase Agreement that may have existed prior to the date of such notice or after the date of such notice and prior to the effective date of the October 1996 Waiver (as hereinafter defined)) and the Company has requested that the Noteholders continue the waiver of such Noticed Events of Default provided for in the October 1996 Waiver until [December 31, 1996]. D. Pursuant to a Waiver and Amendment Agreement dated as of October 31, 1996, the Noteholders waived the aforesaid Noticed Events of Default until November 30, 1996 and, pursuant to a letter agreement dated November 26, 1996, extended such waiver until December 9, 1996 (the "October 1996 Waiver"). THE CERPLEX GROUP, INC. 1 WAIVER AND AMENDMENT AGREEMENT 3 E. The Company has further requested that certain of the provisions in the Existing Note Purchase Agreement be amended, as more particularly provided herein. F. The Noteholders are agreeable, subject to the terms and conditions set forth below, to granting the aforesaid waivers and modifying the Existing Note Purchase Agreement as hereinafter set forth, and in connection therewith, each of the Company and the Noteholders has agreed to amend the Existing Note Purchase Agreement as set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. The terms used herein and not defined herein shall have the meanings assigned to such terms in the Existing Note Purchase Agreement. As used in this Agreement, the following terms have the respective meanings specified below: "AGREEMENT, THIS" -- means this Waiver and Amendment Agreement, as it may be amended from time to time. "AMENDED NOTE PURCHASE AGREEMENT" -- Recital A. "COMPANY" -- the introductory sentence. "EFFECTIVE DATE" -- Section 5. "EXISTING NOTE PURCHASE AGREEMENT" -- Recital A. "1996 WARRANT AGREEMENT" -- Section 3.2. "NOTEHOLDERS" -- the introductory sentence. "NOTES" -- Recital A. "NOTICED EVENTS OF DEFAULT" -- Recital C. "OCTOBER 1996 WAIVER" -- Recital C. SECTION 2. WAIVER. Subject to the satisfaction of the conditions set forth in Section 4, the Noteholders hereby continue the waiver provided in the October 1996 Waiver in respect of each of the Noticed Events of Default until [December 31, 1996] and agree that the effectiveness of Section 6.3 and Section 6.4 shall be temporarily suspended from and including the effective date of the October 1996 Waiver to and including the earlier to occur of (a) the date that any holder of Senior Debt takes any action in respect of any default or any event of default under THE CERPLEX GROUP, INC. 2 WAIVER AND AMENDMENT AGREEMENT 4 any Senior Credit Document and (b) [December 31, 1996] (the "Reinstatement Date"). After the Reinstatement Date, Section 6.3 and Section 6.4 shall be in full force and effect. Except for the foregoing express waivers and suspensions, the terms of this Agreement shall not operate as a waiver of, or otherwise prejudice, the rights, remedies or powers of the Noteholders under the Note Purchase Agreement, under the Notes or under applicable law and all of such rights, remedies and powers are hereby expressly reserved. SECTION 3. AMENDMENTS TO THE EXISTING NOTE PURCHASE AGREEMENT; 1996 WARRANT AGREEMENT; AFFIRMATION. 3.1 AMENDMENTS TO THE EXISTING NOTE PURCHASE AGREEMENT. The Company and, subject to the satisfaction of the conditions set forth in Section 5, each of the Noteholders hereby consent and agree to the amendments to the Existing Note Purchase Agreement set forth in Exhibit A to this Agreement. Each such amendment is incorporated herein by reference as if set forth verbatim in this Agreement. 3.2 AMENDMENT TO THE EXISTING 1996 WARRANT AGREEMENT. In connection with the October 1996 Waiver, that certain Warrant Agreement (the "1996 Warrant Agreement"), dated as of April 15, 1996, among the Company and the Noteholders was changed by amending and restating the definition of "Initial Purchase Price" therein to mean $2.50. For purposes of the avoidance of doubt and in confirmation of said amendment, each of the Warrant Certificates (as such term is defined in the 1996 Warrant Agreement) issued under the 1996 Warrant Agreement and currently outstanding as well as Exhibit A to the 1996 Warrant Agreement are hereby further amended and modified by changing the references therein to "initial purchase price" and "Purchase Price" from "Six Dollars ($6.00) per share" to "Two Dollars and Fifty Cents ($2.50) per share." This amendment to each of the Warrant Certificates currently outstanding shall be effective without any further action required on the part of the Noteholders or the Company and without the need to submit such Certificates to Company for any notation of said change thereon or to otherwise exchange such Certificates for new Warrant Certificates. 3.3 AFFIRMATION OF OBLIGATIONS. The Company hereby acknowledges and affirms all of its obligations under the terms of the Existing Note Purchase Agreement, as amended hereby, and the 1996 Warrant Agreement and the Warrant Certificates issued thereunder, as amended hereby. SECTION 4. WARRANTIES AND REPRESENTATIONS. To induce the Noteholders to enter into this Agreement, the Company warrants and represents to the Noteholders that as of the Effective Date: THE CERPLEX GROUP, INC. 3 WAIVER AND AMENDMENT AGREEMENT 5 4.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company: (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) has all legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted; (c) has all licenses, certificates, permits, franchises and other governmental authorizations necessary to own and operate, its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have such licenses, certificates and permits, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect; and (d) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing, as a foreign corporation in each state except where the failure to be so qualified or licensed and authorized and in good standing, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect. 4.2 COMPLIANCE WITH LAW. The Company: (a) is not in violation of any law, ordinance, governmental rule or regulation to which it is subject; and (b) has not failed to obtain any license, certificate, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain, either individually or in the aggregate, would have, or could reasonably be expected to have, a Material Adverse Effect. 4.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE. (A) AUTHORIZATION. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder and under the Amended Note Purchase Agreement are within the corporate powers of the Company and do not conflict with, result in any breach in any of the provisions of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of, any agreement, charter instrument, bylaw or other instrument to which it is a party or by which it or any of its Property may be bound. THE CERPLEX GROUP, INC. 4 WAIVER AND AMENDMENT AGREEMENT 6 (B) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution and delivery by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company, and this Agreement has been executed and delivered by one or more duly authorized officers of the Company. This Agreement and the Amended Note Purchase Agreement constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except that the enforceability thereof may be: (i) limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or other similar laws affecting the enforceability of creditors' rights generally; (ii) subject to the availability of equitable remedies; and (iii) with respect to indemnity and contribution, limited by state or federal laws relating to Securities or by the public policy underlying such laws. 4.4 PENDING LITIGATION. Except as set forth in Schedule 4.4, there are no proceedings, actions or investigations pending or, to the knowledge of the Company, threatened against or affecting the Company in any court or before any Governmental Authority or arbitration board or tribunal that, either individually or in the aggregate, would have or could reasonably be expected to have a Material Adverse Effect. The Company is not in default with respect to any judgment, order, writ, injunction or decree of any court, Governmental Authority or arbitration board or tribunal that, either individually or in the aggregate, would have or could reasonably be expected to have a Material Adverse Effect. Except as previously disclosed to the Noteholders, the Company has not received any notice of termination of any material contract, lease or other agreement or suffered any material damage, destruction or loss (whether or not covered by insurance) or had any employee strike, work-stoppage, slowdown or lock-out or any substantial, non-frivolous threat directed to it of any imminent strike, work-stoppage, slowdown or lock-out. 4.5 GOVERNMENTAL CONSENT. Neither the nature of the Company, nor of any of its businesses or Properties, nor any relationship between the Company and any other Person, nor any circumstance in connection herewith or in connection with the execution and delivery of this Agreement is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority on the part of the Company as a condition to the execution and delivery thereof. 4.6 NO DEFAULTS. (A) NO OTHER DEFAULTS. No Defaults or Events of Default exist, other than the Noticed Events of Default. THE CERPLEX GROUP, INC. 5 WAIVER AND AMENDMENT AGREEMENT 7 (B) FINANCING DOCUMENTS. No event has occurred and no condition exists that, upon the execution, delivery and effectiveness of this Agreement would constitute a Default or an Event of Default. (C) CHARTER INSTRUMENT, OTHER AGREEMENTS. The Company is not in violation in any respect of any term of any charter instrument or bylaw. Except as set forth in Schedule 4.6, the Company is not in violation in any material respect of any term in any agreement or other instrument to which it is a party or by which it or any of its Property may be bound, which would have, or could reasonably be expected to have, a Material Adverse Effect. SECTION 5. CONDITIONS. The waiver by the Noteholders set forth in Section 2 and the consent of the Noteholders to the amendments described in Section 3 shall become effective on the date (the "Effective Date") upon which all of the following conditions have been satisfied: 5.1 EXECUTION AND DELIVERY OF THIS AGREEMENT. The Company and the Required Holders shall have executed and delivered counterparts of this Agreement. 5.2 WAIVER BY HOLDERS OF SENIOR DEBT. The Company and each holder of Senior Debt whose consent is required therefor pursuant to the terms of the Senior Credit Documents shall have executed and delivered waivers with respect to all events of default which exist under such Senior Credit Documents, all in form and scope satisfactory to the Noteholders in their sole discretion. The Company shall have delivered to each Noteholder a copy of the Second Amendment to Credit Agreement and Limited Waiver entered into among the Company and the holders of Senior Debt, together with a certification by a Senior Officer of the Company stating that such copy is a true and correct copy and such Second Amendment to Credit Agreement and Limited Waiver cures or waives all events of default which exist under the Senior Credit Documents as of the date hereof. 5.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE. After giving effect to Section 2, hereof, no Default or Event of Default under the Amended Note Purchase Agreement shall exist, the warranties and representations set forth in Section 4 hereof shall be true and correct on the Effective Date, and the Noteholders shall have received a certificate, dated as of the Effective Date and signed by a Senior Officer, certifying to such matters, certifying that all of the conditions specified in this Section 5 have been satisfied. 5.4 AUTHORIZATION OF TRANSACTIONS. The Company shall have authorized, by all necessary corporate action, its execution, delivery and performance of this Agreement and the consummation of all transactions THE CERPLEX GROUP, INC. 6 WAIVER AND AMENDMENT AGREEMENT 8 contemplated by this Agreement and evidence of the same shall have been delivered to the Noteholders. The Noteholders shall have received a certificate, dated as of the Effective Date and signed by the Secretary or the Assistant Secretary of the Company, certifying to the resolutions in respect of such authorization and to such other matters as the Noteholders shall reasonably request. 5.5 OPINIONS OF COUNSEL. The Noteholders shall have received from each of (a) Brobeck, Phleger & Harrison, counsel to the Company, and (b) Hebb & Gitlin, a legal opinion substantially in the form set forth in Exhibit B1 and Exhibit B2, respectively, and as to such other matters as the Noteholders may reasonably request. 5.6 EXPENSES. The Company shall have paid all costs and expenses to the Noteholders relating to this Agreement in accordance with Section 6.6 (including, without limitation, any attorney's fees and disbursements). 5.7 PROCEEDINGS SATISFACTORY. All proceedings taken in connection with this Agreement shall be satisfactory to the Noteholders and their special counsel. The Noteholders and their special counsel shall have received copies of such documents and papers as they may reasonably request in connection therewith, in form and substance satisfactory to them. SECTION 6. MISCELLANEOUS. 6.1 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW. 6.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 6.3 EFFECT OF THIS AGREEMENT. Except as specifically provided in this Agreement, no terms or provisions of the Existing Note Purchase Agreement have been modified or changed by this Agreement and the terms THE CERPLEX GROUP, INC. 7 WAIVER AND AMENDMENT AGREEMENT 9 and provisions of the Existing Note Purchase Agreement, as amended hereby, shall continue in full force and effect. This Agreement and the waivers and amendments contained herein shall have and be in effect on and after the Effective Date. 6.4 WAIVERS AND AMENDMENTS OF THIS AGREEMENT. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 6.5 SECTION HEADINGS. The titles of the sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 6.6 COSTS AND EXPENSES. On the Effective Date, the Company shall pay all costs and expenses of the Noteholders related hereto, including, but not limited to, the statement for fees and disbursements of the Noteholders' special counsel presented to the Company on the Effective Date for matters in connection with this Agreement. The Company will also pay upon receipt of any statement thereof, each additional statement for fees and disbursements of the Noteholders' special counsel rendered after the Effective Date in connection with this Agreement. The obligations of the Company under this Section 6.6 shall survive the payment or prepayment of the Notes and the termination of the Amended Note Purchase Agreement. 6.7 SURVIVAL All warranties, representations, certifications and covenants made by the Company hereunder or in any certificate or other instrument delivered pursuant hereto or thereto shall be considered to have been relied upon by the Noteholders and shall survive the execution of this Agreement, regardless of any investigation made by or on behalf of the Noteholders. All statements in any such certificate or other instrument shall constitute warranties and representations of the Company hereunder. [REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.] THE CERPLEX GROUP, INC. 8 WAIVER AND AMENDMENT AGREEMENT 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. THE CERPLEX GROUP, INC. By: ------------------------------------------ Name: James R. Eckstaedt Title: Senior Vice President and CFO Accepted: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By ------------------------------------------------- Name: John E. Schlifske Title: Vice President JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By ------------------------------------------------- Name: Dana Donovan Title: Senior Investment Officer NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC By ------------------------------------------------- Name: Title: [Signature page to the WAIVER AND AMENDMENT AGREEMENT among THE CERPLEX GROUP, INC. and the Noteholders listed therein.] THE CERPLEX GROUP, INC. 9 WAIVER AND AMENDMENT AGREEMENT 11 SCHEDULE A Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994. Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994. Amendment Agreement dated as of October 27, 1994. Waiver and Amendment Agreement dated as of April 15, 1996. Waiver and Amendment Agreement dated as of October 31, 1996 (as extended by that certain letter agreement dated November 26, 1996) THE CERPLEX GROUP, INC. Schedule A-1 WAIVER AND AMENDMENT AGREEMENT EX-4.19 5 SIDE LETTER DATED MARCH 28, 1997 1 EXHIBIT 4.19 THE CERPLEX GROUP, INC. March 28, 1997 VIA FACSIMILE TRANSMISSION To the Persons on the Distribution List Attached Hereto Ladies and Gentlemen: The Cerplex Group, Inc. (the "Company") and each of The Northwestern Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company and North Atlantic Smaller Companies Investment Trust plc (collectively, the "Noteholders") are parties to separate Note Purchase Agreements, each dated as of November 19, 1993 (collectively, as amended, the "Note Agreement"), regarding $17,250,000 original principal amount of the Company's Series A Senior Subordinated Notes due November 19, 2001 and $5,750,000 original principal amount of the Company's Series B Senior Subordinated Notes due November 19, 2001 (the Company has prepaid the Series B Senior Subordinated Notes and they are no longer issued and outstanding). The Note Agreement was most recently amended pursuant to the terms of that certain Waiver and Amendment Agreement (the "December 1996 Waiver Agreement"), dated December 9, 1996, among the Company and the Noteholders. Capitalized terms are used herein with the meanings assigned thereto in the Note Agreement. Pursuant to the terms of the December 1996 Waiver Agreement, the Noteholders agreed to extend the waiver of the Noticed Events of Default (as such term is defined in the December 1996 Waiver Agreement) until March 31, 1997. Upon the termination of such waiver, the Company will continue to be in default in respect of the Noticed Events of Default and the Company hereby (a) notifies the Noteholders of an Event of Default under Section 6.2 of the Note Agreement (the "Section 6.2 Default") and (b) requests that the Noteholders forbear from exercising rights and remedies available to them with respect to the Noticed Events of Default and the Section 6.2 Default, to and including the earlier of (i) the date on which any agreement by the parties to the Senior Credit Documents to forbear from exercising remedies available under the Senior Credit Documents expires or is terminated and (ii) April 9, 1997 (the "Forbearance Period"). The Company hereby represents to each of you that, other than the Noticed Events of Default and the Section 6.2 Default, no Default or Event of Default under the Note Agreement exists as of the date hereof. By its execution of a counterpart of this letter, and upon the express conditions precedent set forth below, each Noteholder hereby agrees to forbear from exercising any remedies that are or may be available under the Note Agreement by reason of the occurrence and continuance of the Noticed Events of Default and the Section 6.2 Default during the 2 Forbearance Period. The conditions precedent to the effectiveness of the agreements set forth in this letter are as follows: (a) the Company and the Required Holders shall have executed and delivered counterparts of this letter, (b) the Company and each holder of Senior Debt whose consent is required therefor pursuant to the terms of the Senior Credit Documents shall have executed and delivered the Extension and Forbearance Agreement dated as of March 31, 1997, and (c) other than the Noticed Events of Default and the Section 6.2 Default, no Default of Event of Default shall exist under the Note Agreement. Except as specifically provided in this letter, no terms or provisions of the Note Agreement or the December 1996 Waiver Agreement have been modified or changed by this letter. If you are in agreement with the foregoing, please execute the copy of this letter attached hereto and return it (via facsimile transmission) to your counsel, Hebb & Gitlin (860-278-8968). Sincerely, THE CERPLEX GROUP, INC. By: ------------------------------- Name: Title: EX-4.20 6 AMENDED AND RESTATED NOTE PURCHASE AGREEMENT 1 EXHIBIT 4.20 THE CERPLEX GROUP, INC. --------------------------------------------------- AMENDED AND RESTATED NOTE PURCHASE AGREEMENT --------------------------------------------------- DATED AS OF APRIL 9, 1997 $17,250,000 9.50% SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001 2 TABLE OF CONTENTS (NOT A PART OF THE AGREEMENT)
PAGE 1. PRELIMINARY STATEMENT; CLOSING................................................................ 1 1.1 Preliminary Statement................................................................ 1 1.2 The Closing.......................................................................... 2 1.3 Failure to Tender, Failure of Conditions............................................. 3 1.4 Expenses............................................................................. 3 2. WARRANTIES AND REPRESENTATIONS................................................................ 4 2.1 Corporate Organization and Authority................................................. 4 2.2 Compliance with Law.................................................................. 4 2.3 Legal and Authorized; Obligations are Enforceable.................................... 5 2.4 Pending Litigation; Other Material Matters........................................... 5 2.5 Governmental Consent................................................................. 6 2.6 No Defaults.......................................................................... 6 2.7 Financial Statements; Debt; Material Adverse Change.................................. 6 2.8 Subsidiaries and Affiliates.......................................................... 7 2.9 Title to Properties.................................................................. 7 2.10 Taxes................................................................................ 8 2.11 Restrictions on Company and Subsidiaries............................................. 8 2.12 ERISA................................................................................ 8 2.13 Environmental Compliance............................................................. 9 2.14 Senior Credit Documents.............................................................. 10 3. CLOSING CONDITIONS............................................................................ 10 3.1 Opinions of Counsel.................................................................. 10 3.2 Warranties and Representations True.................................................. 10 3.3 Officers' Certificates............................................................... 11 3.4 Private Placement Number............................................................. 11 3.5 Amendment to Warrant Agreement....................................................... 11 3.6 Chief Executive Officer.............................................................. 11 3.7 Wells Fargo Credit Agreement......................................................... 11 3.8 Expenses............................................................................. 11 3.9 Other Existing Noteholders........................................................... 12 3.10 Compliance with this Agreement....................................................... 12 3.11 Proceedings Satisfactory............................................................. 12 4. PAYMENTS...................................................................................... 12 4.1 Interest............................................................................. 12 4.2 Mandatory Principal Payments......................................................... 13 4.3 Optional Prepayments................................................................. 13 4.4 Offer to Prepay upon Change in Control............................................... 14 4.5 Partial Prepayment Pro Rata.......................................................... 16 4.6 Notation of Notes on Prepayment...................................................... 16 4.7 No Other Optional Prepayments........................................................ 16
i 3 5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES................................................. 17 5.1 Registration of Notes................................................................ 17 5.2 Exchange of Notes.................................................................... 17 5.3 Replacement of Notes................................................................. 18 5.4 Issuance Taxes....................................................................... 18 6. COVENANTS..................................................................................... 18 6.1 Incurrence of Debt................................................................... 18 6.2 Senior Debt Maintenance.............................................................. 21 6.3 Intentionally Omitted................................................................ 21 6.4 Intentionally Omitted................................................................ 21 6.5 Restricted Payments.................................................................. 21 6.6 Liens................................................................................ 22 6.7 Transfers of Property, Subsidiary Stock, etc......................................... 26 6.8 Consolidation, Merger, etc........................................................... 29 6.9 Pari Passu Obligations............................................................... 30 6.10 Transactions with Affiliates......................................................... 30 6.11 Nature of Business................................................................... 30 6.12 Payment of Taxes and Claims, etc..................................................... 30 6.13 Maintenance of Properties; Corporate Existence; etc.................................. 31 6.14 Payment of Notes and Maintenance of Office........................................... 32 6.15 ERISA, etc........................................................................... 32 6.16 No Reacquisitions of Notes........................................................... 33 6.17 Private Offering..................................................................... 33 6.18 Minimum Profitability................................................................ 33 6.19 Minimum Ratio of Accounts Receivable to Loans........................................ 34 6.20 Current Ratio........................................................................ 34 6.21 Minimum Consolidated Tangible Net Worth.............................................. 35 6.22 Amendment to Certificate of Incorporation............................................ 35 7. INFORMATION AS TO COMPANY..................................................................... 35 7.1 Financial and Business Information................................................... 35 7.2 Officers' Certificates............................................................... 39 7.3 Accountants' Certificates............................................................ 40 7.4 Inspection........................................................................... 40 7.5 Confidential Information............................................................. 40 7.6 Reports to NAIC...................................................................... 42 8. EVENTS OF DEFAULT............................................................................. 42 8.1 Nature of Events..................................................................... 42 8.2 Default Remedies..................................................................... 44 8.3 Annulment of Acceleration of Notes................................................... 45 9. INTERPRETATION OF THIS AGREEMENT.............................................................. 46 9.1 Terms Defined........................................................................ 46 9.2 GAAP................................................................................. 66 9.3 Directly or Indirectly............................................................... 67 9.4 Section Headings and Table of Contents and Construction.............................. 67
ii 4 9.5 Governing Law........................................................................ 67 10. SUBORDINATION................................................................................. 67 10.1 Notes Subordinate to Senior Debt..................................................... 67 10.2 Payment Over of Proceeds Upon Dissolution, etc....................................... 68 10.3 Prior Payment to Senior Debt Upon Acceleration of Notes.............................. 69 10.4 Default or Acceleration in Respect of Senior Debt.................................... 69 10.5 Payment Permitted.................................................................... 71 10.6 Subrogation to Rights of Holders of Senior Debt...................................... 71 10.7 Provisions Solely to Define Relative Rights.......................................... 71 10.8 Agreement to Effectuate Subordination................................................ 72 10.9 No Waiver of Subordination Provisions................................................ 73 10.10 Reliance on Judicial Order or Certificate of Liquidating Agent....................... 73 10.11 Prohibited Payments Held in Trust.................................................... 74 10.12 Miscellaneous........................................................................ 74 10.13 Additional Senior Debt............................................................... 74 11. MISCELLANEOUS................................................................................. 75 11.1 Communications....................................................................... 75 11.2 Reproduction of Documents............................................................ 76 11.3 Survival............................................................................. 76 11.4 Successors and Assigns............................................................... 76 11.5 Amendment and Waiver................................................................. 77 11.6 Payments on Notes.................................................................... 78 11.7 Entire Agreement; Severability....................................................... 79 11.8 Duplicate Originals, Execution in Counterpart........................................ 79 Annex 1 -- Information as to Existing Noteholders Annex 2 -- Amendments to Existing Note Purchase Agreement Annex 3 -- Information as to Company Exhibit A -- Form of 9.50% Senior Subordinated Note due November 19, 2001 Exhibit B1 -- Form of Closing Opinion of Counsel to the Company Exhibit B2 -- Form of Closing Opinion of Special Insurance Company Counsel Exhibit C -- Form of Officers' Certificate Exhibit D -- Form of Secretary's Certificate Exhibit E -- Form of Second Amendment to 1996 Warrant Agreement Exhibit F -- Form of Second Amendment to 1993 Warrant Agreement Exhibit G -- Form of Confirmation of Subordination
iii 5 THE CERPLEX GROUP, INC. --------------------------------------------------- AMENDED AND RESTATED NOTE PURCHASE AGREEMENT --------------------------------------------------- $17,250,000 9.50% SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001 Dated as of April 9, 1997 [SEPARATELY ADDRESSED TO EACH OF THE EXISTING NOTEHOLDERS ON ANNEX 1 HERETO] Ladies and Gentlemen: THE CERPLEX GROUP, INC., a Delaware corporation (together with its successors and assigns, the "COMPANY"), hereby agrees with you as follows: 1. PRELIMINARY STATEMENT; CLOSING 1.1 PRELIMINARY STATEMENT. (a) ORIGINAL AGREEMENTS. The Company has entered into those certain separate Note Purchase Agreements, each dated as of November 19, 1993 (collectively, as amended pursuant to the terms of each of the amendment agreements set forth in Annex 2 to this Agreement, the "EXISTING NOTE PURCHASE AGREEMENT"), with each of the Existing Noteholders, pursuant to which the Company originally issued and sold to the Existing Noteholders (i) an aggregate principal amount of Seventeen Million Two Hundred Fifty Thousand Dollars ($17,250,000) of the Company's Series A 9.00% Senior Subordinated Notes Due November 19, 2001 (as amended prior to the effectiveness of the amendment contemplated by Section 1.1(c), the "EXISTING NOTES"), and (ii) an aggregate principal amount of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000) of the Company's Series B 9.00% Senior Subordinated Notes Due November 19, 2001 (the "SERIES B NOTES"). The Company has prepaid the Series B Notes and the Series B Notes are no longer issued and outstanding. 1 6 The Existing Noteholders are the current holders of one hundred percent (100%) of the Existing Notes outstanding as of the Closing Date. The Existing Notes have an aggregate principal amount outstanding as of the Closing Date of Seventeen Million Two Hundred Fifty Thousand Dollars ($17,250,000). (b) COMPANY REQUEST. The Company has requested the consent of the Existing Noteholders to the amendment and restatement in full of the Existing Notes and the Existing Note Purchase Agreement. (c) AMENDMENTS. Upon the satisfaction of the conditions set forth in Section 3, each of the Company and the Existing Noteholders agree that (i) the Existing Notes shall be amended and restated in full in the form of Exhibit A (the Existing Notes as so amended and restated are herein referred to as the "NOTES," such term to include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision) and the Notes shall be substituted in the place of the Existing Notes; and (ii) the Existing Note Purchase Agreement shall be amended and restated in full in the form hereof, provided that all warranties and representations of the Company made pursuant to or in connection with the Existing Note Purchase Agreement shall continue and shall be deemed for all purposes to be warranties and representations made as of the date or dates (unless relating to another date) as of which each such warranty and representation was made. 1.2 THE CLOSING. (a) SUBSTITUTION OF NOTES. The Company and you agree to the amendment and restatement, in accordance with the provisions of this Agreement, of the Existing Notes. You will surrender to the Company all Existing Notes held by you, whereupon the Company will execute and deliver to you one or more Notes in an aggregate principal amount as set forth below your name on Annex 1. (b) THE CLOSING. The closing (the "CLOSING") of the substitution of Notes for the Existing Notes will be held on April 9, 1997 (the "CLOSING DATE") at 11:00 a.m., local time, at the office of Hebb & Gitlin, a Professional Corporation, One State Street, Hartford, Connecticut. At the Closing the Company will deliver to you one or more Notes (as set forth below your name on Annex 1), in the denominations and the aggregate principal amount indicated on Annex 1, dated February 19, 1997 and payable to the holder indicated on Annex 1. (c) OTHER EXISTING NOTEHOLDERS. Contemporaneously with the execution and delivery hereof, the Company is entering into a separate Amended and Restated Note Purchase Agreement identical (except for the name and signature of the Existing Noteholder) hereto (this Agreement and such other separate Amended and Restated Note Purchase Agreements, collectively, as may be amended from time to time, the "NOTE 2 7 PURCHASE AGREEMENTS") with each other Existing Noteholder (collectively, the "OTHER EXISTING NOTEHOLDERS") listed in Annex 1. 1.3 FAILURE TO TENDER, FAILURE OF CONDITIONS. If at the Closing the Company fails to tender to you the Notes to be substituted thereat, or if the conditions specified in Section 3 to be fulfilled at the Closing have not been fulfilled, you may thereupon elect to be relieved of all further obligations hereunder. Nothing in this Section 1.4 shall operate to relieve the Company from any of its obligations hereunder or to waive any of your rights against the Company. 1.4 EXPENSES. (a) GENERALLY. Whether or not the Notes are substituted for the Existing Notes, the Company will promptly (and in any event within thirty (30) days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating hereto, including, but not limited to (without duplication): (i) the cost of reproducing this Agreement and the other documents delivered in connection with the Closing; (ii) the reasonable fees and disbursements of Special Insurance Company Counsel incurred in connection with this Agreement; (iii) the cost of delivering the Notes to your home office or custodian bank, insured to your satisfaction; and (iv) the fees, expenses and costs incurred in complying with each of the conditions to closing set forth in Section 3. (b) COUNSEL. Without limiting the generality of the foregoing, it is agreed and understood that the Company will pay, at the Closing, the statement for reasonable fees and disbursements of Special Insurance Company Counsel presented at the Closing and the Company will also pay upon receipt of any statement therefor each additional statement for reasonable fees and disbursements of Special Insurance Company Counsel rendered after the Closing in connection with the substitution of the Notes for the Existing Notes or the matters referred to in Section 1.4(a). (c) AMENDMENT EXPENSES. The Company will pay when billed the fees, expenses, costs and disbursements (including, without limitation, the reasonable fees and the disbursements of your attorneys, accountants and other expert, legal and financial advisers) relating to the consideration, evaluation, analysis, assessment, negotiation, preparation and/or execution of any amendments, waivers or consents pursuant to the provisions hereof, whether in the ordinary course of performance of the Note Purchase Agreements or in connection with any controversy or potential controversy thereunder or resulting from any work-out, restructuring or other similar proceedings relating to such performance and whether or not any such amendments, waivers or consents are executed or otherwise consummated. 3 8 (d) SURVIVAL. The obligations of the Company under this Section 1.4, Section 5.4 and Section 8.2(e) shall survive the payment of the Notes and the termination hereof. 2. WARRANTIES AND REPRESENTATIONS To induce you to enter into this Agreement, the Company warrants and represents to you that as of the Closing Date: 2.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company and each Subsidiary: (a) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted; (c) has all licenses, certificates, permits, franchises and other governmental authorizations necessary to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have such licenses, certificates and permits, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect; and (d) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing, as a foreign corporation in each state except where the failure to be so qualified or licensed and authorized and in good standing, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect. 2.2 COMPLIANCE WITH LAW. Neither the Company nor any Subsidiary: (a) is in violation of any law, ordinance, governmental rule or regulation to which it is subject; and (b) has failed to obtain any license, certificate, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain, either individually or in the aggregate, would have, or could reasonably be expected to have, a Material Adverse Effect. 4 9 2.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE. (a) AUTHORIZATION. The execution and delivery by the Company of this Agreement and the Notes and the performance by the Company of its obligations hereunder and thereunder are within the corporate powers of the Company and do not conflict with, result in any breach in any of the provisions of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of, any agreement, charter instrument, bylaw or other instrument to which it is a party or by which it or any of its Property may be bound. (b) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution and delivery by the Company of this Agreement and the Notes have been duly authorized by all necessary action on the part of the Company, and this Agreement and the Notes have been executed and delivered by one or more duly authorized officers of the Company. This Agreement and the Notes constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except that the enforceability thereof may be: (i) limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or other similar laws affecting the enforceability of creditors' rights generally; (ii) subject to the availability of equitable remedies; and (iii) with respect to indemnity and contribution, limited by state or federal laws relating to Securities or by the public policy underlying such laws. 2.4 PENDING LITIGATION; OTHER MATERIAL MATTERS. (a) PENDING LITIGATION. Except as set forth in PART 2.4(A) OF ANNEX 3, there are no proceedings, actions or investigations pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal that, either individually or in the aggregate, would have or could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default with respect to any judgment, order, writ, injunction or decree of any court, Governmental Authority or arbitration board or tribunal that, either individually or in the aggregate, would have or could reasonably be expected to have a Material Adverse Effect. (b) OTHER MATERIAL MATTERS. Except as previously disclosed to you, neither the Company nor any Subsidiary has received any notice of termination of any material contract, lease or other agreement or suffered any material damage, destruction or loss (whether or not covered by insurance) or had any employee strike, work-stoppage, slowdown or lock-out or any substantial, non-frivolous threat directed to it of any imminent strike, work-stoppage, slowdown or lock-out. 5 10 2.5 GOVERNMENTAL CONSENT. Neither the nature of the Company or any Subsidiary, nor of any of their respective businesses or Properties, nor any relationship between or among the Company, any Subsidiary and any other Person, nor any circumstance in connection herewith or in connection with the execution and delivery of this Agreement or the Notes is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority on the part of the Company as a condition to the execution and delivery hereof or thereof. 2.6 NO DEFAULTS. (a) NO OTHER DEFAULTS. Upon the execution, delivery and effectiveness of the Note Purchase Agreements, no Defaults or Events of Default shall exist. (b) NO DEFAULTS IN CONNECTION WITH THIS AGREEMENT. No event has occurred and no condition exists that, upon the execution, delivery and effectiveness of this Agreement, would constitute a Default or an Event of Default. (c) CHARTER INSTRUMENT, OTHER AGREEMENTS. Neither the Company nor any Subsidiary is in violation in any respect of any term of any charter instrument or bylaw. Except as set forth in PART 2.6(C) OF ANNEX 3, neither the Company nor any Subsidiary is in violation in any material respect of any term in any agreement or other instrument to which it is a party or by which it or any of its Property may be bound, which would have, or could reasonably be expected to have, a Material Adverse Effect. 2.7 FINANCIAL STATEMENTS; DEBT; MATERIAL ADVERSE CHANGE. (a) FINANCIAL STATEMENTS. The Company has delivered to you the financial statements required pursuant to the provisions of the Existing Note Purchase Agreement. All of such financial statements have been prepared in accordance with GAAP consistently applied, and present fairly, in all material respects, the financial position of the Company and the Subsidiaries as of the respective dates specified therein and the results of their operations and cash flows for the periods specified therein. (b) DEBT. PART 2.7(B) OF ANNEX 3 lists all Debt of the Company and the Subsidiaries as of the Closing Date, after giving effect to the transactions contemplated by the Wells Fargo Credit Agreement, and provides the following information with respect to each item of such Debt: the obligor, each guarantor thereof and each other Person similarly liable in respect thereof, the holder thereof, the outstanding amount, the current portion of the outstanding amount, the final maturity, required sinking fund payments, and a description of the collateral securing such Debt. (c) MATERIAL ADVERSE CHANGE. Except as set forth in PART 2.7(C) OF ANNEX 3, since December 31, 1996, there has been no change in the business, operations, profits, financial condition, Properties or business prospects of the Company and the Subsidiaries, taken as a whole, except changes that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6 11 (d) OPERATING PLAN. The Company has delivered to you its 1997 Operating Plan. The assumptions used in preparation of the 1997 Operating Plan were reasonable when made and continue to be reasonable. The 1997 Operating Plan has been prepared in good faith, has a reasonable basis and represents the good faith opinion of the Company as to the projected results of the operations of the Company. No material facts have occurred since the preparation of the 1997 Operating Plan that would cause the 1997 Operating Plan, taken as a whole, not to be reasonably attainable in the good faith belief of the Company, and the Company does not have, on the Closing Date, any material obligations (whether accrued, matured, absolute, actual, contingent or otherwise) that are not reflected in the 1997 Operating Plan. 2.8 SUBSIDIARIES AND AFFILIATES. (a) OWNERSHIP OF SUBSIDIARIES. PART 2.8(A) OF ANNEX 3 states the name of each of the Subsidiaries, its jurisdiction of organization and the percentage of its Voting Stock beneficially owned by the Company and each other Subsidiary. (b) AFFILIATES. PART 2.8(B) OF ANNEX 3 sets forth the name of each Affiliate and the nature of the affiliation of such Affiliate. (c) TITLE TO SHARES. Each of the Company and the Subsidiaries has good title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any Lien. All such shares have been duly issued and are fully paid and nonassessable. 2.9 TITLE TO PROPERTIES. (a) GENERAL. The Company and the Subsidiaries have good and sufficient title to all of the Property reflected in the most recent consolidated balance sheet referred to in Section 2.7(a) and to all of the Property purported to have been acquired by the Company and the Subsidiaries after said date (except as sold or otherwise disposed of in the ordinary course of business), except for such failures to have good title as are immaterial to such balance sheet and that, in the aggregate for all such failures, could not reasonably be expected to have a Material Adverse Effect. All Property of the Company and the Subsidiaries is free from Liens not permitted by Section 6.6. (b) LEASES. All leases necessary for the conduct of the business of the Company and the Subsidiaries are valid and subsisting and are in full force and effect, except for such failures to be valid and subsisting that, in the aggregate for all such failures, could not reasonably be expected to have a Material Adverse Effect. (c) INTELLECTUAL PROPERTY. The Company and the Subsidiaries own, possess or have the right to use all of the licenses, permits, franchises, patents, copyrights, trademarks, service marks and trade names necessary for the present and currently planned future conduct of their respective businesses, without any known conflict with the rights of others, except for such failures to own, possess, or have the right to use, that, in the aggregate for all such failures, could not reasonably be expected to have a Material Adverse Effect. 7 12 2.10 TAXES. (a) RETURNS FILED; TAXES PAID. All tax returns required to be filed and which are due (taking into account any permitted extensions) by the Company, the Subsidiaries and any other Person with which the Company or any Subsidiary files or will file a consolidated return in any jurisdiction have in fact been filed on a timely basis. All taxes, assessments, fees and other governmental charges upon the Company, the Subsidiaries and any such Person, and upon any of their respective Properties, income or franchises, that are due and payable have been paid, except for such failures to pay that, in the aggregate for all such Persons, could not reasonably be expected to have a Material Adverse Effect. The Company does not know of any proposed additional tax assessment against it, the Subsidiaries or any such Person that could reasonably be expected to have a Material Adverse Effect. (b) BOOK PROVISIONS ADEQUATE. The amount of the liability for taxes reflected in each of the statements of financial condition referred to in Section 2.7(a) is in each case an adequate provision for taxes as of the dates of such statements of financial condition (including, without limitation, any payment due pursuant to any tax sharing agreement) as are or may become payable by any one or more of the Company, the Subsidiaries and the other Persons consolidated with the Company in such financial statements in respect of all tax periods ending on or prior to such dates. 2.11 RESTRICTIONS ON COMPANY AND SUBSIDIARIES. Neither the Company nor any Subsidiary: (a) is a party to any contract or agreement, or subject to any charter or other corporate restriction that, in the aggregate for all such contracts, agreements, and charter and corporate restrictions, is reasonably likely to have a Material Adverse Effect; (b) is a party to any contract or agreement that restricts the substitution of the Notes for the Existing Notes or the execution and delivery of, or compliance with, the Note Purchase Agreements by the Company; or (c) has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its Property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 6.6. 2.12 ERISA. (a) ERISA COMPLIANCE. The Company and the ERISA Affiliates are in compliance in all material respects with all applicable provisions of ERISA. (b) PENSION PLANS; MULTIEMPLOYER PLANS. Neither the Company nor any ERISA Affiliate maintains, administers, contributes to, or is required to contribute to, or, has maintained, administered, contributed to or was required to contribute to, any Pension Plan or Multiemployer Plan that covers any employee or former employee of any such Person. 8 13 (c) RETIREMENT PLANS. There are no claims (other than claims for benefits in the ordinary course), actions, or lawsuits asserted or instituted against the Company or any ERISA Affiliate in respect of any Retirement Plan, and no such Person has knowledge of any threatened litigation or claims against the assets of any Retirement Plan or against any fiduciary of such Retirement Plan or with respect to the operation of such Retirement Plan. (d) WELFARE BENEFIT PLANS. Neither the Company nor any ERISA Affiliate maintains or has established any "welfare benefit plan," as defined in section 3 of ERISA, that provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations thereunder or except as to plans with respect to which such participant or beneficiary pays his or her allocable share of the premium or other material costs of providing benefits or coverage under such plan. (e) PROHIBITED TRANSACTIONS. The substitution of the Notes for the Existing Notes will not constitute a "prohibited transaction" (as such term is defined in section 406 of ERISA or section 4975 of the IRC) that could subject any Person to the penalty or tax on prohibited transactions imposed by section 502 of ERISA or section 4975 of the IRC, and neither the Company nor any ERISA Affiliate, nor any "employee benefit plan" (as such term is defined in section 3 of ERISA) of either the Company or any ERISA Affiliate or any trust created thereunder or any trustee or administrator thereof, has engaged in any "prohibited transaction" that could subject any such Person, or any other party dealing with such employee benefit plan or trust, to such penalty or tax. 2.13 ENVIRONMENTAL COMPLIANCE. (a) COMPLIANCE -- Except as disclosed on PART 2.13(a) OF ANNEX 3, the Company and each Subsidiary is in compliance with all Environmental Protection Laws in effect in each jurisdiction where it are presently doing business or is located, other than any non-compliance that could not reasonably be expected to have a Material Adverse Effect. (b) LIABILITY -- Except as disclosed on PART 2.13(b) OF ANNEX 3, neither the Company nor any Subsidiary is subject to any liability under any Environmental Protection Law that, in the aggregate, could be reasonably expected to have a Material Adverse Effect. (c) NOTICES -- Except as disclosed on PART 2.13(c) OF ANNEX 3, neither the Company nor any Subsidiary has received any: (i) written notice from any Governmental Authority by which any of its present or previously-owned or leased real Properties has been designated, listed, or identified in any manner by any Governmental Authority charged with administering or enforcing any Environmental Protection Law as a hazardous substance disposal or removal site, "Super Fund" clean-up site, or candidate for removal or closure pursuant to any Environmental Protection Law; 9 14 (ii) written notice of any Lien arising under or in connection with any Environmental Protection Law that has attached to any revenues of, or to, any of its owned or leased real Properties; or (iii) summons, citation, notice, directive, letter, or other written communication from any Governmental Authority concerning any intentional or unintentional action or omission by the Company or any Subsidiary in connection with its ownership or leasing of any real Property resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping, or otherwise disposing of any hazardous substance into the environment resulting in any material violation of any Environmental Protection Law; which, in any such case, relates to or makes reference to an event or condition that could reasonably be expected to have a Material Adverse Effect. 2.14 SENIOR CREDIT DOCUMENTS. The Company has provided to you true, correct and complete copies of the Wells Fargo Credit Agreement and each of the other Senior Credit Documents, and there is no agreement or understanding between or among the Company, Wells Fargo or any of the other financial institutions party to the Senior Credit Documents except as set forth in the Senior Credit Documents. 3. CLOSING CONDITIONS Your obligations under this Agreement, including, without limitation, the obligation to exchange the Existing Notes for the Notes, are subject to the following conditions precedent: 3.1 OPINIONS OF COUNSEL. You shall have received from (a) Brobeck, Phleger & Harrison, counsel for the Company, and (b) Special Insurance Company Counsel, closing opinions, each dated as of the Closing Date, substantially in the respective forms set forth in Exhibit B1 and Exhibit B2 and as to such other matters as you may reasonably request. This Section 3.1 shall constitute direction by the Company to such counsel named in the foregoing clause (a) to deliver such closing opinion to you. 3.2 WARRANTIES AND REPRESENTATIONS TRUE. The warranties and representations contained in Section 2 shall be true and correct on the Closing Date. 10 15 3.3 OFFICERS' CERTIFICATES. You shall have received: (a) a certificate dated the Closing Date and signed by a Senior Officer, substantially in the form of Exhibit C; and (b) a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit D. 3.4 PRIVATE PLACEMENT NUMBER. There shall have been obtained a private placement number for the Notes from the CUSIP Service Bureau of Standard & Poor's, a division of McGraw-Hill, Inc., and you shall have been informed of such private placement number. 3.5 AMENDMENT TO WARRANT AGREEMENT. The Company and the holders of the Warrants shall have entered into an amendment to the 1996 Warrant Agreement substantially in the form of Exhibit E and an amendment to the 1993 Warrant Agreement substantially in the form of Exhibit F. 3.6 CHIEF EXECUTIVE OFFICER. The Company shall have delivered to you a copy of the report prepared by Hydrick & Struggles with respect to the contemplated employment of a new chief executive officer, and you shall be satisfied with the Company's progress with respect to such employment. 3.7 WELLS FARGO CREDIT AGREEMENT. The Company, Wells Fargo and the other financial institutions party thereto shall have entered into (a) a Third Amendment to Credit Agreement and (b) an Amended and Restated Warrant Agreement, which Third Amendment to Credit Agreement and Amended and Restated Warrant Agreement, and all documents and instruments executed and delivered in connection therewith, shall be in form and substance satisfactory to you, including, without limitation, a final maturity date for the Revolving Credit Facility and for the Term Loan Facility of no earlier than May 1, 1998. The Company shall have delivered to you a copy of a fully executed counterpart of such Third Amendment to Credit Agreement and a fully executed counterpart of such Amended and Restated Warrant Agreement, certified as true and correct by a Senior Officer. 3.8 EXPENSES. All fees and disbursements required to be paid pursuant to Section 1.4(b) or referred to in Section 1.4(d) shall have been paid in full. 11 16 3.9 OTHER EXISTING NOTEHOLDERS. None of the Other Existing Noteholders shall have failed to execute and deliver a Note Purchase Agreement. 3.10 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement that are required to be performed or complied with by it on or prior to the Closing Date, and such performance and compliance shall remain in effect on the Closing Date. 3.11 PROCEEDINGS SATISFACTORY. All proceedings taken in connection with the substitution of the Notes for the Existing Notes and all documents and papers relating thereto (including, without limitation, the documents and papers referred to above in this Section 3) shall be satisfactory to you and Special Insurance Company Counsel. You and Special Insurance Company Counsel shall have received copies of such documents and papers as you or they may reasonably request in connection therewith or in connection with Special Insurance Company Counsel's closing opinion, all in form and substance satisfactory to you and Special Insurance Company Counsel. 4. PAYMENTS 4.1 INTEREST. Interest shall accrue on the unpaid principal balance of the Notes on the basis of a 360-day year of twelve 30-day months at the rate of nine and fifty one-hundredths percent (9.50)% per annum, and shall be payable, in arrears, semi-annually on August 19 and February 19 in each year, until the principal amount of the Notes in respect of which such interest shall have accrued shall become due and payable, and interest shall accrue on any overdue principal (including any overdue prepayment of principal) and Make-Whole Amount, if any, and (to the extent permitted by applicable law) on any overdue installment of interest, at a rate (the "DEFAULT RATE") equal to the lesser of (a) the highest rate allowed by applicable law, and (b) the greater of (i) thirteen and fifty one-hundredths percent (13.50)% per annum or (ii) the Chase Manhattan Prime Rate, from time to time in effect. At all times during the existence of a Senior Nonpayment Default Blockage Period, the unpaid principal balance of the Notes and any overdue installment of interest shall bear interest at the Default Rate. Interest was last paid on the Existing Notes on February 19, 1997. The interest payment due on August 19, 1997 shall include interest from and including February 19, 1997 through and including August 18, 1997 at the rate of nine and fifty one-hundredths percent (9.50)% per annum. 12 17 4.2 MANDATORY PRINCIPAL PAYMENTS. The Company shall pay, and there shall become due and payable: (a) on November 19, 1999, thirty-three and one-third percent (33-1/3%) of the aggregate principal amount of the Notes outstanding on such date; (b) on November 19, 2000, fifty percent (50%) of the aggregate principal amount of the Notes outstanding on such date; and (c) on November 19, 2001, the entire principal amount of the Notes outstanding on such date. Each such payment shall be at one hundred percent (100%) of the principal amount payable, together with interest accrued thereon to the date of payment. 4.3 OPTIONAL PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. The Company may, on any scheduled interest payment date, prepay the principal amount of the Notes in part or in whole, in each case together with: (i) an amount equal to the Make-Whole Amount determined as of the prepayment date in respect of the principal amount of the Notes being so prepaid; and (ii) interest then due and payable on such scheduled interest payment date. (b) NOTICE OF OPTIONAL PREPAYMENT. The Company will give notice of any optional prepayment of the Notes to each holder of Notes not less than thirty (30) days or more than sixty (60) days before the scheduled interest payment date fixed for prepayment, which notice shall be accompanied by a certificate, executed by a Senior Financial Officer and dated the date of such notice, specifying: (i) such scheduled interest payment date fixed for prepayment; (ii) that such prepayment is to be made pursuant to Section 4.3(a) of this Agreement; (iii) the principal amount of each Note to be prepaid on such date; (iv) the interest to be paid on each such Note, accrued to such scheduled interest payment date fixed for prepayment; and (v) a reasonably detailed calculation of an estimated Make-Whole Amount, if any (calculated as if the date of such notice was the date of prepayment), due in connection with such prepayment. 13 18 Notice of prepayment having been so given, the aggregate principal amount of the Notes to be prepaid specified in such notice, together with the Make-Whole Amount as of the specified prepayment date with respect thereto, if any, and accrued interest thereon shall become due and payable on the specified prepayment date. Two (2) Business Days prior to the making of such prepayment, the Company shall deliver to each holder of Notes by facsimile transmission a certificate of a Senior Financial Officer specifying the details of the calculation of such Make-Whole Amount in respect of the specified prepayment date, together with a copy of all applicable documentation utilized by the Company in connection with its determination of the Make-Whole Discount Rate in respect of such prepayment. 4.4 OFFER TO PREPAY UPON CHANGE IN CONTROL. (a) NOTICE. In the event of either (i) a Change in Control, or (ii) the obtaining of knowledge of a Control Event by any officer of the Company (including, without limitation, via the receipt of notice of a Control Event from any holder of Notes), the Company will, within two (2) Business Days of (A) such Change in Control or (B) the obtaining of knowledge of such Control Event, as the case may be, give written notice of such Change in Control or Control Event to each holder of Notes by registered mail (with a copy thereof sent via an overnight courier of national or international reputation) and, simultaneously with the sending of such written notice, give telephonic advice of such Change in Control or Control Event to an investment officer or other similar representative or agent of each such holder specified in Annex 1 at the telephone number specified therein, or to such other Person at such other telephone number as any holder of a Note may specify to the Company in writing. In connection with an action taken by the Company with respect to either clause (A) or clause (B) of this paragraph, the Company shall, simultaneously with its giving of notice to the holders of Notes, deliver a similar written notice to each holder of Senior Debt and request that any prepayment required under the Wells Fargo Credit Agreement as a result of the occurrence of an event described in either clause (A) or clause (B) of this paragraph be waived. The Company shall cooperate with the holders of Senior Debt in connection with their review of the circumstances surrounding the occurrence of an event described in either clause (A) or clause (B) above and the request of the Company for a waiver. (b) OFFER ON CHANGE IN CONTROL. In the event of a Change in Control, the written notice to each holder of Notes made pursuant to Section 4.4(a) shall contain, and such written notice shall constitute, an irrevocable offer to prepay all, but not less than all, of the Notes held by such holder on a date specified in such notice (the "CONTROL PREPAYMENT DATE") that is not less than forty-five (45) days and not more than sixty (60) days after the date of such notice. (Such notice shall be dated the date of its dispatch; if the Control Prepayment Date shall not be specified in such notice, the Control Prepayment Date shall be the forty-fifth (45th) day after the date of such notice.) If the Company shall not have received a written response to such notice from each holder of 14 19 Notes within ten (10) days after the date of posting of such notice to such holder of Notes, then a second written notice shall be immediately sent (via an overnight courier of national or international reputation) by the Company to each such holder of Notes who shall have not previously responded to the Company. (c) ACCEPTANCE AND PAYMENT. To accept or reject the offered prepayment under Section 4.4(b), a holder of Notes shall cause a notice of such acceptance or rejection to be delivered to the Company not later than fifteen (15) days after the date of receipt by such holder of the latest written notice regarding such offered prepayment (it being understood that the failure by a holder to reject such offered prepayment prior to the end of such period of fifteen (15) days shall be deemed to constitute an acceptance of said offer of prepayment). If so accepted or deemed accepted, such offered prepayment shall be due and payable on the Control Prepayment Date. Such offered prepayment shall be made at one hundred percent (100%) of the principal amount of such Notes, together with (A) the Make-Whole Amount, if any, determined as of the Control Prepayment Date with respect thereto and (B) interest on the Notes then being prepaid accrued to the Control Prepayment Date. (d) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant to this Section 4.4 shall be accompanied by a certificate, executed by a Senior Financial Officer and dated the date of such offer, specifying: (i) the Control Prepayment Date; (ii) that such offer is being made pursuant to Section 4.4(b) of this Agreement and that such offer will be deemed accepted unless a rejection of such offer is delivered to the Company prior to the fifteenth (15th) day following the receipt of the second written notice in respect of such offer (such second notice being made only to such holders which have not responded to the first notice within ten (10) days of the mailing of the same); the statements required in this clause (ii) shall be made in bold type and shall be underlined; (iii) the principal amount of each Note offered to be prepaid; (iv) the interest that would be due on each such Note offered to be prepaid, accrued to the date fixed for payment; (v) a reasonably detailed calculation of an estimated Make-Whole Amount, if any (calculated as if the date of such notice was the date of prepayment), that would be due in connection with such offered prepayment; (vi) that the conditions of this Section 4.4 have been fulfilled; and (vii) in reasonable detail, the nature and date or proposed date of the Change in Control. 15 20 (e) MAKE-WHOLE AMOUNT DETERMINATION; NOTICE CONCERNING STATUS OF HOLDERS OF NOTES. Two (2) Business Days prior to the making of all prepayments contemplated on any Control Prepayment Date, the Company shall deliver to each holder of Notes by facsimile transmission a certificate of a Senior Financial Officer specifying the details of the calculation of the Make-Whole Amount, as of such Control Prepayment Date, together with a copy of all applicable documentation utilized by the Company in connection with its determination of the Make-Whole Discount Rate in respect of such prepayments. Promptly after each Control Prepayment Date and the making of all prepayments contemplated on such Control Prepayment Date under this Section 4.4 (and, in any event, within thirty (30) days thereof), the Company shall deliver to each holder of Notes a certificate signed by a Senior Financial Officer containing a list of the then current holders of Notes (together with their addresses) and setting forth as to each such holder the outstanding principal amount of Notes held by such holder at such time. 4.5 PARTIAL PREPAYMENT PRO RATA. If at the time any required prepayment under Section 4.2 or optional prepayment under Section 4.3(a) is due there is more than one Note outstanding, the aggregate principal amount of each required or optional partial prepayment of the Notes shall be allocated among the holders of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts of the Notes then outstanding, with adjustments, to the extent practicable, to equalize for any prior prepayments not in such proportion. 4.6 NOTATION OF NOTES ON PREPAYMENT. Upon any partial prepayment of a Note, such Note may, at the option of the holder thereof, be: (a) surrendered to the Company pursuant to Section 5.2 in exchange for a new Note in a principal amount equal to the principal amount remaining unpaid on the surrendered Note; (b) made available to the Company for notation thereon of the portion of the principal so prepaid; or (c) marked by such holder with a notation thereon of the portion of the principal so prepaid. In case the entire principal amount of any Note is paid, such Note shall be surrendered to the Company for cancellation and shall not be reissued, and no Note shall be issued in lieu of the paid principal amount of any Note. 4.7 NO OTHER OPTIONAL PREPAYMENTS. Except as provided in Section 4.3, the Company may not make any optional prepayment (whether directly or indirectly, by purchase, other acquisition or otherwise) in respect of the Notes. 16 21 5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 5.1 REGISTRATION OF NOTES. The Company will cause to be kept at its office maintained pursuant to Section 6.14 a register for the registration and transfer of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. The Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof. 5.2 EXCHANGE OF NOTES. (a) Upon surrender of any Note at the office of the Company maintained pursuant to Section 6.14 duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder's attorney duly authorized in writing, the Company will execute and, within five (5) Business Days after such surrender, deliver, at the Company's expense (except as provided below), new Notes in exchange therefor, in denominations of at least One Hundred Thousand Dollars ($100,000) (except as may be necessary to reflect any principal amount not evenly divisible by One Hundred Thousand Dollars ($100,000)), in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit A. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. (b) The Company will pay the cost of delivering to or from such holder's home office or custodian bank from or to the Company, insured to the reasonable satisfaction of such holder, the surrendered Note and any Note issued in substitution or replacement for the surrendered Note. (c) Each holder of Notes agrees that, in the event it shall sell or transfer any Note without surrendering such Note to the Company as set forth in Section 5.2(a), it shall: (i) prior to the delivery of such Note, make a notation thereon of all principal, if any, paid on such Note and shall also indicate thereon the date to which interest shall have been paid on such Note; and (ii) promptly notify (or cause the transferee of any such Note to notify) the Company of the name and address of the transferee of any such Note so transferred and the effective date of such transfer. 17 22 5.3 REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership (or of ownership by such Institutional Investor's nominee) and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company (provided that if the holder of such Note is an Institutional Investor or a nominee of such Institutional Investor, such Institutional Investor's own unsecured agreement of indemnity shall be deemed to be satisfactory for such purpose), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense will execute and, within five (5) Business Days after such receipt, deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 5.4 ISSUANCE TAXES. The Company will pay all taxes (if any) due in connection with and as the result of the initial issuance and sale of the Notes and in connection with any modification of this Agreement or the Notes and shall save each holder of Notes harmless without limitation as to time against any and all liabilities with respect to all such taxes. The obligations of the Company under this Section 5.4 shall survive the payment or prepayment of the Notes and the termination hereof. 6. COVENANTS The Company covenants that on and after the Closing Date and so long as any of the Notes shall be outstanding: 6.1 INCURRENCE OF DEBT. (a) INCURRENCE TEST. Subject to clause (c) and clause (d) of this Section 6.1, the Company will not, and will not permit any Subsidiary to, at any time incur or in any manner become liable (collectively, to "INCUR;" and the result of any such Incurring being referred to herein as an "INCURRENCE"; any extension, renewal, refunding or refinancing, including, without limitation, any reborrowing and/or reutilization, of previously Incurred Debt shall be deemed a new Incurrence thereof) in respect of any Debt (other than the Debt evidenced by the Notes) unless, (i) immediately after giving effect to such Incurrence (including, without limitation, the application of the proceeds from such Incurrence), Total Debt would not exceed five hundred percent (500%) of Consolidated Cash Flow for the period of twelve (12) consecutive calendar months most recently ended as of the date of such Incurrence, 18 23 (ii) immediately prior to, and immediately after the consummation of such Incurrence, and after giving effect thereto, no Default or Event of Default exists or would exist, and (iii) immediately after giving effect to such Incurrence, the Company would not be prohibited pursuant to Section 10 from making any scheduled payment of interest or principal to the holders of Notes. (b) SUBSIDIARY DEBT. The Company will not at any time permit any Subsidiary to Incur any Debt other than (i) Debt owed by such Subsidiary to the Company or to a Wholly-Owned Subsidiary (and the Incurrence of the aforesaid Debt shall not be subject to the requirements of Section 6.1(a)), (ii) Debt owed by such Subsidiary under any Guaranty issued by such Subsidiary to the holders of Wells Fargo Credit Agreement Debt pursuant to the Wells Fargo Credit Agreement to the extent that the Wells Fargo Credit Agreement Debt being so guaranteed did not exceed the Wells Fargo Credit Limit determined at the time of the Incurrence of such Wells Fargo Credit Agreement Debt (and the Incurrence of the aforesaid Debt under such Guaranty shall not be subject to the requirements of Section 6.1(a)), (iii) Debt owed by such Subsidiary pursuant to any Subsidiary Guaranty issued by such Subsidiary (and the Incurrence of the aforesaid Debt shall not be subject to the requirements of Section 6.1(a)), and (iv) Debt owed by such Subsidiary to a Person other than the Company or a Wholly-Owned Subsidiary if, but only if, (A) after giving effect to the Incurrence of such Debt, the aggregate amount of (1) all Qualified Seller Debt of all Subsidiaries outstanding at such time plus (2) all Debt (other than Qualified Seller Debt and other than Debt described in clauses (i), (ii) and (iii) above) of all Subsidiaries outstanding at such time would not exceed Twenty-Two Million Dollars ($22,000,000) at such time, (B) after giving effect to the Incurrence of such Debt, the aggregate amount of all Debt (other than Qualified Seller Debt and other than Debt described in clauses (i), (ii) and (iii) above) of all Subsidiaries outstanding at such time would not exceed Fifteen Million Dollars ($15,000,000) at such time, and (C) such Debt would be permitted to be Incurred under Section 6.1(a) hereof. (c) WELLS FARGO CREDIT AGREEMENT DEBT. Anything to the contrary in this Section 6.1 notwithstanding, the Company may Incur any Wells Fargo Credit Agreement 19 24 Debt, if, but only if, after giving effect to any such Incurrence, the aggregate outstanding principal amount of all Wells Fargo Credit Agreement Debt (including, without limitation, reimbursement obligations (hereinafter referred to as individually, as a "REIMBURSEMENT UTILIZATION" and, collectively, as "REIMBURSEMENT UTILIZATIONS") in respect of letters of credit, the issuances of which are treated as a utilization of the credit availability under the Wells Fargo Credit Agreement) would not exceed the Wells Fargo Credit Limit in effect at the time of such Incurrence. (d) REFINANCINGS. Anything to the contrary in this Section 6.1 notwithstanding, the Company may Incur any Debt that extends, renews, refunds or refinances any Debt of the Company (other than Wells Fargo Credit Agreement Debt) secured by a Lien otherwise permitted under clause (viii) or clause (ix) of Section 6.6(a) or any Debt of a Subsidiary secured by a Lien otherwise permitted under clause (viii) or clause (ix) of Section 6.6(a), if, but only if, the principal amount of the Debt being so extended, renewed, refunded or refinanced is not increased in excess of the amount thereof outstanding at the time of such extension, renewal, refunding or refinancing, no collateral secures such Debt other than collateral previously provided in the applicable agreements or documents to secure the Debt being so extended, renewed, refunded or refinanced, and no Default or Event of Default would exist. (e) ASSUMPTIONS. The following assumptions shall apply to all determinations under this Section 6.1: (i) each Person that becomes a Subsidiary after the Closing Date will be deemed to have Incurred all the Debt of such Person on the date such Person becomes a Subsidiary; (ii) any Debt of the Company initially held by a Subsidiary and subsequently sold, transferred or otherwise disposed of by such Subsidiary to a Person other than another Subsidiary shall be deemed to have been Incurred by the Company at the time of such sale, transfer or other disposition; (iii) any Debt of the Company or any Subsidiary held by a Person that was formerly a Subsidiary shall be deemed to have been Incurred by the Company or such Subsidiary on the date such Person ceases to be a Subsidiary; and (iv) for purposes of determining whether the Incurrence of Debt of the Company (other than Wells Fargo Credit Agreement Debt) is permitted under Section 6.1(a) at any time, such determination shall assume that the amount of Wells Fargo Credit Agreement Debt outstanding at such time is equal to the greater of (A) the sum of (1) the maximum amount of Debt under the Revolving Credit Facility committed to the Company under the Wells Fargo Credit Agreement from time to time (which is, as of the Closing Date, Six Million Dollars ($6,000,000)) plus (2) the principal amount of Wells Fargo Credit Agreement Debt then outstanding under the Term Loan Facility (which is, as of the Closing Date, Thirty-Eight Million Eight Hundred Sixty-Nine Thousand Nine Hundred Seventy-Five and 02/100 Dollars ($38,869,975.02)) and (B) the actual principal amount of Wells 20 25 Fargo Credit Agreement Debt then outstanding and all Reimbursement Utilizations existing at such time. 6.2 SENIOR DEBT MAINTENANCE. The Company will not at any time permit the remainder of (a) the aggregate amount of Senior Debt of the Company, determined at such time, and any other Debt of the Company secured by any Lien on Property of the Company, as determined at such time, minus (b) the aggregate amount of cash funds of the Company and the Subsidiaries on hand, on deposit or otherwise available for immediate use, determined on a consolidated basis at such time, to exceed the greater of (i) Fifty-Five Million Dollars ($55,000,000) and (ii) four hundred percent (400%) of Consolidated Net Worth determined at such time. 6.3 INTENTIONALLY OMITTED. 6.4 INTENTIONALLY OMITTED. 6.5 RESTRICTED PAYMENTS. Except for the Restricted Payments described in PART 6.5 OF ANNEX 3, the Company will not, and will not permit any Subsidiary to, at any time declare, make or set aside any amount for any Restricted Payment unless: (a) immediately prior to giving effect to such Restricted Payment, Consolidated Net Worth shall be at least Twenty-Five Million Dollars ($25,000,000); (b) immediately after, and after giving effect to, such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after November 19, 1993 would not exceed the greater of (i) Zero Dollars ($0), and (ii) twenty-five percent (25%) of Consolidated Adjusted Net Income for the period commencing on and including January 1, 1994 and ending on and including the date such Restricted Payment is declared or made; and (c) at the time of such declaration and immediately before, and after giving effect to, such Restricted Payment, (i) no Default or Event of Default exists or would exist, and (ii) the Company would be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a), 21 26 provided that notwithstanding the foregoing clause (a) and clause (b), the Company may at any time in the ordinary course of business make any Restricted Payment constituting a purchase, redemption or other acquisition by the Company of capital stock from any employee or former employee of the Company which capital stock (A) was acquired by such employee or former employee prior to November 19, 1993 as part of his or her compensation as an employee of the Company and (B) the Company shall have the contractual right to repurchase (such right having arisen at the time such capital stock was acquired by such employee) as a result of such employee's death or termination of employment with the Company at a price per share equal to the greater of (1) the cost of acquisition of such capital stock by such employee or (2) two hundred percent (200%) of "book value," as defined below. The Company will not authorize any Restricted Payment in respect of any class of its capital stock, which Restricted Payment would give rise to a claim under applicable law by the proposed recipients thereof to receive payment from the Company, that is not payable within sixty (60) days of such authorization. "Book value" shall mean the total of the shareholders' equity of the Company divided by the number of equity Securities outstanding, as determined by the Company in accordance with GAAP, as of the last day of the month preceding the month during which the aforesaid employee is no longer deemed to be an employee of the Company. For purposes of this paragraph, "equity Securities" shall mean all outstanding voting Securities of the Company, by whatever name, and all outstanding Securities of the Company, which are convertible without further consideration, into voting Securities of the Company. 6.6 LIENS. (A) NEGATIVE PLEDGE. The Company will not, and will not permit any Subsidiary to, directly or indirectly cause or permit to exist, or agree or consent to cause or permit to exist in the future (upon the happening of a contingency or otherwise), any of their respective Properties, whether now owned or hereafter acquired, or any of their respective revenues from such Properties, to be subject to any Lien, except: (i) Liens securing Property taxes, assessments or governmental charges or levies, provided that the payment thereof is not at the time required by Section 6.12; (ii) (A) to the extent incurred in good faith and in the ordinary course of business of the Company or a Subsidiary, Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, vendors, landlords and other like Persons, provided that the payment thereof is not at the time required by Section 6.12, (B) Liens that are unperfected purchase money Liens, vendor's Liens or reservations of title by vendors in and to inventory of the Company or a Subsidiary acquired in the ordinary course of business of such 22 27 Person and securing, in each case, obligations whose payment is not overdue or is being contested as provided in clause (i) or clause (ii) of Section 6.12 and (C) Liens, if any, arising from the filing of financing statements under the Uniform Commercial Code of any jurisdiction by lessors under Operating Leases entered into with the Company or any Subsidiary in the ordinary course of business; (iii) Liens (A) arising from judicial attachments and judgments, (B) securing appeal bonds or supersedeas bonds, and (C) arising in connection with court proceedings (including, without limitation, surety bonds and letters of credit or any other instrument serving a similar purpose), provided that (1) the execution or other enforcement of such Liens is effectively stayed, (2) the claims secured thereby are being actively contested in good faith and by appropriate proceedings, (3) adequate book reserves in accordance with GAAP shall have been established and maintained and shall exist with respect thereto and (4) the aggregate amount so secured for all such Liens shall not at any time exceed Three Hundred Thousand Dollars ($300,000) (excluding in the calculation of such Three Hundred Thousand Dollars ($300,000) any such claims being so secured to the extent, but only to the extent, such claims will be covered by payments from insurance maintained by the Company or any Subsidiary (y) in respect of which insurance the issuer thereof has agreed, in writing, to make such payments in respect of such claims and (z) the issuer of which insurance is an independent commercial insurer that, in the good faith opinion of the Board of Directors, is capable of discharging its payment obligations in connection with such insurance); (iv) Liens incurred or deposits made in the ordinary course of business (A) in connection with workers' compensation, unemployment insurance, social security and other like laws (other than ERISA); (B) to secure the performance of letters of credit, bids, tenders, government contracts, trade contracts, leases, statutory obligations, surety and performance and return-of-money bonds (of a type other than as set forth in Section 6.6(a)(iii) and other similar obligations in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property; and (C) to secure Debt incurred by the Company or its Subsidiaries to one or more institutional lenders under any agreements with such lenders pursuant to which customers of the 23 28 Company or its Subsidiaries may use credit cards to pay for goods and services invoiced by the Company or its Subsidiaries, provided that the aggregate amount of such Debt shall not, in the aggregate at any time, exceed Two Hundred Thousand Dollars ($200,000). (v) Liens in the nature of reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, subleases and other similar title exceptions or encumbrances affecting real Property, provided that they would not, or could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect; (vi) Liens on Property of a Subsidiary, provided that such Liens secured only obligations owing to the Company or to a Wholly-Owned Subsidiary, and Liens made or incurred by the UK Subsidiary on Property located in the United Kingdom and owned by the UK Subsidiary to secure UK Subsidiary Debt; (vii) Liens in existence on the Closing Date securing Debt (other than Senior Debt), provided that such Liens are described in PART 6.6(a)(VII) OF ANNEX 3; (viii) Purchase Money Liens, if, after giving effect to the creation of such Liens and to any concurrent transactions (A) each such Purchase Money Lien at no time secures Debt in an amount exceeding the lesser of (1) the cost of acquisition or construction of the particular Property to which such Debt relates and (2) the Fair Market Value of such Property, as determined at the time of such acquisition or the completion of such construction, (B) no Default or Event of Default would exist, and (C) the Company shall be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a); (ix) Liens securing Debt existing on Property acquired by the Company or a Subsidiary after November 19, 1993 which Liens existed at the time of such acquisition, and Liens securing Debt existing on Property of any Person at the time such Person becomes a Subsidiary if such time is after November 19, 1993 (in either such case, whether or not such acquisition or such Person becoming a Subsidiary is by means of a purchase, merger, consolidation or otherwise and whether or not the Company or any Subsidiary assumes any Debt secured thereby), provided that (A) such Liens (1) were not placed on such Property, and do not secure Debt created, incurred, issued or assumed, contemporaneously with or in any manner in contemplation of, the 24 29 acquisition of such Property by the Company or such Subsidiary or such Person becoming a Subsidiary, (2) do not extend to any other Property of the Company or any Subsidiary after such acquisition or such Person becomes a Subsidiary, and (3) are not more favorable in any material respect to the beneficiaries of such Liens after such acquisition or such Person becoming a Subsidiary than they were prior thereto, and (B) after giving effect to such acquisition or such Person becoming a Subsidiary, and to any concurrent transactions, (1) no Default or Event of Default would exist, and (2) the Company shall be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a); (x) Liens securing obligations arising at any time under the Wells Fargo Credit Agreement to the extent that the amount so secured does not exceed the Wells Fargo Adjusted Credit Limit determined at such time; (xi) Liens securing any Guaranty of obligations arising at any time under the Wells Fargo Credit Agreement to the extent that the amount so guaranteed does not exceed the Wells Fargo Adjusted Credit Limit determined at such time; and (xii) any Lien permitted by clause (viii) or clause (ix) above securing Debt which (directly or successively) extends, renews, refunds or refinances Debt of the type referred to in such clauses, provided that the amount of such Debt being so extended, renewed, refunded or refinanced was permitted to be so extended renewed, refunded or refinanced under Section 6.1(a) or Section 6.1(d). (b) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any Property shall be subjected to a Lien in violation of this Section 6.6, the Company will immediately make or cause to be made, to the fullest extent permitted by applicable law, provision whereby the Notes will be secured equally and ratably with all other obligations secured thereby pursuant to such agreements and instruments as shall be approved by the Required Holders, and the Company will cause to be delivered to each holder of a Note an opinion, satisfactory in form and substance to the Required Holders, of independent counsel to the effect that such agreements and instruments are enforceable in accordance with their terms, and in any such case the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of Notes may be entitled thereto under applicable law, of an equitable Lien on such Property securing the Notes (provided that, notwithstanding the foregoing, each holder of Notes shall have the right to elect at any time, by delivery of written notice of such election to the Company, to cause the Notes held by such holder not to be secured by such Lien or such equitable Lien). A violation 25 30 of this Section 6.6 will constitute an Event of Default, whether or not any such provision is made pursuant to this Section 6.6(b). (c) FINANCING STATEMENTS. The Company will not, and will not permit any Subsidiary to, sign or file a financing statement under the Uniform Commercial Code of any jurisdiction that names the Company or such Subsidiary as debtor, or sign any security agreement authorizing any secured party thereunder to file any such financing statement, except, in any such case, a financing statement filed or to be filed to perfect or protect a security interest that the Company or such Subsidiary is not prohibited to create, assume or incur, or permit to exist, under the foregoing provisions of this Section 6.6 or to evidence for informational purposes a lessor's interest in Property leased to the Company or any such Subsidiary. 6.7 TRANSFERS OF PROPERTY, SUBSIDIARY STOCK, ETC. (a) TRANSFERS OF PROPERTY. The Company will not, and will not permit any Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of any Property (collectively, "to Transfer"; the result of any such Transferring being referred to herein as a "TRANSFER"), except: (i) Transfers of inventory and of obsolete or worn out Property, in each case in the ordinary course of business of the Company or such Subsidiary; (ii) Transfers from a Subsidiary or the Company to the Company or a Wholly-Owned Subsidiary; (iii) Transfers permitted by, and in compliance with, clause (i) through clause (iii), inclusive, of Section 6.7(b) and Transfers permitted by, and in compliance with, Section 6.8(a); and (iv) any other Transfer of Property at any time to any Person, other than an Affiliate, for an Acceptable Consideration, if: (A) the sum of (1) the Transfer Value of such Property, plus (2) the aggregate Transfer Value of all other Property of the Company and the Subsidiaries Transferred (other than in Transfers referred to in the foregoing clause (i) through clause (iii), inclusive), during the period commencing on the first day of the then current fiscal year of the Company and ending at the time of such Transfer, would not exceed ten percent (10%) of Consolidated Assets determined as of the end of the fiscal year of the Company then most recently ended; 26 31 (B) the sum of (1) the Transfer Value of such Property, plus (2) the aggregate Transfer Value of all other Property of the Company and the Subsidiaries Transferred (other than in Transfers referred to in the foregoing clause (i) through clause (iii), inclusive), during the period commencing on November 19, 1993 and ending at the time of such Transfer, would not exceed twenty-five percent (25%) of Consolidated Assets determined as of the end of the fiscal year of the Company then most recently ended; and (C) immediately before and after the consummation of such Transfer, and after giving effect thereto, (1) no Default or Event of Default exists or would exist and (2) the Company would be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a); provided, that any Transfer that would not satisfy the requirements of either or both of subclause (A) or subclause (B) of this clause (iv) shall be deemed to have satisfied such requirements for purposes of this clause (iv) if, but only if, (y) within the period of three hundred sixty-five (365) days after such Transfer, proceeds of such Transfer, net of reasonable and ordinary transaction costs and expenses incurred in connection with such Transfer, are applied by the Company or any Subsidiary to: (1) purchase Property for utilization in the conduct of the business of the Company and the Subsidiaries as contemplated in Section 6.11; or (2) pay, prior to its scheduled maturity, any Wells Fargo Credit Agreement Debt, and (z) the Company shall have informed each holder of Notes in writing prior to the consummation of such Transfer of its intended utilization of this proviso and confirmed in such writing its undertaking to utilize the aforesaid proceeds of such Transfer as provided in subparagraph (y) above. If the proceeds from any Transfer consummated pursuant to the proviso under clause (iv) above are not utilized, as provided in, and within the time periods required by, said proviso, an immediate Event of Default shall then exist under Section 8.1(c). If such 27 32 proceeds of such Transfer are so utilized, then for all purposes of subclause (A) and subclause (B) of clause (iv) above, such Transfer shall thereafter be excluded from any calculations required to be made under either of said subclauses. (b) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and will not permit any Subsidiary to, Transfer any shares of the stock (or any warrants, rights or options to purchase stock or other Securities exchangeable for or convertible into stock) of a Subsidiary (such stock, warrants, rights, options and other Securities herein called "SUBSIDIARY STOCK"), nor will any Subsidiary issue, sell or otherwise dispose of any shares of its own Subsidiary Stock, provided that the foregoing restrictions do not apply to: (i) the issuance by a Subsidiary of shares of its own Subsidiary Stock to the Company or a Wholly-Owned Subsidiary; (ii) Transfers by the Company or a Subsidiary of shares of Subsidiary Stock to the Company or a Wholly-Owned Subsidiary; (iii) the issuance by a Subsidiary of directors' qualifying shares; and (iv) the Transfer of all of the Subsidiary Stock of a Subsidiary owned by the Company and the other Subsidiaries if: (A) such Transfer satisfies the requirements of Section 6.7(a)(iv); (B) in connection with such Transfer the entire Investment (whether represented by stock, Debt, claims or otherwise) of the Company and the other Subsidiaries in such Subsidiary is Transferred to a Person other than (1) the Company, (2) a Subsidiary not simultaneously being disposed of or (3) an Affiliate; (C) the Subsidiary being disposed of has no continuing Investment in any other Subsidiary not simultaneously being disposed of or in the Company; and (D) immediately before and after the consummation of such Transfer, and after giving effect thereto, (1) no Default or Event of Default exists or would exist and (2) the Company would be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a). 28 33 6.8 CONSOLIDATION, MERGER, ETC. (a) MERGER AND CONSOLIDATION. The Company will not, and will not permit any Subsidiary to, merge with or into, consolidate with or into, or Transfer all or substantially all of its Property to, any other Person or permit any other Person to merge or consolidate with or into it (except that a Subsidiary may merge into, consolidate with, or Transfer all or substantially all of its Property to, the Company or a Wholly-Owned Subsidiary if the Company or such Wholly-Owned Subsidiary is the surviving corporation), provided that the foregoing restriction does not apply to the merger or consolidation of the Company with, or the Transfer of all or substantially all of its Property to, another corporation if: (i) the corporation that results from such merger or consolidation or acquires all or substantially all of the Property of the Company (the "SURVIVING CORPORATION") is organized under the laws of the United States of America or any state thereof; (ii) the due and punctual payment of the principal of and Make-Whole Amount, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants in the Notes and this Agreement to be performed or observed by the Company, are expressly assumed by the Surviving Corporation pursuant to such agreements and instruments as shall be approved by the Required Holders, and the Company causes to be delivered to each holder of Notes an opinion of independent counsel, in form, scope and substance satisfactory to the Required Holders, to the effect that such agreements and instruments are enforceable in accordance with their terms; and (iii) immediately prior to, and immediately after the consummation of the transaction, and after giving effect thereto, (A) no Default or Event of Default exists or would exist, and (B) the Company would be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a). (b) ACQUISITION OF STOCK, ETC. The Company will not, and will not permit any Subsidiary to, acquire any stock of any corporation if upon completion of such acquisition such corporation would be a Subsidiary, or acquire all of the Property of, or such of the Property as would permit the transferee to continue any one or more integral business operations of, any Person unless, immediately after the consummation of such acquisition, and after giving effect thereto, (i) no Default or Event of Default exists or would exist, and (ii) the Company would be able to Incur at least One Dollar ($1.00) of additional Debt in compliance with Section 6.1(a). 29 34 6.9 PARI PASSU OBLIGATIONS. The Company covenants that its obligations hereunder and under the Notes do and will, in terms of preference and priority, rank at least pari passu with all of its obligations in respect of its other present and future Debt except the Senior Debt. 6.10 TRANSACTIONS WITH AFFILIATES. Except as set forth in PART 6.10 OF ANNEX 3, the Company will not, and will not permit any Subsidiary to, enter into any transaction, including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate. 6.11 NATURE OF BUSINESS. The Company will not, and will not permit any Subsidiary to, engage in any business if, as a result thereof, the general nature of the businesses of the Company and the Subsidiaries, taken as a whole, would be substantially changed from the businesses thereof described in the Placement Memorandum. 6.12 PAYMENT OF TAXES AND CLAIMS, ETC. The Company will, and will cause each Subsidiary to, pay before they become delinquent: (a) all taxes, assessments and governmental charges or levies imposed upon it or its Property; and (b) all claims or demands of materialmen, mechanics, carriers, warehousemen, vendors, landlords and other like Persons that, if unpaid, might result in the creation of a Lien upon its Property; provided, that items of the foregoing description need not be paid (i) while being actively contested in good faith and by appropriate proceedings as long as adequate book reserves have been established and maintained and exist with respect thereto, and (ii) so long as the title of the Company or the Subsidiary, as the case may be, to, and its right to use, such Property, is not materially adversely affected thereby. The Company and the Subsidiaries will not elect to be treated as "S corporations" under section 1361 of the IRC. 30 35 6.13 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC. The Company will, and will cause each Subsidiary to: (a) PROPERTY -- maintain its respective Properties that are material to its business in good repair, working order and condition, ordinary wear and tear excepted, and make all necessary renewals, replacements, additions, betterments and improvements thereto; (b) INSURANCE -- maintain, with financially sound and reputable insurers, insurance with respect to its Property and business against such casualties and contingencies, of such types (including, without limitation, insurance with respect to losses arising out of Property loss or damage, public liability, business interruption, larceny, workers' compensation, embezzlement or other criminal misappropriation) and in such amounts as is customary in the case of corporations of established reputations engaged in the same or a similar business and similarly situated; (c) FINANCIAL RECORDS -- keep accurate and complete books of records and accounts in which accurate and complete entries shall be made of all its business transactions and that will permit the provision of accurate and complete financial statements in accordance with GAAP; (d) CORPORATE EXISTENCE AND RIGHTS -- (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and franchises, except where the failure to do so, either individually or in the aggregate, would not have, and could not reasonably be expected to have, a Material Adverse Effect, and (ii) to maintain each Subsidiary as a Subsidiary, in each case except as permitted by Section 6.7 and Section 6.8(a); and (e) COMPLIANCE WITH LAW -- not be in violation of any law, ordinance, governmental rule or regulation, order or writ to which it is subject, including, without limitation, any Environmental Protection Law, and not fail to obtain any license, certificate, permit, franchise or other governmental authorization necessary to the ownership of its Properties or to the conduct of its business if such violations or failures to obtain, individually or in the aggregate, would have, or could reasonably be expected to have, a Material Adverse Effect; and (f) OTHER FINANCING DOCUMENTS -- comply with the terms and provisions, to the extent applicable to it, of the Warrant Agreement, the Warrant Certificates, the Registration Rights Agreement, and the Observation Rights Agreement. 31 36 6.14 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE. The Company will punctually pay, or cause to be paid, the principal of and interest (and Make-Whole Amount, if any) on, the Notes, as and when the same shall become due according to the terms hereof and of the Notes, and will maintain an office at the address of the Company set forth in Section 11.1 where notices, presentations and demands in respect hereof or of the Notes may be made upon it. Such office will be maintained at such address until such time as the Company shall notify the holders of the Notes of any change of location of such office, which will in any event be located within the United States of America. 6.15 ERISA, ETC. (a) COMPLIANCE. The Company will, and will cause each ERISA Affiliate to, at all times with respect to each Pension Plan, make timely payment of contributions required to meet the minimum funding standard set forth in ERISA or the IRC with respect thereto, and to comply with all other applicable provisions of ERISA. (b) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS. The Company will not at any time permit the present value of all employee benefits vested under each Pension Plan to exceed the assets of such Pension Plan allocable to such vested benefits at such time, in each case determined pursuant to Section 6.15(c). (c) VALUATIONS. All assumptions and methods used to determine the actuarial valuation of vested employee benefits under Pension Plans and the present value of assets of Pension Plans will be reasonable in the good faith judgment of the Company and will comply with all requirements of law. (d) PROHIBITED ACTIONS. The Company will not, and will not permit any ERISA Affiliate to: (i) engage in any "prohibited transaction" (as defined in section 406 of ERISA or section 4975 of the IRC) that would result in the imposition of a material tax or penalty; (ii) incur with respect to any Pension Plan any "accumulated funding deficiency" (as defined in section 302 of ERISA), whether or not waived; (iii) terminate any Pension Plan in a manner that could result in (A) the imposition of a Lien on the Property of the Company or any Subsidiary pursuant to section 4068 of ERISA, or (B) the creation of any liability under section 4062 of ERISA; (iv) fail to make any payment required by section 515 of ERISA; or 32 37 (v) at any time be an "employer" (as defined in section 3(5) of ERISA) required to contribute to any Multiemployer Plan if, at such time, it could reasonably be expected that the Company or any Subsidiary will incur withdrawal liability in respect of such Multiemployer Plan and such liability, if incurred, together with the aggregate amount of all other withdrawal liability as to which there is a reasonable expectation of incurrence by the Company or any Subsidiary under any one or more Multiemployer Plans, would have, or could reasonably be expected to have, a Material Adverse Effect. 6.16 NO REACQUISITIONS OF NOTES. Except as expressly set forth in Section 4.3, (a) the Company will not make any optional prepayment in respect of the Notes and (b) the Company will not, and will not permit any Subsidiary or any Affiliate to, directly or indirectly, acquire or make any offer to acquire any Notes. In case the Company prepays in full any Notes, as permitted above, such Notes will thereafter be cancelled and no Notes will be issued in substitution therefor. 6.17 PRIVATE OFFERING. The Company will not, and will not permit any Person acting on its behalf to, offer the Notes or any part thereof or any similar Securities for issuance or sale to, or solicit any offer to acquire any of the same from, any Person so as to bring the issuance and sale of the Notes within the provisions of section 5 of the Securities Act. 6.18 MINIMUM PROFITABILITY. The Company shall not permit Consolidated Net Income (excluding any gain on the sale of Peripheral Computer Support, Inc.) for the fiscal quarters of the Company ending on the dates set forth in the table below to be less than the amounts set forth opposite such dates.
====================================================================================================== Fiscal Quarter Ending Consolidated Net Income - ------------------------------------------------------------------------------------------------------ March 31, 1997 ($5,787,000) - ------------------------------------------------------------------------------------------------------ June 30, 1997 ($3,820,000) - ------------------------------------------------------------------------------------------------------ September 30, 1997 ($891,000) - ------------------------------------------------------------------------------------------------------ December 31, 1997 $607,000 - ------------------------------------------------------------------------------------------------------ March 31, 1998 $650,000 - ------------------------------------------------------------------------------------------------------ June 30, 1998 and thereafter $5,000,000 ======================================================================================================
33 38 6.19 MINIMUM RATIO OF ACCOUNTS RECEIVABLE TO LOANS. The Company shall not permit the ratio of (a) the sum of (i) Consolidated Accounts Receivable as of the last day of the fiscal quarters of the Company set forth in the table below plus (ii) Consolidated Inventory as of such day to (b) the aggregate amount of all outstanding Wells Fargo Credit Agreement Debt as of such day to be less than the applicable ratio set forth in the following table:
================================================================================================ Fiscal Quarter Ending Minimum Ratio - ------------------------------------------------------------------------------------------------ March 31, 1997 0.65 to 1.00 - ------------------------------------------------------------------------------------------------ June 30, 1997 0.63 to 1.00 - ------------------------------------------------------------------------------------------------ September 30, 1997 0.63 to 1.00 - ------------------------------------------------------------------------------------------------ December 31, 1997 0.66 to 1.00 - ------------------------------------------------------------------------------------------------ March 31, 1998 and thereafter 0.67 to 1.00 ================================================================================================
6.20 CURRENT RATIO. The Company shall not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities as of the last day of the fiscal quarters of the Company set forth in the table below to be less than the applicable ratio set forth opposite such days.
================================================================================================ Fiscal Quarter Ending Minimum Ratio - ------------------------------------------------------------------------------------------------ March 31, 1997 0.56 to 1.00 - ------------------------------------------------------------------------------------------------ June 30, 1997 0.61 to 1.00 - ------------------------------------------------------------------------------------------------ September 30, 1997 0.59 to 1.00 - ------------------------------------------------------------------------------------------------ December 31, 1997 0.62 to 1.00 - ------------------------------------------------------------------------------------------------ March 31, 1998 0.64 to 1.00 - ------------------------------------------------------------------------------------------------ June 30, 1998 and thereafter 1.00 to 1.00 ================================================================================================
34 39 6.21 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Company shall not permit Consolidated Tangible Net Worth at any time during any period set forth in the table below to be less than the applicable amount set forth opposite such period, plus one hundred percent (100%) of Net Securities Proceeds.
============================================================================================================= Period Minimum Consolidated Tangible Net Worth - ------------------------------------------------------------------------------------------------------------- March 31, 1997 through June 29, 1997 ($9,816,000) - ------------------------------------------------------------------------------------------------------------- June 30, 1997 through September 29, 1997 ($3,362,000) - ------------------------------------------------------------------------------------------------------------- September 30, 1997 through ($3,504,000) December 30, 1997 - ------------------------------------------------------------------------------------------------------------- December 31, 1997 through ($2,263,000) March 30, 1998 - ------------------------------------------------------------------------------------------------------------- March 31, 1998 ($1,363,000) - ------------------------------------------------------------------------------------------------------------- June 30, 1998 and thereafter $5,000,000 =============================================================================================================
6.22 AMENDMENT TO CERTIFICATE OF INCORPORATION. On or prior to July 15, 1997, the Company will obtain the approval of the stockholders of the Company, and amend the Certificate of Incorporation of the Company, to increase the authorized shares of the Common Stock from thirty million (30,000,000) shares to fifty million (50,000,000) shares. 7. INFORMATION AS TO COMPANY 7.1 FINANCIAL AND BUSINESS INFORMATION. The Company will deliver to each holder of Notes: (a) MONTHLY FINANCIAL STATEMENTS -- as soon as practicable after the end of each month (other than the last month in each fiscal year of the Company), and in any event within thirty (30) days thereafter, duplicate copies of (i) a consolidated balance sheet of the Company and the Subsidiaries as at the end of such month, (ii) consolidated statements of income, stockholders' equity and cash flows of the Company and the Subsidiaries for such month, and (iii) an income statement for such month showing the results of operations for each division of the Company and the Subsidiaries, 35 40 all in reasonable detail and certified by a Senior Financial Officer as fairly presenting the financial condition of the Company and the Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (b) QUARTERLY STATEMENTS -- as soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), and in any event within forty-two (42) days thereafter, duplicate copies of (i) a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income and cash flows of the Company and the Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the immediately preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally (provided that such financial statements need not contain footnotes), and certified as complete and correct, subject to changes resulting from year-end adjustments, by a Senior Financial Officer, and accompanied by the certificate required by Section 7.2; (c) ANNUAL STATEMENTS -- as soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred (100) days thereafter, duplicate copies of (i) consolidated and consolidating balance sheets of the Company and the Subsidiaries, as at the end of such year, and (ii) consolidated and consolidating statements of income, shareholders' equity and cash flows of the Company and the Subsidiaries for such year, setting forth in each case in comparative form the figures for the immediately preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) in the case of such consolidated statements, a report thereon of independent certified public accountants of recognized national standing, which report shall (1) contain no qualifications as to the circumstances of or any restrictions on the engagement of such independent certified public accountants or to the scope of the audit conducted by such independent certified public accountants, (2) express an opinion in the form of the standard auditor's report under generally accepted auditing standards which shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of 36 41 such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (3) not constitute or contain, as the case may be, an adverse opinion, a disclaimer of opinion, a qualified opinion or a modification to an opinion, in each case as such terms are understood under generally accepted auditing standards and would be applied in respect of the expression of opinion required under subclause (2) above, (B) a statement from such independent certified public accountants that such consolidating statements were prepared using the same work papers as were used in the preparation of such consolidated statements, (C) a certification by a Senior Financial Officer that such consolidated and consolidating statements are complete and correct, and (D) the certificates required by Section 7.2 and Section 7.3; (d) AUDIT REPORTS -- promptly upon receipt thereof, a copy of each other report submitted to the Company or any Subsidiary by independent accountants in connection with any management report, special audit report or comparable analysis prepared by them with respect to the books of the Company or any Subsidiary; (e) SEC AND OTHER REPORTS -- promptly upon their becoming available, a copy of each financial statement, report (including, without limitation, each Quarterly Report on Form 10-Q, each Annual Report on Form 10-K and each Current Report on Form 8-K), notice or proxy statement sent by the Company or any Subsidiary to shareholders generally and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and each amendment thereto, in respect thereof filed by the Company or any Subsidiary with, or received by, such Person in connection therewith from, the National Association of Securities Dealers, any securities exchange or the SEC; (f) ERISA -- (i) immediately upon becoming aware of the occurrence of any (A) "reportable event" (as such term is defined in section 4043 of ERISA), or (B) "prohibited transaction" (as such term is defined in section 406 of ERISA or section 4975 of the IRC), in connection with any Pension Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company is taking or proposes to take with respect thereto and, when known, any action taken by the IRS, the DOL or the PBGC with respect thereto, and 37 42 (ii) prompt written notice of and, where applicable, a description of (A) any notice from the PBGC in respect of the commencement of any proceedings pursuant to section 4042 of ERISA to terminate any Pension Plan or for the appointment of a trustee to administer any Pension Plan, (B) any distress termination notice delivered to the PBGC under section 4041 of ERISA in respect of any Pension Plan, and any determination of the PBGC in respect thereof, (C) the placement of any Multiemployer Plan in reorganization status under Title IV of ERISA, (D) any Multiemployer Plan becoming "insolvent" (as defined in section 4245 of ERISA) under Title IV of ERISA, and (E) the whole or partial withdrawal of the Company or any ERISA Affiliate from any Multiemployer Plan and the withdrawal liability incurred in connection therewith; (g) ACTIONS, PROCEEDINGS -- promptly (and in any event, within three (3) Business Days) after the commencement thereof, notice of any action or proceeding relating to the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would have a Material Adverse Effect; (h) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice of and a description of any event or circumstance that, had such event or circumstance occurred or existed immediately prior to the Closing Date, would have been required to be disclosed as an exception to any statement set forth in Section 2.13; (i) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately upon becoming aware of the existence of any condition or event that constitutes a Default or an Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (j) NOTICE OF CLAIMED DEFAULT -- immediately upon becoming aware that the holder of any Note, or of any Debt or any Security of the Company or any Subsidiary, shall have given notice or taken any other action with respect to a claimed Default, Event of Default, default or event of default, a written notice specifying the notice given or action taken by such holder and the nature of the claimed Default, Event of Default, default or event of default and what action the Company is taking or proposes to take with respect thereto; (k) OPERATION PLAN -- promptly upon its completion, and in any event prior to thirty (30) days after each fiscal year-end of the Company, a plan of operations for each 38 43 of the two (2) fiscal years of the Company following the fiscal year of the Company then ended, which plan of operation shall include (without limitation) the following: (i) projected quarterly cash flow statements of the Company and the Subsidiaries (including, without limitation, budgeted capital expenditures and projected revenues) on a consolidated basis and on a division basis, (ii) projected quarterly statements of operation of the Company and the Subsidiaries on a consolidated basis and on a division basis, (iii) projected consolidated balance sheet of the Company and the Subsidiaries based on GAAP as of the last day of each such fiscal year, (iv) projected consolidated statements of income and cash flows of the Company and the Subsidiaries for each such fiscal year based on GAAP and (v) all assumptions upon which such plans of operations and the foregoing financial statements are based; and (l) REQUESTED INFORMATION -- with reasonable promptness, such other data and information as from time to time may be reasonably requested by any holder of Notes, including, without limitation, (i) copies of any statement, report or certificate furnished to any other holder of any Debt or Security of the Company or any Subsidiary, and (ii) information requested to comply with any request of the National Association of Insurance Commissioners in respect of the designation of the Notes, and (iii) information requested to comply with 17 C.F.R. Section 230.144A, as amended from time to time; provided that any such request with respect to any of the data and information referred to in the foregoing clause (i), clause (ii) and clause (iii) shall be deemed to be reasonable for purposes of this Section 7.1(l). The holders of Notes hereby request, and the Company agrees to provide to such holders, copies of all monthly financial statements provided to any purchasers of shares of Series A Preferred Stock under that certain Stock Purchase Agreement, dated as of November 19, 1993, as amended. 7.2 OFFICERS' CERTIFICATES. Each set of financial statements delivered to each holder of Notes pursuant to Section 7.1(a), Section 7.1(b) or Section 7.1(c) shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 6.1 through Section 6.8, inclusive, and Section 6.18 through Section 6.21, inclusive, during the period covered by the statement of income then being furnished (including with respect to each such Section , where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections , and the calculation of the amounts, ratio or percentage then in existence); and 39 44 (b) EVENT OF DEFAULT -- a statement that the signers have reviewed the relevant terms hereof and have made, or caused to be made, under their supervision, a review of the transactions and conditions of the Company and the Subsidiaries from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3 ACCOUNTANTS' CERTIFICATES. Each set of annual financial statements delivered pursuant to Section 7.1(c) shall be accompanied by a certificate of the accountants who certify such financial statements, stating that they have reviewed this Agreement and stating further, whether, in making their audit, such accountants have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if such accountants are aware that any such condition or event then exists, specifying the nature and period of existence thereof. 7.4 INSPECTION. The Company will permit the representatives of each Existing Noteholder (and any of its subsidiaries or affiliates that may after the Closing Date hold any Notes) and of each Significant Holder to visit and inspect any of the Properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (and by this provision the Company authorizes such accountants to discuss the finances and affairs of the Company and the Subsidiaries) all at such reasonable times and as often as may be reasonably requested. If, at the time of any visit or inspection under this Section 7.4, a Default or Event of Default shall exist, the Company shall pay for all out-of-pocket costs and expenses of or in connection with such visit or inspection; otherwise, all such out-of-pocket costs and expenses shall be for the account of the Person or Persons making such visit or inspection. 7.5 CONFIDENTIAL INFORMATION. With respect to all data and information that has been or in the future is furnished to or obtained by any holder of Notes in connection with this Agreement (excluding, in any case, any such data and information that was or is available to the public or was not or is not treated as confidential by any one or more of the Company, the Subsidiaries or the Affiliates), such holder will hold such data and information in confidence in accordance with the customary practices and standards of confidentiality generally employed by such holder in respect of similar data and information obtained in connection with other comparable investment transactions of such holder. Notwithstanding the foregoing, any such holder may disclose any data and information furnished to or obtained by it in connection with this Agreement and the Notes: (a) the disclosure of which is, in such holder's sole good faith business and/or legal judgment, reasonably required in connection with regulatory requirements (including, 40 45 without limitation, the requirements of the National Association of Insurance Commissioners) or other legal requirements related to such holder's affairs, including, without limitation, the disclosure of such data and information in connection with or in response to (i) compliance with any law, ordinance or governmental order, regulation, rule, policy, subpoena, investigation or request, or (ii) any order, decree, judgment, subpoena, notice of discovery or similar ruling, or pleading issued, filed, served or purported on its face to be issued, filed or served (A) by or under authority of any court, tribunal, arbitration board or any governmental agency, commission, authority, board or similar entity or (B) in connection with any proceeding (including, without limitation, any proceeding to enforce the obligations of the Company under this Agreement or the Notes), cause or matter pending (or on its face purported to be pending) before any court, tribunal, arbitration board or any governmental agency, commission, authority, board or similar entity; (b) to any one or more of the employees, officers, directors, agents, attorneys, accountants, professional consultants or trustees of such holder (or of any subsidiary or affiliate of such holder) who would have access to such data and information in the normal course of the performance of such Person's duties for such holder (or for such subsidiary or affiliate); (c) to Moody's Investors Service, Inc., Standard & Poor's Ratings Group or any other nationally recognized financial rating service that is reviewing the credit rating of any holder of Notes or is rating or reviewing the rating of the Notes; and (d) to any prospective purchaser, securities broker or dealer or investment banker in connection with the resale or proposed resale of all or any portion of the Notes by such holder. In connection with any disclosure by any holder of Notes under clause (a) above, such holder will use reasonable efforts to notify the Company of any such pending disclosure, provided that (x) such holder shall in no case be liable to the Company for its failure to effect such notification, (y) the failure to effect such notification shall not affect the ability of such holder to make the disclosures contemplated under said clause (a) and (z) this sentence shall not apply to the delivery of periodic financial statements and information to the National Association of Insurance Commissioners, the Securities Valuation Office thereof or any other agency thereof in connection with the rating, evaluation or other regulatory treatment of the Notes or the Warrants. In connection with any disclosure by any holder of Notes under clause (d) above, such holder will use reasonable efforts to cause any prospective purchaser, securities broker or dealer or investment banker referred to in said clause (d) to enter into a written confidentiality agreement with the Company containing terms of confidentiality substantially similar to the terms of confidentiality set forth in this Section 7.5 prior to effecting such disclosure, provided that (yy) such holder shall in no case be liable to the Company if such prospective purchaser, securities broker or dealer or investment banker shall for any reason not enter into any such confidentiality agreement with the Company and (zz) the failure of such prospective purchaser, securities broker or dealer or investment banker to enter into any such confidentiality agreement with the Company shall not affect the ability of such holder to make the disclosures contemplated under said clause (d). No holder of Notes will be liable for the breach of this Section 7.5 or of any provision in any aforesaid confidentiality agreement by any other holder of Notes or by any 41 46 Person to which any confidential data or information shall be delivered in accordance with this Section 7.5. 7.6 REPORTS TO NAIC. Concurrently with the delivery to you of each annual statement and opinion required by clause (i) and clause (ii) of Section 7.1(c), the Company will deliver a copy thereof to: Securities Valuation Office, National Association of Insurance Commissioners, 195 Broadway, New York, New York 10007. 8. EVENTS OF DEFAULT 8.1 NATURE OF EVENTS. An "EVENT OF DEFAULT" shall exist if any of the following occurs and is continuing at any time: (a) PRINCIPAL OR MAKE-WHOLE AMOUNT PAYMENTS -- the Company shall fail to make any payment of principal or Make-Whole Amount on any Note on or before the date such payment is due; (b) INTEREST PAYMENTS -- the Company shall fail to make any payment of interest on any Note on or before ten (10) days after the date such payment is due; (c) PARTICULAR COVENANT DEFAULTS -- the Company or any Subsidiary shall fail to perform or observe any covenant contained in Section 6.1 through Section 6.5, inclusive, Section 6.7 through Section 6.10, inclusive, Section 6.18 through Section 6.21, inclusive, or in Section 7.1(h) or Section 7.1(i); (d) OTHER DEFAULTS -- (i) the Company or any Subsidiary shall fail to perform or observe any covenant contained in Section 6.6 and such failure shall continue for more than ten (10) days after such failure shall first become known to any officer of the Company or (ii) the Company or any Subsidiary shall fail to comply with any other provision hereof, and such failure shall continue for more than thirty (30) days after such failure shall first become known to any officer of the Company; (e) WARRANTIES OR REPRESENTATIONS -- any warranty, representation or other statement by or on behalf of the Company contained herein or in any certificate or instrument furnished in compliance with or in reference hereto shall have been false or misleading in any material respect when made; (f) DEFAULT ON DEBT OR SECURITY -- any event shall occur or any condition shall exist in respect of any Debt or any Security of the Company or any Subsidiary, or under any agreement securing or relating to any such Debt or Security, that: (i) causes such Debt or Security, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled date or dates of payment; or 42 47 (ii) permits any one or more of the holders thereof or a trustee therefor to require the Company or any Subsidiary to repurchase such Debt or Security from such holder and one or more of such Persons shall have demanded or otherwise required such repurchase; provided that the aggregate amount of all obligations in respect of all such Debt and Securities referred to in this clause (f) exceeds at such time Two Million Dollars ($2,000,000); (g) INVOLUNTARY BANKRUPTCY PROCEEDINGS -- (i) a receiver, liquidator, custodian or trustee of the Company or any Subsidiary, or of all or any part of the Property of either, shall be appointed by court order and such order shall remain in effect for more than sixty (60) days, or an order for relief shall be entered with respect to the Company or any Subsidiary, or the Company or any Subsidiary shall be adjudicated a bankrupt or insolvent; (ii) any of the Property of the Company or any Subsidiary shall be sequestered by court order and such order shall remain in effect for more than sixty (60) days; or (iii) a petition shall be filed against the Company or any Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and shall not be dismissed within sixty (60) days after such filing; (h) VOLUNTARY PETITIONS -- the Company or any Subsidiary shall file a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, or shall consent to the filing of any petition against it under any such law; (i) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. -- the Company or any Subsidiary shall make an assignment for the benefit of its creditors, or shall admit in writing its inability, or shall fail, to pay its debts generally as they become due, or shall consent to the appointment of a receiver, liquidator or trustee of the Company or any Subsidiary or of all or any part of the Property of either; or (j) UNDISCHARGED FINAL JUDGMENTS -- a final judgment or final judgments for the payment of money aggregating in excess of Two Hundred Thousand Dollars ($200,000) (excluding in the calculation of such Two Hundred Thousand Dollars ($200,000) any final judgments to the extent, but only to the extent, such judgments will be covered by payments from insurance maintained by the Company or any Subsidiary (i) in respect of which insurance the issuer thereof has agreed, in writing, to make such payments in respect of such judgment and (ii) the issuer of which insurance is an independent commercial insurer that, in the good faith opinion of the Board of Directors, is capable of discharging its payment obligations in connection with such insurance) shall be outstanding against any one or more of the Company and the Subsidiaries and any 43 48 one of such judgments shall have been outstanding for more than thirty (30) days from the date of its entry and shall not have been discharged in full or stayed. 8.2 DEFAULT REMEDIES. (a) ACCELERATION ON EVENT OF DEFAULT. (i) If any Event of Default specified in clause (g), clause (h) or clause (i) of Section 8.1 shall exist, all of the Notes at the time outstanding shall automatically become immediately due and payable, together with interest accrued thereon and the Make-Whole Amount (as of the date such Notes first become due and payable) with respect to such principal amount of such Notes, in each case without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. (ii) If any Event of Default other than those specified in clause (g), clause (h) and clause (i) of Section 8.1 shall exist, then the holders of at least forty percent (40%) in principal amount of the Notes then outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiary or any Affiliate) may exercise any right, power or remedy permitted to such holder or holders by law and shall have, in particular, without limiting the generality of the foregoing, the right to declare the entire principal of, and all interest accrued on, all the Notes then outstanding to be, and such Notes shall thereupon become, immediately due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall immediately pay to the holder or holders of all the Notes then outstanding the entire principal of, and interest accrued on, the Notes and, to the extent permitted by applicable law, the Make-Whole Amount on the date of such declaration with respect to such principal amount of such Notes. (b) ACCELERATION ON PAYMENT DEFAULT. During the existence of an Event of Default described in Section 8.1(a) or Section 8.1(b), and irrespective of whether the Notes then outstanding shall have been declared to be due and payable pursuant to Section 8.2(a)(ii), any holder of Notes that shall have not consented to any waiver with respect to such Event of Default may, at such holder's option, by notice in writing to the Company, declare the Notes then held by such holder to be, and such Notes shall thereupon become, immediately due and payable together with all interest accrued thereon, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall immediately pay to such holder the entire principal of and interest accrued on such Notes and, to the extent permitted by applicable law, the Make-Whole Amount (as of the date of such declaration) with respect to such principal amount of such Notes. (c) VALUABLE RIGHTS. The Company acknowledges, and the parties hereto agree, that the right of each holder to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) is a valuable right and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is 44 49 intended to provide compensation for the deprivation of such right under such circumstances. (d) OTHER REMEDIES. During the existence of an Event of Default and irrespective of whether the Notes then outstanding shall have been declared to be due and payable pursuant to Section 8.2(a)(ii) and irrespective of whether any holder of Notes then outstanding shall otherwise have pursued or be pursuing any other rights or remedies, any holder of Notes may proceed to protect and enforce its rights hereunder and under such Notes by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any agreement contained herein or in aid of the exercise of any power granted herein, provided that the maturity of such holder's Notes may be accelerated only in accordance with Section 8.2(a) and Section 8.2(b). (e) NONWAIVER AND EXPENSES. No course of dealing on the part of any holder of Notes nor any delay or failure on the part of any holder of Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. If the Company shall fail to pay when due any principal of, or Make-Whole Amount or interest on, any Note, or shall fail to comply with any other provision hereof, or if there shall be a controversy or potential controversy between the Company and one or more holders of Notes as to any of the provisions of this Agreement or the Notes, the Company shall pay to each holder of Notes, to the extent permitted by applicable law, such further amounts as shall be sufficient to cover the costs and expenses (including, without limitation, the reasonable fees and the disbursements of your attorneys, accountants and other expert, legal and financial advisers) incurred by each such holder in collecting any sums due on such Notes or in otherwise assessing, analyzing or enforcing any rights or remedies that are or may be available to it. 8.3 ANNULMENT OF ACCELERATION OF NOTES. If a declaration is made pursuant to Section 8.2(a)(ii) in respect of all of the Notes of all holders or pursuant to Section 8.2(b) in respect of all of the Notes of one or more holders, then, in either case, the holders of sixty-one percent (61%) or more in aggregate principal amount of the Notes then outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiaries and any Affiliates) may, by written instrument filed with the Company (and, in the case of any such declaration pursuant to Section 8.2(b), delivered to the holder or holders of such Notes that were subject to such declaration), rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (a) no judgment or decree shall have been entered for the payment of any moneys due on or pursuant hereto or the Notes; (b) all arrears of interest upon all the Notes and all other sums payable hereunder and under the Notes (except any principal of, or interest or Make-Whole Amount on, the Notes that shall have become due and payable by reason of such declaration under Section 8.2(a)(ii) or Section 8.2(b), as the case may be) shall have been duly paid; and 45 50 (c) each and every other Default and Event of Default shall have been waived pursuant to Section 11.5 or otherwise made good or cured; and provided further that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 9. INTERPRETATION OF THIS AGREEMENT 9.1 TERMS DEFINED. ACCEPTABLE CONSIDERATION -- means, with respect to any Transfer of any Property of the Company or a Subsidiary, cash consideration, promissory notes or such other consideration (or any combination of the foregoing) received by such Person in connection with such Transfer as is, in each case, determined by the Board of Directors, in its good faith opinion, to be in the best interests of the Company and to reflect the Fair Market Value of such Property. ACCEPTABLE CONTROL PERSON -- has the meaning set forth in the definition of "Change in Control." AFFILIATE -- means, at any time, a Person (other than a Subsidiary): (a) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company; (b) that beneficially owns or holds five percent (5%) or more of any class of the Voting Stock of the Company; (c) five percent (5%) or more of the Voting Stock (or in the case of a Person that is not a corporation, five percent (5%) or more of the equity interest) of which is beneficially owned or held by the Company or any Subsidiary; or (d) that is an officer or director (or a member of the immediate family of an officer or director) of the Company or any Subsidiary; at such time. As used in this definition, "control" -- means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. AGREEMENT, THIS -- means this agreement, as it may be amended and restated from time to time. BANKRUPTCY CODE -- means the Bankruptcy Reform Act of 1978, as codified under Title 11 of the United States Code, and the Bankruptcy Rules promulgated thereunder, as the same may be amended from time to time. 46 51 BOARD OF DIRECTORS -- means, at any time, the board of directors of the Company or any committee thereof that, in the instance, shall have the lawful power to exercise the power and authority of such board of directors. BT -- means British Telecommunications plc, a limited liability company formed under the laws of the United Kingdom, and any affiliates, successors and assigns thereof. BUSINESS DAY -- means, at any time, a day other than (a) a Saturday or a Sunday, (b) in the case of any Note with respect to which the provisions of Section 11.6(a) are applicable, a day on which the bank designated (by the holder of such Note) to receive (for such holder's account) payments on such is required by law (other than a general banking moratorium or holiday for a period exceeding four (4) consecutive days) to be closed and (c) a day on which the banks located in the State of California are required by law (other than a general banking moratorium or holiday for a period exceeding four (4) consecutive days) to be closed. CAPITALIZED LEASE -- means, at any time, any lease with respect to which any obligation for rentals thereunder constitutes a Capitalized Lease Obligation. CAPITALIZED LEASE OBLIGATION -- means, with respect to any Person, any rental obligation that is or will be required to be capitalized on a balance sheet of such Person in accordance with GAAP, in each case taken at the amount thereof accounted for as indebtedness. CHANGE IN CONTROL -- means, at any time, the acquisition or holding by (a) any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the Closing Date) other than an Acceptable Control Person, or (b) related Persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the Closing Date) other than related Acceptable Control Persons constituting such a group, of legal and/or beneficial ownership of fifty percent (50%) or more of the Voting Stock of the Company (determined by total voting power) outstanding at such time (excluding for such purpose shares owned through any employee benefit plan of the Company or any trust in connection therewith) or ownership of all or substantially all of the assets of the Company at such time. As used in this definition: Acceptable Control Persons -- means any individual identified in PART 9.1-ACP OF ANNEX 3 who is, as of the Closing Date, a director, officer and/or employee of the Company, any spouse, issue or adopted children or other relative of such individual or any trust for the exclusive benefit of such individual or his/her spouse, issue or adopted children or other relatives, provided, in the case of such trust, that the existing beneficiaries and/or trustee(s) and/or grantor(s) of such trust have the power to act with respect to the trust's assets without court approval. 47 52 CHASE MANHATTAN PRIME RATE -- means the "prime rate" as announced from time to time by Chase Manhattan Bank, N.A. or any successor thereto in New York City, New York. CLOSING -- Section 1.2(b). CLOSING DATE -- Section 1.2(b). COMMON STOCK -- has the meaning assigned to such term in the Warrant Agreement. COMPANY -- has the meaning assigned to such term in the introductory sentence hereof. CONSOLIDATED ACCOUNTS RECEIVABLE -- means, at any date of determination, all present and future rights of the Company and the Subsidiaries to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper) as of such date, as determined in accordance with GAAP. CONSOLIDATED ADJUSTED NET INCOME -- with respect to any period means net earnings (or loss) from continuing operations of the Company and the Subsidiaries before discontinued operations and extraordinary items (but after provision for income taxes) and after (without duplication) excluding any applicable Net Income Excludable Items, all of the above being determined on a consolidated basis for such Persons for such period in accordance with GAAP, provided that any deduction in respect of the amortization of any discount attributed by GAAP to the Notes as a result of the issuance of the Warrants included in the determination of said net earnings (or loss) shall, for purposes of determining "Consolidated Adjusted Net Income," be added back to said net earnings (or loss). CONSOLIDATED ASSETS -- means, at any time, the amount at which the assets of the Company and the Subsidiaries would be shown on a consolidated balance sheet of such Persons at such time after deduction of depreciation, amortization and all other properly deductible valuation reserves. CONSOLIDATED CASH FLOW -- means, for any period, the sum of (a) Consolidated Adjusted Net Income for such period, plus (b) Consolidated Interest Expense to the extent included in the determination of such Consolidated Adjusted Net Income, plus (c) any income tax expense to the extent included in the determination of such Consolidated Adjusted Net Income, plus (d) depreciation, amortization and other non-cash charges to the extent included in the determination of such Consolidated Adjusted Net Income, in each case determined on a consolidated basis for the Company and the Subsidiaries. 48 53 CONSOLIDATED CURRENT ASSETS -- means, as at any date of determination, the total assets of the Company and the Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP. CONSOLIDATED CURRENT LIABILITIES -- means, as at any date of determinations, the total liabilities of the Company and the Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, including, without limitation, the aggregate principal amount outstanding under the Revolving Credit Facility as of such date. CONSOLIDATED INTEREST EXPENSE -- means, for any period, the aggregate amount of continuing, regular or periodic costs, charges and expenses (including, without limitation, interest (including the interest component in respect of Capitalized Leases), amortization expense related to Debt issued at a discount and other finance and servicing charges) incurred by the Company or any of the Subsidiaries in effecting, servicing or maintaining Total Debt, all determined on a consolidated basis for such Persons in accordance with GAAP, provided that, anything contained in this definition notwithstanding, "Consolidated Interest Expense" shall not include any amortization of any discount attributed by GAAP to the Notes as a result of the issuance of the Warrants. CONSOLIDATED INVENTORY -- means, as at any date of determination, the value (calculated at the lower of cost or market) of all inventory of the Company and the Subsidiaries as of such date, as determined in accordance with GAAP. As used in this definition, "inventory" means goods (whether consisting of whole goods, spare parts or components), merchandise and other personal property to be furnished under any contract of service or held for sale or lease and all raw materials, work-in-progress, finished goods, returned goods and materials and supplies of any kind, nature or description that are or might be used or consumed in the Company's or any Subsidiary's business. CONSOLIDATED NET INCOME -- means, with respect to any period, net income (or loss) of the Company and the Subsidiaries determined on a consolidated basis in accordance with GAAP for such period, provided that there shall be excluded (a) the income (or loss) of any Person (other than a Subsidiary) in which any other Person (other than the Company or any Subsidiary) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company of any Subsidiary by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date (i) it becomes a Subsidiary or is merged into or consolidated with the Company or any Subsidiary or (ii) its assets are acquired by the Company or any Subsidiary, (c) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, and (d) to the extent not included in the foregoing clause (a), clause (b) or clause (c), any net extraordinary gains or net non-cash extraordinary losses. 49 54 CONSOLIDATED NET WORTH -- means, at any time, shareholders' equity of the Company and the Subsidiaries determined on a consolidated basis less the sum (without duplication) of the following items and subject to the adjustment set forth in the last sentence of this definition: (a) the aggregate amount of all write-ups of assets (y) owned by the Company or any Subsidiary on November 19, 1993, which write-up occurred subsequent to December 31, 1992, and (z) acquired by the Company or any Subsidiary after November 19, 1993, which write-up occurred subsequent to the acquisition of such assets, plus (b) all previously issued, reacquired and uncancelled capital stock of the Company or any of Subsidiary (to the extent included in shareholders' equity above), plus (c) amounts attributable to minority interests in a Subsidiary held by any Person other than the Company or any other Subsidiary (to the extent that they are included in shareholders' equity above), plus (d) all notes held by the Company or any Subsidiary from any Person, which notes evidence such Person's obligation to pay for the purchase price to the Company or such Subsidiary of capital stock of the Company or such Subsidiary (as the case may be) purchased by such Person (to the extent that such notes are reflected in the determination of shareholders' equity above). For purposes of the determination of "Consolidated Net Worth," the Notes shall be accounted for in an amount equal to the aggregate par value of the outstanding principal balance thereof at the time of any such determination. CONSOLIDATED TANGIBLE NET WORTH -- means, as at any date of determination, (a) the sum of (i) the capital stock and additional paid-in capital of the Company and the Subsidiaries, plus (ii) retained earnings (or minus accumulated deficits) of the Company and the Subsidiaries, plus (iii) Debt of the Company evidenced by the Note Purchase Agreements and other Debt of the Company subordinated in right of payment to the Wells Fargo Credit Agreement Debt on terms satisfactory to Wells Fargo; minus (b) the sum of (i) the aggregate amount of all treasury stock, plus 50 55 (ii) goodwill, patents, copyrights, trade names, trademarks, acquired technology, deferred loan costs and other intangible assets, plus (iii) the aggregate amount of all obligations owing to the Company or any Subsidiary from any stockholder, employee or Affiliate of the Company or any Subsidiary; all as determined on a consolidated basis for the Company and the Subsidiaries in accordance with GAAP. CONTROL EVENT -- means (a) the execution by the Company or any other Affiliate of any letter of intent or similar agreement with respect to any proposed transaction or event or series of transactions or events that, individually or in the aggregate, could reasonably be expected to result in a Change in Control, provided that this clause (a) shall not be deemed to constitute a "Control Event" if the divulging of any such letter or agreement to the holders of Notes would violate any applicable securities laws or contravene the terms of any confidentiality agreement contained in such letter or agreement, (b) the execution of any written agreement that, when fully performed by the parties thereto, would result in a Change in Control, or (c) the tender of any Voting Stock by one or more Acceptable Control Persons to any Person or Persons which transfer would result in a Change in Control. CONTROL PREPAYMENT DATE -- Section 4.4(b). DEBT -- means, with respect to any Person (without duplication), all of the following: (a) all obligations of such Person for moneys borrowed (including, without limitation, all obligations of such Person evidenced by any debenture, bond, note, commercial paper or other similar Security but excluding, in any case, obligations arising from the endorsement in the ordinary course of business of negotiable instruments for deposit or collection); (b) all reimbursement or other obligations of such Person in respect of letters of credit, letter of credit guaranties, bankers acceptances, interest rate swaps and other financial products; (c) all obligations for moneys borrowed secured by any Lien existing on Property owned by such Person (whether or not such liabilities have been assumed by such Person or recourse is available against such Person); (d) all Capitalized Lease Obligations of such Person; (e) all obligations (other than trade payables and other ordinary accounts payable) of such Person in respect of the acquisition cost of Property or services to the 51 56 extent payable after the time of acquisition or possession by such Person and not yet repaid where the advance or deferred payment was arranged principally as a method of financing the acquisition of such Property or services acquired (including, without limitation, any conditional sale or other title retention agreement); and (f) all obligations under Guaranties given by such Person in respect of obligations of other Persons of the type set forth in clause (a), clause (b), clause (c), clause (d) or clause (e) of this definition. DEFAULT -- means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. DEFAULT RATE -- Section 4.1. DOL -- means the Department of Labor and any successor agency. DOLLARS or $ -- means United States of America dollars. ENVIRONMENTAL PROTECTION LAWS -- means any federal, state, county, regional or local law, statute or regulation (including, without limitation, CERCLA, RCRA and SARA) enacted in connection with or relating to the protection or regulation of the environment, including, without limitation, those laws, statutes and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing or transporting of Hazardous Substances, and any regulations issued or promulgated in connection with such statutes by any Governmental Authority, and any orders, decrees or judgments issued by any court of competent jurisdiction in connection with any of the foregoing. As used in this definition: CERCLA -- means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time (by SARA or otherwise), and all rules and regulations promulgated in connection therewith. RCRA -- means the Resource Conservation and Recovery Act of 1976, as amended from time to time, and all rules and regulations promulgated in connection therewith. SARA -- means the Superfund Amendments and Reauthorization Act of 1986, as amended from time to time, and all rules and regulations promulgated in connection therewith. ERISA -- means the Employee Retirement Income Security Act of 1974, as amended from time to time. 52 57 ERISA AFFILIATE -- means any corporation or trade or business that (i) is a member of the same controlled group of corporations (within the meaning of section 414(b) of the IRC) as the Company, or (ii) is under common control (within the meaning of section 414(c) of the IRC) with the Company. EVENT OF DEFAULT -- Section 8.1. EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated in connection therewith. EXISTING NOTEHOLDERS -- means each Person listed as a holder of Notes in Annex 1, so long as such Person holds Notes. EXISTING NOTE PURCHASE AGREEMENT -- Section 1.1(a). EXISTING NOTES -- Section 1.1(a). FAIR MARKET VALUE -- means, at any time with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. FINANCING DOCUMENTS -- means the Notes, the Note Purchase Agreements, the Warrant Certificates, the Warrant Agreement, the Registration Rights Agreement, the Observation Rights Agreement and each other document or agreement executed or delivered in connection with any of the foregoing which other document or agreement grants or confers rights or benefits to the holders of the Notes or the Warrants. GAAP -- means accounting principles generally accepted in the United States of America, from time to time in effect. GOVERNMENTAL AUTHORITY -- means (a) the government of (i) the United States of America and any state or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts (or that asserts jurisdiction over) all or any part of its business or affairs, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. 53 58 GUARANTY -- means with respect to any Person (for the purposes of this definition, the "Guarantor") any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of the Guarantor guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by the Guarantor: (a) to purchase such indebtedness or obligation or any Property or assets constituting security therefor; (b) to advance or supply funds (i) for the purpose of payment of such indebtedness or obligation, or (ii) to maintain working capital or other balance sheet condition or any income statement condition of the Primary Obligor or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of the Primary Obligor to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of the indebtedness or obligation of the Primary Obligor against loss in respect thereof. For purposes of computing the amount of any Guaranty, in connection with any computation of indebtedness or other liability, it shall be assumed that the indebtedness or other liabilities that are the subject of such Guaranty are direct obligations of the issuer of such Guaranty. HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required under applicable Environmental Protection Laws or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable Environmental Protection Law. INCUR/INCURRENCE -- Section 6.1. INSTITUTIONAL INVESTOR -- means the Existing Noteholders, any affiliate of any of the Existing Noteholders, any holder or beneficial owner of Notes that is an "accredited investor" as defined in section 2(15) of the Securities Act and any "qualified institutional buyer" as defined in 17 C.F.R Section 230.144A, as amended from time to time. INVESTMENT -- means any investment, made in cash or by delivery of Property, by the Company or any Subsidiary: 54 59 (a) in any Person, whether by acquisition of stock, indebtedness or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise; or (b) in any Property. IRC -- means the Internal Revenue Code of 1986, together with all rules and regulations promulgated pursuant thereto, as amended from time to time. IRS -- means the Internal Revenue Service and any successor agency. JUNIOR SUBORDINATED DEBT -- means, at any time, any unsecured Debt of the Company or any Subsidiary incurred after November 19, 1993 in accordance with the terms hereof: (a) the payment of accrued interest on which Debt shall be permitted only for so long as no Default or Event of Default shall exist; (b) the terms of which Debt shall expressly provide that (i) in the case of the Company, no payment of principal (whether pursuant to a scheduled prepayment, scheduled installment payment or scheduled sinking fund payment, pursuant to acceleration or otherwise) shall be due, or shall be made, prior to the date on which all principal, interest, Make-Whole Amount, if any, and all other amounts owing under the Note Purchase Agreements or in respect of the Notes shall have been fully and finally paid and (ii) in the case of any Subsidiary, no payment of principal (whether pursuant to a scheduled prepayment, scheduled installment payment or scheduled sinking fund payment, pursuant to acceleration or otherwise) shall be due, or shall be made, prior to the date on which all principal, interest, Make-Whole Amount, if any, and all other amounts owing under the Note Purchase Agreements or in respect of the Notes shall have been fully and finally paid, for all of which such Subsidiary shall be liable under its Subsidiary Guaranty; and (c) which Debt shall have applicable thereto such other subordination provisions as shall be in form and substance reasonably satisfactory to the Required Holders in order to fully subordinate such Debt and the rights and remedies of the holders thereof to the aforesaid obligations under the Note Purchase Agreements and under the Notes and to the rights and remedies of the holders of Notes under the Note Purchase Agreements and under the Notes. LIEN -- means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of such Property, whether such interest is based on the common law, statute or contract, and including, without limitation, the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes, and the filing of any financing statement under the Uniform Commercial Code of any jurisdiction, or an agreement to give any of the foregoing. The term "Lien" includes reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting real Property. For the purposes hereof, the Company and each Subsidiary is deemed to be the owner of any Property that it shall have acquired or holds subject to a conditional sale 55 60 agreement, Capitalized Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention or vesting is deemed a Lien. The term "Lien" does not include negative pledge clauses in agreements relating to the borrowing of money. MAKE-WHOLE AMOUNT -- means, with respect to any date of determination (a "Prepayment Date") and any principal amount ("Prepaid Principal") of Notes required for any reason to be paid prior to the regularly scheduled maturity thereof on such Prepayment Date, the greater of (a) Zero Dollars ($0), and (b) (i) the sum of the present values of the then remaining scheduled payments of principal and interest that would be payable in respect of such Prepaid Principal (but for such payment prior to the regularly scheduled maturity), provided that in making such calculation the entire amount of the first of such scheduled payments of interest shall be deemed to equal the amount of interest accrued on such Prepaid Principal from the Prepayment Date to the first scheduled interest payment date thereafter, minus (ii) such Prepaid Principal. In determining such present values, a discount rate equal to the Make-Whole Discount Rate with respect to such Prepayment Date and Prepaid Principal divided by two (2), and a discount period of six (6) months of thirty (30) days each, shall be used. As used in this definition: Make-Whole Discount Rate -- means, with respect to the calculation of the Make- Whole Amount in respect of any Prepayment Date and the Prepaid Principal, the sum of (a) two and fifty one-hundredths percent (2.50%) per annum plus (b) the Treasury Rate determined in respect of such calculation. Treasury Rate -- means, with respect to any Prepayment Date and the Prepaid Principal, (a) the bid yield reported as of 10:00 a.m., New York City time, on the second (2nd) Business Day prior to the Prepayment Date (which bid yield shall be rounded to the nearest three (3) decimal places), on the display page on the Bloomberg Financial Markets System (Page USD or such other display on the Bloomberg Financial Markets System as shall replace Page USD) providing the most current bid yields for "On The Run" United States Treasury securities with maturities corresponding to the remaining Weighted Average Life to Maturity of the Prepaid Principal (rounded to the nearest one-twelfth year) or (b) if and only if such Bloomberg Financial Markets System ceases to exist or fails to report such yield, the aforesaid bid yield as reported the Telerate Service (page 678 or such other display on the Telerate Service as shall replace page 678), or (c) if both the Bloomberg Financial Markets System and the Telerate Service cease to exist or fail to report such bid yields, such aforesaid bid yield as reported on a reasonably comparable electronic service as may be designated by the Required Holders, or (d) if and only if such Bloomberg Financial Markets System and Telerate Service cease to exist or fail to report such aforesaid bid yield and the Required Holders shall fail to agree upon 56 61 a comparable electronic service (or no other comparable electronic service exists), the per annum percentage rate (rounded to the nearest three (3) decimal places) equal to the bond equivalent yield to maturity derived from the annual yield to maturity of the United States Treasury obligation listed in the Applicable H.15 as of two (2) Business Days prior to such Prepayment Date for the then most recently available day in such Applicable H.15 with a Treasury Constant Maturity (as defined in such Applicable H.15) equal to the Weighted Average Life to Maturity of such Prepaid Principal determined as of such Prepayment Date or, if the Applicable H.15 is not available, then any other source of current information in respect of interest rates on the securities of the United States of America that is generally available and, in the judgment of the Required Holders, provides information reasonably comparable to the Applicable H.15. If no maturity exactly corresponds to such rounded Weighted Average Life to Maturity of such Prepaid Principal, bid yields for the two (2) most closely corresponding published and "On The Run" maturities next above and below the rounded Weighted Average Life to Maturity of the Notes shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be shall be interpolated or extrapolated from such yields on a straight-line basis. If no United States Treasury obligation with a Treasury Constant Maturity corresponding exactly to the Weighted Average Life to Maturity of such Prepaid Principal is listed, the yields for the two (2) published United States Treasury obligations with Treasury Constant Maturities most closely corresponding to such Weighted Average Life to Maturity (one (1) with a longer maturity and one (1) with a shorter maturity, if available) shall be calculated pursuant to the second immediately preceding sentence and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis. Applicable H.15 -- means, as of any date, United States Federal Reserve Statistical Release H.15(519) or its successor publication then most recently published and available to the public or, if no such successor publication is available, then any other source of current information in respect of interest rates on securities of the United States of America that is generally available and, in the judgment of the Required Holders, provides information reasonably comparable to the H.15(519) report. Weighted Average Life to Maturity -- means, with respect to any Prepayment Date and Prepaid Principal, the number of years obtained by dividing the Remaining Dollar- Years of such Prepaid Principal determined on such Prepayment Date by such Prepaid Principal. Remaining Dollar-Years -- means, with respect to any Prepayment Date and Prepaid Principal, the result obtained by (a) multiplying, in the case of each required payment of principal (including payment at maturity) that would be payable in respect of such Prepaid Principal but for such prepayment, (i) an amount equal to such required payment of principal, by (ii) the number of years (calculated to the nearest one-twelfth (1/12) that will elapse between such Prepayment Date and the date such 57 62 required principal payment would be due if such Prepaid Principal had not be so prepaid, and (b) calculating the sum of each of the products obtained in the preceding subsection (a). MAKE-WHOLE DISCOUNT RATE -- has the meaning set forth in the definition of "Make-Whole Amount." MARGIN SECURITY -- means "margin stock" within the meaning of Regulations G and U, and "margin security" within the meaning of Regulation T, of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II, as amended from time to time. MATERIAL ADVERSE EFFECT -- means, with respect to any event or circumstances, an effect caused thereby, resulting therefrom or connected therewith that would be materially adverse as to, or in respect of, the business, prospects, profits, Properties, operations or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in the Note Purchase Agreements or the Notes. MULTIEMPLOYER PLAN -- means any multiemployer plan (as defined in section 3(37) of ERISA) in respect of which the Company or any ERISA Affiliate is an "employer" (as such term is defined in section 3 of ERISA). NET INCOME EXCLUDIBLE ITEMS -- for any period of the Company means each of the following items included in the net earnings (or loss) from continuing operations of the Company and the Subsidiaries before discontinued operations and extraordinary items, all as determined on a consolidated basis for such Persons for such period in accordance with GAAP: (a) any gain or loss arising from the sale of capital assets; (b) any gain arising from any write-up of assets; (c) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; (d) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such other Person prior to the date of such acquisition; (e) net earnings of any Person (other than a Subsidiary) in which the Company or any Subsidiary shall have an ownership interest unless such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; (f) any portion of the net earnings of any Subsidiary that for any reason is unavailable for payment of dividends to the Company or any other Subsidiary; 58 63 (g) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; (h) any gain arising from the acquisition of any Securities of the Company or any Subsidiary; and (i) any portion of the net earnings of the Company that cannot be freely converted into Dollars. NET SECURITIES PROCEEDS -- means cash proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, from the issuance of any Securities of the Company after the Closing Date. 1993 WARRANT AGREEMENT -- means the Warrant Agreement dated as of November 19, 1993, among the Company and the Existing Noteholders, as amended, and as such agreement may be further amended, supplemented or restated from time to time. 1996 WARRANT AGREEMENT -- means the Warrant Agreement dated as of April 15, 1996, among the Company and the Existing Noteholders, as amended, and as such agreement may be further amended, supplemented or restated from time to time. NOTE PURCHASE AGREEMENTS -- Section 1.2(c). NOTES -- Section 1.1(c). OBSERVATION RIGHTS AGREEMENT -- means the Observation Rights Agreement dated as of November 19, 1993, among the Company, The Northwestern Mutual Life Insurance Company and John Hancock Mutual Life Insurance Company, as amended, and as such agreement may be further amended, supplemented or restated from time to time. OPERATING LEASE -- means, with respect to any Person, any lease of Property by such Person, as lessee, other than a Capitalized Lease. OTHER EXISTING NOTEHOLDERS -- Section 1.2(c). PBGC -- means the Pension Benefit Guaranty Corporation and any successor corporation or governmental agency. PENSION PLAN -- means, at any time, any "employee pension benefit plan" (as such term is defined in section 3 of ERISA) maintained at such time by the Company or any ERISA Affiliate for employees or former employees of the Company or such ERISA Affiliate and which is subject to the provisions of Title IV of ERISA or subject to the minimum funding requirements of Section 412 of the IRC, but excluding, in any case, any Multiemployer Plan and any Retirement Plan. PERSON -- means an individual, partnership, corporation, trust, unincorporated organization, or a government or agency or political subdivision thereof. 59 64 PLACEMENT MEMORANDUM -- means the Confidential Private Placement Memorandum, together with all exhibits and appendices thereto, dated September 1993 and prepared by Donaldson, Lufkin & Jenrette Securities Corporation. PREFERRED STOCK -- means the class of capital stock of the Company designated as "Preferred Stock," having a par value $.001 per share, and enjoying the rights and preferences set forth in, and subject to the restrictions of, the certificate of incorporation of the Company. PROPERTY -- means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. PURCHASE MONEY LIEN -- means a Lien (including, without limitation, any Lien in respect of a Capitalized Lease) held by any Person (whether or not the seller of such Property) on Property constituting capital assets acquired or constructed by the Company or any Subsidiary after November 19, 1993, which Lien secures all or a portion of the related purchase price or construction costs of such Property, provided that such Lien (a) is created contemporaneously with, or within sixty (60) days after, such acquisition or construction, and (b) is not thereafter extended to any other Property. QUALIFIED SELLER DEBT -- means, at any time with respect to any Subsidiary that has delivered to the holders of the Notes at such time its Subsidiary Guaranty, unsecured Debt of such Subsidiary which (a) has been incurred by such Subsidiary in connection with any acquisition by such Subsidiary of the business, Property, or fixed assets of, or capital stock or other evidence of beneficial ownership of, any other Person, (b) is payable to the Person or Persons selling such business, Property, fixed assets or capital stock to such Subsidiary and (c) qualifies as Junior Subordinated Debt. REGISTRATION RIGHTS AGREEMENT -- means the Registration Rights Agreement dated November 19, 1993, among the Company, the Existing Noteholders, and the investors and security holders of the Company set forth on the signature pages thereto, as amended, and as such agreement may be further amended, supplemented or restated from time to time. REIMBURSEMENT UTILIZATION -- Section 6.1(c). REPLACEMENT JUNIOR SECURITIES -- means Securities of the Company, any successor, assign or representative of the Company acting for the benefit thereof in a reorganization, liquidation, arrangement, composition or other similar bankruptcy or debt adjustment proceeding or in a dissolution proceeding pursuant to authority, in each such case, granted by the court in such proceeding or any other Person acting in any such proceeding pursuant to authority granted by the court in such proceeding, the terms of payment, prepayment, prefunding, repurchase or redemption of which may not be on a more accelerated basis, in relation to Senior Debt (or any replacement Securities issued to holders of Senior Debt) than those of the Subordinated Debt with respect to which such replacement subordinated Securities are issued in relation to Senior Debt, which are 60 65 (a) equity Securities (other than preferred stock), (b) equity Securities consisting of preferred stock the repurchase payments, redemption payments, dividend payments or other distribution rights in respect of which have been made subordinate (pursuant to the terms of such Securities or any applicable court order) to the Senior Debt and to the obligations held by the holders of Senior Debt (after such reorganization, liquidation, arrangement, composition, other bankruptcy or debt adjustment proceeding or dissolution) on terms substantially identical to the subordination provisions set forth in Section 10 (with such changes thereto which shall be necessary to adjust such provisions for the fact that the "Subordinated Debt" shall be preferred stock in respect of which the Company may have redemption, payment and distribution obligations and/or in respect of which the holders thereof may have redemption, payment and/or distribution rights); or (c) Debt Securities whose payment amounts and other rights have been made subordinate (pursuant to the terms of such Securities or any applicable court order) to the Senior Debt and to the obligations held by the holders of Senior Debt after, and obtained for such Senior Debt (in whole or part) in respect of, such reorganization, liquidation, arrangement, composition or other similar bankruptcy or debt adjustment proceeding or dissolution proceeding on terms substantially identical to the subordination provisions set forth in Section 10, provided that Replacement Junior Securities shall not be guaranteed or secured to an extent beyond the extent that the Subordinated Debt with respect to which such Replacement Junior Securities are issued is guaranteed or secured. REQUIRED HOLDERS -- means, at any time, the holders of fifty-one percent (51%) or more in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiary, any Affiliate or any officer or director of any thereof). RESTRICTED PAYMENT -- means: (a) any dividend or other distribution, direct or indirect, on account of any shares of capital stock of the Company or any Subsidiary (other than on account of capital stock of a Subsidiary owned legally and beneficially by the Company or a Wholly- Owned Subsidiary) now or hereafter outstanding, whether in cash or other Property, except a dividend or other distribution payable solely in shares of common stock of such Person; and (b) any redemption, retirement, purchase or other acquisition, direct or indirect, of any shares of capital stock of the Company or any Subsidiary (other than on account of capital stock of a Subsidiary owned legally and beneficially by the Company or a Wholly-Owned Subsidiary) now or hereafter outstanding, or of any warrants, rights or options to acquire any shares of such stock. RETIREMENT PLAN -- means any "employee benefit plan," as defined in section 3 of ERISA, other than a Pension Plan or a Multiemployer Plan. 61 66 REVOLVING CREDIT FACILITY -- means the Revolving Loans (as such term is defined in the Wells Fargo Credit Agreement) provided in the Wells Fargo Credit Agreement pursuant to which the lenders to the Company in respect of the Wells Fargo Credit Agreement have agreed to make advances to the Company from time to time. SEC -- means, at any time, the Securities and Exchange Commission or any other federal agency at such time administering the Securities Act. SECURITIES ACT -- means the Securities Act of 1933, as amended, and all rules and regulations promulgated in connection therewith. SECURITY -- means "security" as defined by section 2(1) of the Securities Act. SENIOR CREDIT DOCUMENTS -- means the Wells Fargo Credit Agreement and all other documents and instruments in connection therewith, and, for purposes of avoidance of doubt, all documents and instruments evidencing or relating to any Debt which shall have extended, renewed, refunded or refinanced (either directly or successively) the original Wells Fargo Credit Agreement Debt. SENIOR DEBT -- means all of the payment obligations (whether outstanding on the Closing Date or Incurred thereafter) of the Company in respect of: (a) the outstanding principal amount of the Wells Fargo Credit Agreement Debt and all Reimbursement Utilizations thereunder, provided that if the aggregate of such principal so outstanding and such Reimbursement Utilizations shall exceed the result of (A) Forty-Five Million Dollars ($45,000,000) minus (B) the aggregate of repayments, prepayments and reductions of the Wells Fargo Credit Agreement Debt, as set forth in subsection 2.4 of the Wells Fargo Credit Agreement, such excess shall not constitute Senior Debt; (b) interest, if any, and premium, if any, on or in respect of the Debt referred to in clause (a) above; (c) the fees, if any (including, without limitation, commitment fees, agency fees and letter of credit fees), payable pursuant to the Wells Fargo Credit Agreement in respect of the Debt referred to in clause (a) above; (d) any other undertaking of the Company to Wells Fargo or any Successor Lender under the Senior Credit Documents with respect to the payment of costs of collection, attorneys' fees and any other out-of-pocket expenses incurred by any holder of Debt (or any agent in respect thereof) of the type referred to in clause (a) of this definition in connection with the enforcement of its rights and remedies with respect to such Debt, any collateral securing the same or any guaranties provided therefor, provided nothing in this clause (d) shall affect the limitation set forth in the proviso to clause (a) above; 62 67 (e) any other out-of-pocket fees, costs and expenses of any holder of Debt (or any agent in respect thereof) under the Wells Fargo Credit Agreement in respect of the Debt referred to in clause (a) above; and (f) post-petition interest on the Debt referred to in clause (a) above accruing subsequent to the commencement of a proceeding under the Bankruptcy Code (whether or not allowed as a claim in such proceeding). For purposes of the avoidance of doubt, this definition of Senior Debt shall not include (aa) trade accounts payable, (bb) any amount in respect of a claim or right of reimbursement owing from the Company to any holder of Debt (or any agent thereof) under or in respect of the Wells Fargo Credit Agreement arising from any right such holder (or such agent) may have to be, directly or indirectly, indemnified by the Company or arising from any tort or similar cause of action derived from the Wells Fargo Credit Agreement or any transaction contemplated thereunder or (cc) any obligation that is itself subordinated in any respect to any other obligations of the Company that constitutes Senior Debt. SENIOR DEFAULT -- Section 10.4. SENIOR FINANCIAL OFFICER -- means the chief financial officer, the principal accounting officer, the controller or the treasurer of the Company. SENIOR NONPAYMENT DEFAULT -- means, at any time, any "event of default" (after the expiration of any grace period in respect thereof and the giving of any notice with respect thereto) under, and as defined in, the Wells Fargo Credit Agreement arising under subsection 8.2, subsection 8.3 (provided that (a) with respect to any such event of default resulting from the failure of the Company to comply with subsection 6.1(iii) of the Wells Fargo Credit Agreement, such failure shall be a Senior Nonpayment Default only if the Company fails to deliver a Compliance Certificate (as such term is defined in the Wells Fargo Credit Agreement) (i) in respect of the fiscal quarter of the Company ended June 30, 1997, on or prior to August 12, 1997 and (ii) in respect of the fiscal year of the Company ended December 31, 1997, on or prior to February 12, 1998 and (b) any such event of default resulting from the failure of the Company to comply with subsection 6.17 of the Wells Fargo Credit Agreement shall not be a Senior Nonpayment Default), subsection 8.4 (to the extent, but only to the extent, that such default was directly caused by a breach of the representation contained in subsection 5.4 of the Wells Fargo Credit Agreement), subsection 8.6 through subsection 8.9 (inclusive), or subsection 8.11 through subsection 8.13 (inclusive) thereof, or any corresponding analogous provisions in existence after any modification, amendment or refinancing thereof. SENIOR NONPAYMENT DEFAULT BLOCKAGE PERIOD -- Section 10.4(b). SENIOR NONPAYMENT DEFAULT NOTICE -- Section 10.4(b). SENIOR OFFICER -- means the chairman of the board of directors, the chief executive officer, the chief operating officer, the president or the chief financial officer of the Company. SERIES A PREFERRED STOCK -- means the Preferred Stock designated as "Series A Preferred Stock." 63 68 SERIES B NOTES -- Section 1.1(a). SIGNIFICANT HOLDER -- means, at any time, any Person holding Notes which, together with any Notes held by any of such Person's affiliates or subsidiaries, have an aggregate outstanding principal balance equal to or in excess of ten percent (10%) of the aggregate outstanding principal balance at such time of all Notes. SPECIAL INSURANCE COMPANY COUNSEL -- means Hebb & Gitlin, a Professional Corporation, which is acting as counsel for The Northwestern Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company and North Atlantic Smaller Companies Trust plc (all of which are Existing Noteholders) in connection with the transactions contemplated by this Agreement. SUBORDINATED DEBT -- Section 10.1. SUBSIDIARY -- means, at any time, any corporation more than fifty percent (50%) of the total combined voting power of all classes of the Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or indirectly through any one or more Subsidiaries. SUBSIDIARY GUARANTY -- means, with respect to any Subsidiary, an unconditional guaranty of payment of such Subsidiary in respect of the obligations of the Company under the Notes and the Note Purchase Agreements, which guaranty shall be in form and substance reasonably satisfactory to the Required Holders and shall contain subordination provisions that are substantially identical to the subordination provisions set forth in Section 10 hereof (with only such changes thereto which shall be necessary to adjust such provisions for the fact that "Senior Debt" shall be the payment obligations arising under the guaranty issued by such Subsidiary in favor of the holders of Senior Debt pursuant to the Wells Fargo Credit Agreement and the "Subordinated Debt" shall be the indebtedness arising out of such Subsidiary Guaranty in favor of the holders of Notes). SUBSIDIARY STOCK -- Section 6.7(b). SUCCESSOR LENDER -- means any original or successor lender to the Company in respect of the Wells Fargo Credit Agreement Debt. SURVIVING CORPORATION -- Section 6.8(a). TERM LOAN FACILITY -- means the Term Loans (as such term is defined in the Wells Fargo Credit Agreement) provided in the Wells Fargo Credit Agreement pursuant to which the lenders to the Company in respect of the Wells Fargo Credit Agreement have agreed to make loans to the Company. TOTAL DEBT -- means, at any time, the aggregate amount of Debt of the Company and the Subsidiaries determined after elimination of intercompany items among such Persons and without duplicating liabilities in respect of any Guaranties issued by any Subsidiary for Debt of the Company hereunder or under the Wells Fargo Credit Agreement. 64 69 TRANSFER -- Section 6.7(a). TRANSFER VALUE -- means, with respect to the Transfer of any Property of the Company or a Subsidiary, the current book value of such Property immediately prior to giving effect to such Transfer, provided for purposes of determining the book value of Property constituting Subsidiary Stock Transferred as provided in Section 6.7(b), such book value shall be deemed to be the aggregate book value of all Property of the Subsidiary that shall have issued such Subsidiary Stock. TURNED-OVER PROPERTY -- Section 10.2. UK SUBSIDIARY -- means Cerplex Ltd., a limited liability company formed under the laws of England and Wales, and any successors and assigns thereof. UK SUBSIDIARY DEBT -- means Debt of the UK Subsidiary (i) which is incurred to BT (A) under the Sale and Purchase Agreement dated as of July 29, 1994 among BT, the UK Subsidiary and the Company, as hereafter amended, supplemented or otherwise modified from time to time, (B) under the Contract for the electrical repair and calibration of certain items of BT equipment dated as of July 29, 1994 among BT, the UK Subsidiary and the Company, as hereafter amended, supplemented or otherwise modified from time to time, or (C) under or in relation to any other agreements or documents executed in connection with the agreements referenced in (A) and (B) above, as hereafter amended, supplemented or otherwise modified from time to time, (ii) which is incurred to any bank or other institutional lender that provides working capital financing to the UK Subsidiary, or (iii) which is incurred to any Person in the ordinary course of the UK Subsidiary's business. Any direct or successive extension, renewal, refunding or refinancing, including, without limitation, reborrowing or reutilizing of such Debt, shall continue to be deemed to be UK Subsidiary Debt for purposes of this Agreement. VOTING STOCK -- means capital stock of any one or more classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect corporate directors (or Persons performing similar functions). WARRANT AGREEMENT -- means the collective reference to the 1993 Warrant Agreement and the 1996 Warrant Agreement. WARRANT CERTIFICATES -- has the collective meaning assigned to such term in the Warrant Agreements. WARRANTS -- has the collective meaning assigned to such term in the Warrant Agreements. 65 70 WELLS FARGO -- means Wells Fargo Bank, National Association, and any successors and assigns thereof. WELLS FARGO ADJUSTED CREDIT LIMIT -- means, at any time, the sum of (a) accrued and unpaid interest in respect of the Wells Fargo Credit Agreement Debt, fees payable pursuant to the Wells Fargo Credit Agreement, and reasonable costs and expenses incurred under the Wells Fargo Credit Agreement at such time plus (b) the Wells Fargo Credit Limit determined at such time. WELLS FARGO CREDIT AGREEMENT -- has the meaning assigned to such term in the definition of "Wells Fargo Credit Agreement Debt" in this Section 9.1. WELLS FARGO CREDIT AGREEMENT DEBT -- means the collective reference to Debt of the Company and its Subsidiaries, in respect of the Revolving Credit Facility and the Term Loan Facility, to Wells Fargo, the other financial institutions for which Wells Fargo acts as administrative agent and any Successor Lenders incurred or arising (a) under the Credit Agreement dated as of October 12, 1994, between the Company, Wells Fargo and the other financial institutions listed on the signature pages thereof, as heretofore and hereafter amended, supplemented or otherwise modified from time to time and (b) under or in relation to any other agreements or documents executed in connection with, and as contemplated by, such Credit Agreement, as heretofore and hereafter amended, supplemented or otherwise modified from time to time (such agreement and such other agreements and documents being referred to collectively as the "WELLS FARGO CREDIT AGREEMENT"). Any direct or successive modification, extension, renewal, refunding or refinancing, including, without limitation, any reborrowing or reutilizing, of such Debt shall continue to be deemed to be Wells Fargo Credit Agreement Debt for purposes of this Agreement (whether the lenders in respect thereof are Wells Fargo, the other financial institutions for which Wells Fargo acts as administrative agent and/or one or more Successor Lenders). Any written agreement entered into between the Company or any Subsidiary and one or more of Wells Fargo, the other financial institutions for which Wells Fargo acts as administrative agent or any Successor Lender in connection with the direct or successive extension, renewal, refunding or refinancing of Wells Fargo Credit Agreement Debt shall be deemed included within the defined term "Wells Fargo Credit Agreement." WELLS FARGO CREDIT LIMIT -- means the result of (a) Forty-Five Million Dollars ($45,000,000) minus (b) the aggregate of repayments, prepayments and reductions of the Wells Fargo Credit Agreement Debt, as set forth in subsection 2.4 of the Wells Fargo Credit Agreement. WHOLLY-OWNED SUBSIDIARY -- means, at any time, any Subsidiary one hundred percent (100%) of all of the equity Securities (except directors' qualifying shares) and voting Securities of which are owned by any one or more of the Company and the other Wholly-Owned Subsidiaries at such time. 9.2 GAAP. Where the character or amount of any asset or liability or item of income or expense, or any consolidation or other accounting computation is required to be made for any purpose 66 71 hereunder, it shall, unless otherwise specified, be done in accordance with GAAP, provided, that if any term defined herein includes or excludes amounts, items or concepts that would not be included in or excluded from such term if such term was defined with reference solely to GAAP, such term will be deemed to include or exclude such amounts, items or concepts as set forth herein. 9.3 DIRECTLY OR INDIRECTLY. Where any provision herein refers to action to be taken by any Person, or that such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership in which such Person is a general partner. 9.4 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION. (a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the Sections of this Agreement and the Table of Contents of this Agreement appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Agreement as a whole and not to any particular Section or other subdivision. Unless otherwise specified, references to Sections are to Sections of this Agreement, references to Annexes are to Annexes to this Agreement and references to Exhibits are to Exhibits to this Agreement. (b) CONSTRUCTION. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 9.5 GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW. 10. SUBORDINATION 10.1 NOTES SUBORDINATE TO SENIOR DEBT. The Company covenants and agrees, and each holder of a Note, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section 10, all Subordinated Debt is hereby expressly made, and shall be, subordinate and subject in right of payment to the prior payment in full, in cash, of all Senior Debt. The term "SUBORDINATED DEBT" shall mean all indebtedness now or hereafter existing under this Agreement and the Notes, together with all interest and Make-Whole Amount (if any) thereon and all other amounts payable in respect thereof, including fees, costs and expenses of the holders of the Notes to be reimbursed by the Company hereunder, interest at the Default Rate and post-petition interest, if any. 67 72 10.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In the event of (a) any insolvency or bankruptcy case or proceeding or other similar case or proceeding under any federal or state bankruptcy or similar law (including, without limitation, the Bankruptcy Code), or any receivership, liquidation, arrangement, relief, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its assets, or (b) any liquidation, dissolution, reorganization, compromise, arrangement, adjustment, protection, composition, relief or other winding up of the Company or its debts, whether voluntary or involuntary and whether or not involving any insolvency or bankruptcy or any case or proceeding of any kind, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in each such event the holders of Senior Debt shall be entitled to receive payment in full, in cash, of all amounts due or to become due on or in respect of all Senior Debt, before the Company may make, and before any holder of Subordinated Debt is entitled to receive or retain, any payment or distribution of any kind or character (whether in cash, Securities or other Property) on account of any Subordinated Debt, except as otherwise provided in this Section 10.2, and to that end the holders of Subordinated Debt agree to promptly pay over or deliver, or cause to be paid over or delivered, to the holders of Senior Debt (or any agent thereof) (for the pro rata benefit to each such holder on the basis of the respective amounts of such Senior Debt held by such holder) any payment or distribution of any kind or character, whether in the form of (i) cash, (ii) Securities other than Replacement Junior Securities, or (iii) other Property other than Replacement Junior Securities (such Securities other than Replacement Junior Securities and such Property other than Replacement Junior Securities, as described in clause (ii) and clause (iii), being herein referred to as "TURNED-OVER PROPERTY"). The holders of Subordinated Debt shall not be obligated to deliver to the holders of Senior Debt any Replacement Junior Securities or any income, dividends or distributions in respect thereof. To the extent that the holders of Subordinated Debt deliver Turned-Over Property to the holders of Senior Debt (or their agent), there shall be no reduction in the amount of Senior Debt outstanding solely by virtue of such delivery and the holders of Senior Debt (or their agent) shall hold such Turned-Over Property as additional security for the Senior Debt and shall proceed to, in a commercially reasonable manner, dispose of such Turned-Over Property for a cash consideration and shall apply such cash consideration (net of the out-of-pocket costs of such disposition) to the Senior Debt. In disposing of such Turned-Over Property, the holders 68 73 of Senior Debt (or their agent) shall use their (or its) reasonable commercial judgment as to when to consummate such disposition, provided that the holders of Senior Debt shall not be required to dispose of Turned-Over Property if they reasonably determine that they are unable to dispose of it in a commercially reasonable manner, or if the holders of Subordinated Debt are not willing to stipulate to the commercial reasonableness of a proposed disposition. Each holder of Subordinated Debt shall duly and promptly take such action as is reasonably necessary to file appropriate claims or proofs of claims in any such proceedings referred to in this Section 10.2 and to execute and deliver such other instruments and take such other actions as may be reasonably necessary to prove or realize upon such claims and to have the proceeds of such claims paid as provided in this Section 10.2, and, in the event any holder of Subordinated Debt shall not have made any such filing on or prior to the date thirty (30) days before the expiration of the time for such filing or shall not have timely executed or delivered any such other instruments and taken such other actions, the holders of Senior Debt, acting through an agent or otherwise, are hereby irrevocably authorized and empowered (but shall have no obligation) to, as the agent and attorney-in-fact for such holder for the specific and limited purpose set forth in this paragraph, file such proof of claim for or on behalf of such holder, execute and deliver such other instrument for or on behalf of such holder and take such other action necessary under applicable law to collect any amounts due in respect of such claim in such proceeding. Anything contained in this paragraph notwithstanding, the right to vote any claim or claims in respect of any Subordinated Debt in connection with any proceedings referred to in this Section 10.2 is exclusively reserved to the holder of such Subordinated Debt. 10.3 PRIOR PAYMENT TO SENIOR DEBT UPON ACCELERATION OF NOTES. In the event that any Subordinated Debt is declared due and payable before its stated maturity, then and in such event the holders of Senior Debt outstanding at the time such Subordinated Debt so becomes due and payable shall be entitled to receive payment in full, in cash, of all amounts due or to become due on or in respect of such Senior Debt, before the Company may make, and before any holder of Subordinated Debt is entitled to receive or retain, any direct or indirect payment or distribution of any kind or character, whether in cash, Securities or other Property, on account of any Subordinated Debt. All payments in respect of the Subordinated Debt postponed under this Section 10.3 shall be immediately due and payable upon the termination of such postponement (together with such additional interest as is provided herein and in the Notes for late payment of principal and/or interest). 10.4 DEFAULT OR ACCELERATION IN RESPECT OF SENIOR DEBT. (a) PAYMENT DEFAULT. In the event the Company shall default in the payment of any principal of, premium, if any, or interest on, or any fees in respect of, any Senior Debt when the same shall have become due and payable, whether at maturity, at a date fixed for prepayment or otherwise, then, unless and until such default shall have been cured or waived in a writing received by the Company or shall have ceased to exist or all such payments shall have been made in full in cash, no direct or indirect payment or distribution of any kind or character (in cash, Securities or other Property or otherwise) shall be made or agreed to be made on or in respect of any Subordinated Debt. All payments in respect of the Subordinated Debt postponed under this clause (a) shall be immediately due and payable upon the termination of such postponement (together with 69 74 such additional interest as is provided herein and in the Notes for late payment of principal and/or interest). (b) NONPAYMENT DEFAULT. In the event and during the continuance of any Senior Nonpayment Default in respect of any Senior Debt and prior to the declaration of such Senior Debt to be due and payable prior to its stated maturity, the holders of such Senior Debt may give to both the Company and each holder of Subordinated Debt written notice referring to the Notes and this Agreement and specifying that it is a notice of a Senior Nonpayment Default (a "SENIOR NONPAYMENT DEFAULT NOTICE") and, thereafter, no payment or distribution of any kind or character (whether in cash, Securities or other Property) shall be made on or in respect of any Subordinated Debt, and no holder of Subordinated Debt shall take or receive or retain from the Company, directly or indirectly, in cash, Securities or other Property or by way of set-off or in any other manner, payment of all or any of the Subordinated Debt during the period (a "SENIOR NONPAYMENT DEFAULT BLOCKAGE PERIOD") commencing on the date of receipt by both the Company and each holder of Subordinated Debt of such notice and ending on the earliest of (i) the date of the repayment in full in cash of such Senior Debt, (ii) the date on which such Senior Debt shall have been declared due and payable prior to its stated maturity, (iii) the date on which such Senior Nonpayment Default shall have been cured or waived and written notice thereof received by the Company, (iv) the date on which such holders of such Senior Debt, acting through an agent or otherwise, shall have delivered to the Company and each holder of Subordinated Debt a notice referring to the Notes and the immediately preceding Senior Nonpayment Default Notice and stating that such Senior Nonpayment Default Notice has been withdrawn, or (v) the one hundred eightieth (180th) day following the giving of such Senior Nonpayment Default Notice pursuant to this clause (b). Any number of Senior Nonpayment Default Notices may be given, provided that (i) only one Senior Nonpayment Default Notice may be given with respect to any single occurrence of a Senior Nonpayment Default and (ii) no Senior Nonpayment Default Notice shall be effective at any time to prevent any payment from being made by or on behalf of the Company for or on account of any Subordinated Debt (and any such Senior Nonpayment Default Notice shall be or become null and void ab initio) if, within the three hundred sixty-five (365) day period ending immediately prior to the date on which such Senior Nonpayment Default Notice shall have been delivered to the Company and each holder of Subordinated Debt, a Senior Nonpayment Default Blockage Period was in effect for all or part of such period. All payments in respect of the Subordinated Debt postponed during any Senior Nonpayment Default Blockage Period shall be immediately due and payable upon the termination thereof (together with such additional interest at the Default Rate as is provided herein and in the Notes). (c) ACCELERATION OF SENIOR DEBT. In the event that the holders of any Senior Debt shall declare such Senior Debt to be due and payable prior to its stated maturity, no payment or distribution of any kind or character (whether in cash, Securities or other Property) shall be made on or in respect of any Subordinated Debt, and no holder of Subordinated Debt shall take or receive or retain from the Company or any Subsidiary, directly or indirectly, in cash, Securities or other Property or by way of set-off or in any other manner, payment of all or any of the Subordinated Debt until the earlier of (i) the payment in full, in cash, of such Senior Debt or (ii) the rescission or termination of such declaration. All payments in respect of the Subordinated Debt postponed under this 70 75 clause (c) shall be immediately due and payable upon the termination of such postponement (together with such additional interest as is provided herein and in the Notes for late payment of principal and/or interest). (d) REPLACEMENT JUNIOR SECURITIES. Nothing in this Section 10.4 shall prohibit the holders of Subordinated Debt from accepting and retaining any Securities that would otherwise qualify as Replacement Junior Securities but for the fact that they were not issued pursuant to court authority in a reorganization, liquidation, arrangement, composition or other similar bankruptcy or debt adjustment proceeding or a dissolution proceeding, provided that such Replacement Junior Securities shall not be guaranteed or secured to an extent beyond the extent that the Subordinated Debt is guaranteed or secured. 10.5 PAYMENT PERMITTED. Nothing contained in this Section 10 or elsewhere in this Agreement or in any of the Notes shall prevent the Company from making, or any holder of Subordinated Debt from accepting, at any time except as expressly provided in Section 10.2, Section 10.3 or Section 10.4, payments of principal of (and Make-Whole Amount, if any) or interest on the Notes and other payments in respect thereof in accordance with the terms thereof. 10.6 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT. The holders of Subordinated Debt shall be subrogated to the rights of the holders of Senior Debt at the time outstanding to receive payments and distributions of cash, Securities or other Property applicable to the Senior Debt until all amounts payable for or on account of Subordinated Debt shall be paid in full; provided, however, that no payment or distribution to any holder of Senior Debt pursuant to this Section 10 shall entitle any holder of Subordinated Debt to exercise any rights of subrogation in respect thereof until all of such Senior Debt of such holder shall have been paid in full in cash. For purposes of such subrogation, no payments or distributions to the holders of Senior Debt of any cash, Securities or other Property to which the holders of the Subordinated Debt would be entitled except for the provisions of this Section 10, shall, as among the Company, its creditors (other than holders of Senior Debt) and the holders of the Subordinated Debt, be deemed to be a payment or distribution by the Company to or on account of Senior Debt. 10.7 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Section 10 are and are intended solely for the purpose of defining the relative rights of the holders of Subordinated Debt on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Section 10 or elsewhere in this Agreement or in the Notes is intended to or shall (a) impair, as among the Company and the holders of Subordinated Debt, the obligation of the Company, which is absolute and unconditional, to pay to the holders of Subordinated Debt the principal of (and Make-Whole Amount, if any), interest on, and all other amounts payable with respect to, the Notes as and when the same shall become due and payable in accordance with the terms of this Agreement, it being understood that 71 76 any postponement of such payments pursuant to the express terms of this Section 10 shall be limited to such express terms and shall not be an impairment of such obligation, (b) affect the relative rights against the Company of the holders of the Subordinated Debt and creditors of the Company (other than the holders of Senior Debt), (c) notwithstanding any postponement of payments or "blockage period" pursuant to this Section 10, prevent the holder of any Subordinated Debt from exercising any or all rights or remedies otherwise permitted by applicable law upon a Default or Event of Default under this Agreement, subject to the rights under the provisions of Section 10.2, Section 10.3 and Section 10.4 of the holders of Senior Debt to receive cash, Securities or other Property otherwise payable or deliverable to the holders of Subordinated Debt or (d) notwithstanding any postponement of payments or "blockage period" pursuant to this Section 10, restrict or otherwise impair the right of the holders of Subordinated Debt to, in accordance with the terms of this Agreement, declare the Subordinated Debt to be due and payable prior to its stated maturity upon the occurrence of an Event of Default. 10.8 AGREEMENT TO EFFECTUATE SUBORDINATION. (a) CONFIRMATION OF SUBORDINATION. Each holder of Subordinated Debt by its acceptance thereof agrees to take such action as may be reasonably necessary or appropriate to effectuate, as between the holders of Senior Debt and such holder of Subordinated Debt, the subordination provided in this Section 10, including, without limitation, executing a written confirmation of the subordination provided for in this Section 10, substantially in the form thereof set forth on Exhibit G and delivering the same to any holder of Senior Debt requesting the same. In connection with any such confirmation, the Company shall also sign and deliver a copy thereof. All expenses of any holder of Subordinated Debt incurred in connection with the preparation, execution and delivery of any such confirmation or otherwise complying with this Section 10.8(a) shall be paid by the Company. (b) MODIFICATION OF THIS SECTION 10. The provisions of this Section 10 (including, without limitation, this Section 10.8) may not be amended, modified or waived without the prior written consent of all the holders of Senior Debt. The provisions set forth in this Section 10 constitute a continuing agreement and shall (i) be and remain in full force and effect at any time, and from time to time, during which any Senior Debt shall remain outstanding, (ii) be binding upon the holders of Subordinated Debt and the Company and its successors, transferees and assigns, and (iii) inure to the benefit of, and be enforceable, in accordance with the terms hereof, directly by, each of the holders of the Senior Debt and their respective successors, transferees and assigns, against the holders of Subordinated Debt and the Company. 72 77 10.9 NO WAIVER OF SUBORDINATION PROVISIONS. (a) FAILURE TO ACT. No right of any holder of any Senior Debt to enforce its rights under this Agreement shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) SENIOR DEBT MODIFICATIONS. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to any holder of Subordinated Debt, without incurring responsibility to any holder of Subordinated Debt and without impairing or releasing the subordination provided in this Section 10 or the obligations hereunder of any holder of Subordinated Debt to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, all or any of the Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release, not perfect or otherwise deal with any Property pledged, assigned or mortgaged to secure, or otherwise securing, Senior Debt; (iii) as holders of Senior Debt, exercise or refrain from exercising any rights against the Company and any other Person, and (iv) apply any sums from time to time received to the payment of the Senior Debt. The holders of Subordinated Debt waive any right to require the holders of Senior Debt to marshal any assets in favor of the holders of Subordinated Debt or against or in payment of any or all of the Senior Debt. The holders of Subordinated Debt waive any defense or claim they may have in respect of the rights of the holders of Senior Debt under this Section 10 arising by reason of any election of remedies by any holder of Senior Debt which in any manner impairs, affects, reduces, releases, destroys and/or extinguishes the subrogation rights of the holders of Subordinated Debt or any other right of such holders to proceed against the Company under or in connection with this Section 10. 10.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Section 10, the holders of Subordinated Debt shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the holders of Subordinated Debt, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 10. 73 78 10.11 PROHIBITED PAYMENTS HELD IN TRUST. In the event that, notwithstanding the provisions of this Section 10 and in contravention thereof, the Company shall make, or any holder of Subordinated Debt shall receive or retain, any payment or distribution of the Company's assets of any kind or character, whether in cash, Securities or other Property, then and in such event such payment or distribution shall be received and held by such holder of Subordinated Debt in trust for the benefit of the holders of Senior Debt and, promptly upon receipt of a written demand therefor from any one or more of the holders of Senior Debt, shall be paid over or delivered to the holders of Senior Debt (for the pro rata benefit to each such holder on the basis of the respective amounts of such Senior Debt held by such holder) for application to the payment or prepayment in full of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full in cash, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt, provided that, with respect to any such payment or distribution, no such payment or delivery thereof shall be required under this Section 10.11 and the holders of Subordinated Debt shall be entitled to retain any such payment and distribution and apply it to their respective Subordinated Debt, if such holder shall not have received the aforesaid written demand within ninety (90) days of receipt of such payment or distribution. 10.12 MISCELLANEOUS. The holders of Subordinated Debt and the Company confirm their understanding that this Section 10 is not, and is not to be construed as, a commitment or agreement by any holder of Senior Debt to continue financing arrangements with the Company. Any holder of Senior Debt may terminate such arrangements at any time in accordance with the terms and provisions of the Senior Credit Documents in respect thereof. If, after payment of any Senior Debt, the Company becomes liable to the holder thereof on account of any payment made in respect thereof being returned by such holder or being reversed, set aside or recovered by the Company or any trustee or assignee for the Company, the provisions of this Section 10 shall thereupon in all respects become effective with respect to such subsequent or reinstated Senior Debt without the necessity of any further act or agreement between the holder thereof, the Company and the holders of Subordinated Debt. The Company shall promptly inform each holder of Senior Debt of any Default or Event of Default hereunder. 10.13 ADDITIONAL SENIOR DEBT. Upon the incurrence by the Company of any additional Senior Debt or upon the Company's being informed of any new holder of Senior Debt, the Company shall promptly inform the holders of Subordinated Debt of the names and addresses of the Person or Persons holding such Senior Debt. Upon the Company's being informed of the change in the addresses of any holder or holders of Senior Debt, the Company shall promptly inform the holders of Subordinated Debt of the same. 74 79 11. MISCELLANEOUS 11.1 COMMUNICATIONS. (a) METHOD; ADDRESS. All communications hereunder or under the Notes shall be in writing, shall be (y) hand delivered or deposited into the United States mail (registered or certified mail), postage prepaid and (z) sent by overnight courier of national or international reputation or by facsimile transmission, and shall be addressed, (i) if to the Company, The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92680 Attention: Chief Executive Officer Facsimile: (714) 258-0730 (with a copy to: Brobeck, Phleger & Harrison 4675 MacArthur Court, Suite 1000 Newport Beach, California 92660 Attention: Frederic A. Randall, Jr., Esq. Facsimile: (714) 752-7522 provided that the failure to provide any such copy shall in no way affect the validity or effectiveness of any communication to the Company for purposes of this Agreement) or at such other address as the Company shall have furnished in writing to all holders of the Notes at the time outstanding, and (ii) if to any of the holders of the Notes, (A) if such holders are the Existing Noteholders, at their respective addresses set forth in Annex 1, and further including any parties referred to in Annex 1 that are required to receive notices in addition to such holders of the Notes, and (B) if such holders are not the Existing Noteholders, at their respective addresses set forth in the register for the registration and transfer of Notes maintained pursuant to Section 5.1, or to any such party at such other address as such party may designate by notice duly given in accordance with this Section 11.1 to the Company (which other address shall be entered in such register). 75 80 (b) WHEN GIVEN. Any communication so addressed and deposited in the United States mail, postage prepaid, by registered or certified mail (in each case, with return receipt requested) shall be deemed to be received on the third (3rd) succeeding Business Day after the day of such deposit (not including the date of such deposit). Any communication so addressed and otherwise delivered shall be deemed to be received when actually received at the address of the addressee. 11.2 REPRODUCTION OF DOCUMENTS. The Financing Documents and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the original closing of your purchase of the Existing Notes and at the closing of the substitution of the Notes for the Existing Notes (except the Existing Notes, the Notes and the Warrant Certificates themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you or any other holder of Notes or Warrants, may be reproduced by any holder of Notes or Warrants by any photographic, photostatic, microfilm, micro-card, miniature photographic, digital or other similar process and each holder of Notes or Warrants may destroy any original document so reproduced. The Company agrees and stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such holder of Notes or Warrants in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Nothing in this Section 11.2 shall prohibit the Company or any holder of Notes or Warrants from contesting the validity or the accuracy of any such reproduction. 11.3 SURVIVAL. All warranties, representations, certifications and covenants made by the Company in any Financing Document or in any certificate or other instrument delivered by it or on its behalf thereunder shall be considered to have been relied upon by you and shall survive the delivery to you of the Notes and the Warrant Certificates regardless of any investigation made by you or on your behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by the Company hereunder. 11.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. The provisions hereof are intended to be for the benefit of all holders, from time to time, of Notes, and shall be enforceable by any such holder, whether or not an express assignment to such holder of rights hereunder shall have been made by you or your successor or assign. 76 81 11.5 AMENDMENT AND WAIVER. (a) REQUIREMENTS. This Agreement may be amended, and the observance of any term hereof may be waived, with (and only with) the written consent of the Company and the Required Holders; provided that no such amendment or waiver of any of the provisions of Section 1 through Section 4, inclusive, or any defined term used therein, shall be effective as to any holder of Notes unless consented to by such holder in writing; and provided further that no such amendment or waiver shall, without the written consent of the holders of all Notes (exclusive of Notes held by the Company, any Subsidiary or any Affiliate) at the time outstanding, (i) subject to Section 8, change the amount or time of any prepayment or payment of principal or Make-Whole Amount or the rate or time of payment of interest, (ii) change Section 8 or Section 10, (iii) change the definition of Required Holders or Senior Debt (or any of the definitions used, directly or indirectly, to define such definitions), or (iv) change this Section 11.5. (b) SOLICITATION OF NOTEHOLDERS. (i) SOLICITATION. The Company shall not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions hereof or the Notes unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be provided by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Section 11.5 shall be delivered by the Company to each holder of outstanding Notes immediately following the date on which the same shall have been executed and delivered by all holders of outstanding Notes required to consent or agree to such waiver or consent. (ii) PAYMENT. The Company shall not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to the holders of all Notes then outstanding. (iii) SCOPE OF CONSENT. Any consent made pursuant to this Section 11.5 by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force and effect except solely as to such holder, and any 77 82 amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force and effect, retroactive to the date such amendment or waiver initially took or takes effect, except solely as to such holder. (c) BINDING EFFECT. Except as provided in Section 11.5(b)(iii), any amendment or waiver consented to as provided in this Section 11.5 shall apply equally to all holders of Notes and shall be binding upon them and upon each future holder of any Note and upon the Company whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. Anything contained herein to the contrary notwithstanding, the Company shall not agree to any modification or amendment to section 7.5 of the Wells Fargo Credit Agreement that would prohibit any prepayment hereunder in respect of a Change in Control or that would effectively prohibit during the stated term thereof any scheduled payment of principal as set forth in Section 4.2 hereof. 11.6 PAYMENTS ON NOTES. (a) MANNER OF PAYMENT. The Company shall pay all amounts payable with respect to each Note (without any presentment of such Notes and without any notation of such payment being made thereon) by crediting, by federal funds bank wire transfer, the account of the holder thereof in any bank in the United States of America as may be designated in writing by such holder, or in such other manner as may be reasonably directed or to such other address in the United States of America as may be reasonably designated in writing by such holder. Annex 1 shall be deemed to constitute notice, direction or designation (as appropriate) to the Company with respect to payments as aforesaid. In the absence of such written direction, all amounts payable with respect to each Note shall be paid by check mailed and addressed to the registered holder of such Note at the address shown in the register maintained by the Company pursuant to Section 5.1. (b) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with respect to, any Note shall fall due on a day other than a Business Day, then such payment shall be made on the first Business Day following the day on which such payment shall have so fallen due, provided that if all or any portion of such payment shall consist of a payment of interest, for purposes of calculating such interest, such payment shall be deemed to have been originally due on such first following (or preceding) Business Day, such interest shall accrue and be payable to (but not including) the actual date of payment and the amount of the next succeeding interest payment shall be adjusted accordingly. (c) PAYMENTS, WHEN RECEIVED. Any payment to be made to the holders of Notes hereunder or under the Notes shall be deemed to have been made on the 78 83 Business Day such payment actually becomes available to such holder at such holder's bank in the United States of America prior to 11:00 a.m. (local time of such bank). 11.7 ENTIRE AGREEMENT; SEVERABILITY. This Agreement constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. In case any one or more of the provisions contained in this Agreement or in any Note, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other application thereof, shall not in any way be affected or impaired thereby. 11.8 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART. Two or more duplicate originals hereof may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. [REMAINDER OF PAGE INTENTIONALLY BLANK; NEXT PAGE IS SIGNATURE PAGE.] 79 84 If this Agreement is satisfactory to you, please so indicate by signing the acceptance at the foot of a counterpart hereof and returning such counterpart to the Company, whereupon this Agreement shall become binding between us in accordance with its terms. Very truly yours, THE CERPLEX GROUP, INC. By ---------------------------- Name: Title: [SEPARATELY EXECUTED BY EACH OF THE EXISTING NOTEHOLDERS] Accepted: [NAME OF EXISTING NOTEHOLDER] By ---------------------------- Name: Title: [Signature Page to Amended and Restated Note Purchase Agreement of THE CERPLEX GROUP, INC.] 85 ANNEX 1 INFORMATION AS TO EXISTING NOTEHOLDERS
================================================================================ NOTEHOLDER NAME THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in which to register The Northwestern Mutual Life Insurance Company Note(s) - -------------------------------------------------------------------------------- Note registration number; R-1; $8,250,000 Principal amount - -------------------------------------------------------------------------------- Payment on account of Note(s) Method Federal Funds Wire Transfer Account information Bankers Trust Company 16 Wall Street Insurance Unit - 4th Floor New York, New York 10005 ABA #0210-01033 For the account of: The Northwestern Mutual Life Insurance Company Account No.: 00-000-027 - -------------------------------------------------------------------------------- Accompanying information Name of Company: The Cerplex Group, Inc. Description of Security: 9.50% Senior Subordinated Notes due November 19, 2001 PPN: 15678@ AC 1 Confirmation of principal balance and due date and application (as among principal, Make-Whole Amount and interest) of the payment being made: - -------------------------------------------------------------------------------- Address for notices related The Northwestern Mutual Life Insurance Company to payments 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Treasurer's Department/Securities Operations - -------------------------------------------------------------------------------- Address for all other notices The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Securities Department - --------------------------------------------------------------------------------
Annex 1-1 86
================================================================================ NOTEHOLDER NAME THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name and telephone Peter Keehn number for telephonic Phone: (414) 299-5023 advices pursuant to Fax: (414) 299-7124 Section 4.4. - -------------------------------------------------------------------------------- Tax identification number 39-0509570 ================================================================================
Annex 1-2 87
================================================================================ NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in which to register John Hancock Mutual Life Insurance Company Note(s) - -------------------------------------------------------------------------------- Note registration number; R-2; $3,000,000 Principal amount - -------------------------------------------------------------------------------- Payment on account of Note(s) Method Federal Funds Wire Transfer Account information The First National Bank of Boston ABA No. 011000390 100 Federal Street Boston, Massachusetts 02110 Attention: Insurance Division For the account of: John Hancock Mutual Life Insurance Company Account No.: 279-80008 On order of: The Cerplex Group, Inc. - -------------------------------------------------------------------------------- Accompanying information Name of Company: The Cerplex Group, Inc. Description of Security: 9.50% Senior Subordinated Notes due November 19, 2001 PPN: 15678@ AC 1 Confirmation of principal balance and due date and application (as among principal, Make-Whole Amount and interest) of the payment being made: - -------------------------------------------------------------------------------- Address for notices related John Hancock Mutual Life Insurance Company to payments John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Portfolio Management & Investment Services T-56 - --------------------------------------------------------------------------------
Annex 1-3 88
================================================================================ NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Address for all other notices John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Bond and Corporate Finance Department T-57 Fax No.: (617) 572-1606 - -------------------------------------------------------------------------------- Name and telephone D. Dana Donovan number for telephonic Phone: (617) 572-9626 advices pursuant to Fax: (617) 572-1606 Section 4.4. - -------------------------------------------------------------------------------- Tax identification number 04-1414660 ================================================================================
Annex 1-4 89
================================================================================ NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in which to register John Hancock Mutual Life Insurance Company Note(s) - -------------------------------------------------------------------------------- Note registration number; R-3; $5,250,000 Principal amount - -------------------------------------------------------------------------------- Payment on account of Note(s) Method Federal Funds Wire Transfer Account information The First National Bank of Boston ABA No. 011000390 100 Federal Street Boston, Massachusetts 02110 Attention: Insurance Division For the account of: John Hancock Mutual Life Insurance Company - GBSA Account Account No.: 535-84164 On order of: The Cerplex Group, Inc. - -------------------------------------------------------------------------------- Accompanying information Name of Company: The Cerplex Group, Inc. Description of Security: 9.50% Senior Subordinated Notes due November 19, 2001 PPN: 15678@ AC 1 Confirmation of principal balance and due date and application (as among principal, Make-Whole Amount and interest) of the payment being made: - -------------------------------------------------------------------------------- Address for notices related John Hancock Mutual Life Insurance Company to payments John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Portfolio Management & Investment Services T-56 - --------------------------------------------------------------------------------
Annex 1-5 90
================================================================================ NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Address for all other notices John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Bond and Corporate Finance Department T-57 Fax No.: (617) 572-1606 - -------------------------------------------------------------------------------- Name and telephone D. Dana Donovan number for telephonic Phone: (617) 572-9626 advices pursuant to Fax: (617) 572-1606 Section 4.4. - -------------------------------------------------------------------------------- Tax identification number 04-1414660 ================================================================================
Annex 1-6 91
================================================================================ NOTEHOLDER NAME NORTH ATLANTIC SMALLER COMPANIES TRUST PLC - -------------------------------------------------------------------------------- Name in which to register Bank of Scotland London Nominees Limited Note(s) - -------------------------------------------------------------------------------- Note registration number; R-4; $750,000 Principal amount - -------------------------------------------------------------------------------- Payment on account of Note(s) Method Federal Funds Wire Transfer Account information Bank of Scotland 38 Threadneedle St. London, England EC2P-2EH Account # 58695 USD01 Attention: Richard Anderson (telephone no. 011-44-171-601-6799) (Call Ivor Davis at J.O. Hambro & Co., Ltd. with any questions: telephone no. 011-44-171-222-2020) Reference: North Atlantic Smaller Companies Investment Trust - -------------------------------------------------------------------------------- Accompanying information Name of Company: The Cerplex Group, Inc. Description of Security: 9.50% Senior Subordinated Notes due November 19, 2001 PPN: 15678@ AC 1 Confirmation of principal balance and due date and application (as among principal, Make-Whole Amount and interest) of the payment being made: - -------------------------------------------------------------------------------- Address for notices related North Atlantic Smaller Companies Trust PLC to payments c/o J.O. Hambro & Co., Ltd. 10 Park Place London, England SW1A1LP Attention: Mr. Christopher Mills Facsimile: 011-44-171-233-1503 - --------------------------------------------------------------------------------
Annex 1-7 92
================================================================================ NOTEHOLDER NAME NORTH ATLANTIC SMALLER COMPANIES TRUST PLC - -------------------------------------------------------------------------------- Address for all other notices North Atlantic Smaller Companies Trust PLC c/o J.O. Hambro & Co., Ltd. 10 Park Place London, England SW1A1LP Attention: Mr. Christopher Mills Facsimile: 011-44-171-233-1503 - -------------------------------------------------------------------------------- Name and telephone Mr. Christopher Mills number for telephonic Telephone: 011-44-171-222-2020 advices pursuant to Section 4.4. - -------------------------------------------------------------------------------- Tax identification number N.A. ================================================================================
Annex 1-8 93 ANNEX 2 AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENT Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994. Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994. Amendment Agreement dated as of October 27, 1994. Waiver and Amendment Agreement dated as of April 15, 1996. Waiver and Amendment Agreement dated as of October 31, 1996 (as extended by that certain letter agreement dated November 26, 1996). Waiver and Amendment Agreement dated December 9, 1996. Letter Agreement dated March 28, 1997. Annex 2-1 94 ANNEX 3 INFORMATION AS TO COMPANY [TO BE SUPPLIED BY THE COMPANY] PART 2.4(a) -- PENDING LITIGATION. PART 2.6(c) -- VIOLATIONS OF AGREEMENTS. PART 2.7(b) -- DEBT. PART 2.7(c) -- MATERIAL ADVERSE CHANGE. PART 2.8(a) -- SUBSIDIARIES. PART 2.8(b) -- AFFILIATES. PART 2.13(a) -- ENVIRONMENTAL COMPLIANCE. PART 2.13(b) -- ENVIRONMENTAL LIABILITY. PART 2.13(c) -- ENVIRONMENTAL NOTICES. PART 6.5 -- RESTRICTED PAYMENTS. PART 6.6(a)(vii) -- EXISTING LIENS. PART 6.10 -- TRANSACTIONS WITH AFFILIATES. PART 9.1-ACP -- ACCEPTABLE CONTROL PERSONS. Annex 3-1 EX-4.21 7 SECOND AMENDMENT TO WARRANT AGREEMENT 1 EXHIBIT 4.21 SECOND AMENDMENT TO WARRANT AGREEMENT THIS SECOND AMENDMENT TO WARRANT AGREEMENT (this "AMENDMENT") is made as of the 9th day of April, 1997, by and among The Cerplex Group, Inc., a Delaware corporation (the "COMPANY") and each of the holders of warrants listed on Schedule A hereto, each of which is herein referred to as a "HOLDER" and collectively as the "HOLDERS." RECITALS: A. The Company and the Holders entered into a Warrant Agreement dated as of November 19, 1993, as amended by a First Amendment to Warrant Agreement dated as of April 15, 1996 (as in effect prior to the effectiveness of this Amendment, the "EXISTING WARRANT AGREEMENT"). B. The Holders are the holders of all of the Warrants (as such term is defined in the Existing Warrant Agreement) outstanding as of the date hereof. C. The Company has requested that the Existing Warrant Agreement be amended, as more particularly provided herein, and the Holders have agreed to amend the Existing Warrant Agreement as set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. As used in this Amendment, the following terms have the respective meanings specified below: "AMENDMENT, THIS" -- means this First Amendment to Warrant Agreement. "COMPANY" -- the introductory sentence. "EXISTING WARRANT AGREEMENT" -- Recital A. "HOLDERS" -- the introductory sentence. SECTION 2. AMENDMENT TO EXISTING WARRANT AGREEMENT; AFFIRMATION. 2.1 AMENDMENT TO THE EXISTING WARRANT AGREEMENT. Section 4.1(d)(ii) of the Existing Warrant Agreement is hereby amended by: (a) deleting the word "and" at the end of clause (D); 1 2 (b) deleting the period and the end of clause (E) and substituting "; and" in lieu thereof; and (c) adding the following clause (F) immediately following clause (E): (F) warrants, not exceeding eight hundred seventy-five thousand (875,000) in the aggregate, and shares of Common Stock issuable upon the exercise of such warrants, issued on or prior to April 9, 1997 to any then holder of the Wells Fargo Credit Agreement Debt (as such term is defined in the Note Purchase Agreement). 2.2 AFFIRMATION OF OBLIGATIONS. The Company hereby acknowledges and affirms all of its obligations under the terms of the Existing Warrant Agreement, as amended hereby. SECTION 3. MISCELLANEOUS. 3.1 GOVERNING LAW. This Amendment shall be governed by, and construed and enforced in accordance with, internal New York law. 3.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 3.3 EFFECT OF THIS AMENDMENT. Except as specifically provided in this Amendment, no terms or provisions of the Existing Warrant Agreement have been modified or changed by this Amendment and the terms and provisions of the Existing Warrant Agreement, as amended hereby, shall continue in full force and effect. This Amendment and the amendments contained herein shall have and be in effect on and after the date hereof. 3.4 SECTION HEADINGS. The titles of the sections hereof appear as a matter of convenience only, do not constitute a part of this Amendment and shall not affect the construction hereof. [Remainder of Page Intentionally Blank. Next Page is Signature Page.] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. THE CERPLEX GROUP, INC. By________________________________ Name: Title: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By________________________________ Name: Title: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By________________________________ Name: Title: NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC By________________________________ Name: Title: 3 4 SCHEDULE A Schedule of Holders The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 North Atlantic Smaller Companies Trust PLC c/o J.O. Hambro & Co., Ltd. 10 Park Place London, England SW1A1LP Schedule A-1 EX-4.22 8 SECOND AMENDMENT TO WARRANT AGREEMENT 1 EXHIBIT 4.22 SECOND AMENDMENT TO WARRANT AGREEMENT THIS SECOND AMENDMENT TO WARRANT AGREEMENT (this "AMENDMENT") is made as of the 9th day of April, 1997, by and among The Cerplex Group, Inc., a Delaware corporation (the "COMPANY") and each of the holders of warrants listed on Schedule A hereto, each of which is herein referred to as a "HOLDER" and collectively as the "HOLDERS." RECITALS: A. The Company and the Holders entered into a Warrant Agreement dated as of April 15, 1996, as amended by a Waiver and Amendment Agreement dated as of October 31, 1996 (as in effect prior to the effectiveness of this Amendment, the "EXISTING WARRANT AGREEMENT"). B. The Holders are the holders of all of the Warrants (as such term is defined in the Existing Warrant Agreement) outstanding as of the date hereof. C. The Company and the Holders have agreed to amend the Existing Warrant Agreement as set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINED TERMS. As used in this Amendment, the following terms have the respective meanings specified below: "AMENDMENT, THIS" -- means this Second Amendment to Warrant Agreement. "COMPANY" -- the introductory sentence. "EXISTING WARRANT AGREEMENT" -- Recital A. "HOLDERS" -- the introductory sentence. SECTION 2. AMENDMENTS TO EXISTING WARRANT AGREEMENT; AFFIRMATION. 2.1 AMENDMENTS TO THE EXISTING WARRANT AGREEMENT. (a) Section 4.1(d)(ii) of the Existing Warrant Agreement is hereby amended by: (i) deleting the word "and" at the end of clause (D); (ii) deleting the period and the end of clause (E) and substituting "; and" in lieu thereof; and 2 (iii) adding the following clause (F) immediately following clause (E): (F) warrants, not exceeding eight hundred seventy-five thousand (875,000) in the aggregate, and shares of Common Stock issuable upon the exercise of such warrants, issued on or prior to April 9, 1997 to any then holder of the Wells Fargo Credit Agreement Debt (as such term is defined in the Note Purchase Agreement). (b) The definition of "Initial Purchase Price" in Section 5.1 of the Existing Warrant Agreement is hereby amended and restated in its entirety as follows: INITIAL PURCHASE PRICE -- means Fifty-Nine and Three Eighths Cents ($0.59375) per share. Each of the Warrant Certificates (as such term is defined in the Existing Warrant Agreement) issued under the Existing Warrant Agreement and currently outstanding, as well as Exhibit A to the Existing Warrant Agreement, are hereby further amended and modified by changing the references therein to "initial purchase price" and "Purchase Price" from "Two Dollars and Fifty Cents ($2.50) per share" to "Fifty-Nine and Three Eighths Cents ($0.59375) per share." This amendment to each of the Warrant Certificates currently outstanding shall be effective without any further action required on the part of the Holders or the Company and without the need to submit such Warrant Certificates to Company for any notation of said change thereon or to otherwise exchange such Warrant Certificates for new Warrant Certificates. 2.2 AFFIRMATION OF OBLIGATIONS. The Company hereby acknowledges and affirms all of its obligations under the terms of the Existing Warrant Agreement, as amended hereby. SECTION 3. MISCELLANEOUS. 3.1 GOVERNING LAW. This Amendment shall be governed by, and construed and enforced in accordance with, internal New York law. 3.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 2 3 3.3 EFFECT OF THIS AMENDMENT. Except as specifically provided in this Amendment, no terms or provisions of the Existing Warrant Agreement have been modified or changed by this Amendment and the terms and provisions of the Existing Warrant Agreement, as amended hereby, shall continue in full force and effect. This Amendment and the amendments contained herein shall have and be in effect on and after the date hereof. 3.4 SECTION HEADINGS. The titles of the sections hereof appear as a matter of convenience only, do not constitute a part of this Amendment and shall not affect the construction hereof. [Remainder of Page Intentionally Blank. Next Page is Signature Page.] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. THE CERPLEX GROUP, INC. By________________________________ Name: Title: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By________________________________ Name: Title: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By________________________________ Name: Title: NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC By________________________________ Name: Title: 4 5 SCHEDULE A Schedule of Holders The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 North Atlantic Smaller Companies Trust PLC c/o J.O. Hambro & Co., Ltd. 10 Park Place London, England SW1A1LP Schedule A-1 EX-4.23 9 AMENDED AND RESTATED WARRANT AGREEMENT 1 EXHIBIT 4.23 EXECUTION COPY THE CERPLEX GROUP, INC. ---------------------- AMENDED AND RESTATED WARRANT AGREEMENT ---------------------- DATED AS OF APRIL 9, 1997 WARRANTS TO PURCHASE SHARES OF COMMON STOCK 2 TABLE OF CONTENTS (Not a Part of the Agreement)
PAGE 1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES..................................................... 2 1.1 Form of Warrant Certificates............................... 2 1.2 Execution of Warrant Certificates; Registration Books etc.. 2 1.3 Transfer, Split Up, Combination and Exchange of Warrant Certificates; Lost or Stolen Warrant Certificates.......... 4 1.4 Subsequent Issuance of Warrant Certificates................ 4 2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE................. 5 2.1 Exercise of Warrants....................................... 5 2.2 Issuance of Common Stock................................... 5 2.3 Unexercised Warrants....................................... 6 2.4 Cancellation and Destruction of Warrant Certificates....... 6 2.5 Cancellation of Warrants................................... 6 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY..................... 6 3.1 Representations and Warranties............................. 6 3.2 Reservation of Common Stock................................ 7 3.3 Common Stock to be Duly Authorized and Issued, Fully Paid and Nonassessable.......................................... 7 3.4 Transfer Taxes............................................. 7 3.5 Common Stock Record Date................................... 8 3.6 Financial and Business Information......................... 8 4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK ISSUABLE PER WARRANT............................. 10 4.1 Mechanical Adjustments..................................... 10 4.2 Fractional Shares.......................................... 20 4.3 Special Agreements of the Company.......................... 20 5. INTERPRETATION OF THIS AGREEMENT................................. 21 5.1 Terms Defined.............................................. 21 5.2 Directly or Indirectly..................................... 25 5.3 Section Headings and Table of Contents and Construction.... 25 5.4 Governing Law.............................................. 25 6. MISCELLANEOUS.................................................... 25 6.1 Communications............................................. 25 6.2 Reproduction of Documents.................................. 27 6.3 Survival................................................... 27 6.4 Successors and Assigns..................................... 27
i 3 6.5 Amendment and Waiver..................................... 27 6.6 Right of Action.......................................... 28 6.7 Expenses................................................. 28 6.8 Filings.................................................. 28 6.9 Entire Agreement......................................... 29 6.10 Term..................................................... 29 6.11 Duplicate Originals, Execution in Counterpart............ 29
Annex 1 -- Information as to Holders Exhibit A -- Form of Warrant Certificate Exhibit B -- Determination of Fair Market Share Price Exhibit C -- Confidentiality ii 4 AMENDED AND RESTATED WARRANT AGREEMENT AMENDED AND RESTATED WARRANT AGREEMENT, dated as of April 9, 1997 (as may be amended from time to time, this "AGREEMENT"), among THE CERPLEX GROUP, INC., a Delaware corporation (together with its successors and assigns, the "COMPANY"), and each of the Persons identified as a Holder in Annex 1 individually, a "HOLDER" and, collectively, the "HOLDERS"). RECITALS: A. Certain capitalized terms used in this Agreement have the meanings assigned to them in Section 5.1 hereof. B. In accordance with the FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (the "FIRST AMENDMENT"), dated as of April 15, 1996 and entered into by and among the Company, the financial institutions listed on the signature pages thereof ("LENDERS") and Wells Fargo Bank, National Association, as administrative agent for the Lenders ("ADMINISTRATIVE AGENT"), under that certain Credit Agreement dated as of October 12, 1994 (the "CREDIT AGREEMENT"), by and among, inter alia, the Company, Lenders and Administrative Agent, which such Credit Agreement was amended by the First Amendment, and in consideration of certain waivers and amendments set forth in the First Amendment, the Company issued in the aggregate one hundred twenty-five thousand (125,000) warrants (individually, an "ORIGINAL WARRANT" and, collectively, the "ORIGINAL WARRANTS") of the Company to the Lenders, each Original Warrant representing the right to purchase, upon the terms and subject to the conditions set forth in this Agreement, and subject to adjustment as set forth herein, one (1) share of Common Stock. C. In accordance with the THIRD AMENDMENT TO CREDIT AGREEMENT (the "THIRD AMENDMENT"), dated as of April 9, 1997 and entered into by and among the Company, Lenders and Administrative Agent, and in consideration of certain amendments set forth in the Third Amendment, the Company has agreed to adjust the Initial Purchase Price of the Original Warrants. D. In accordance with the Third Amendment, the Company has also agreed to issue in the aggregate an additional seven hundred fifty thousand (750,000) warrants (individually, an "ADDITIONAL WARRANT" and, collectively, the "ADDITIONAL WARRANTS") of the Company to the Lenders, each Additional Warrant representing the right to purchase, upon the terms and subject to the conditions set forth in this Agreement, and subject to adjustment as set forth herein, one (1) share of Common Stock. E. In connection with the execution of the Third Amendment and this Agreement, the Company will issue Warrant Certificates evidencing the Additional Warrants and, within 5 Business Days thereafter, will exchange each Holder's Warrant 1 5 Certificates for a single Warrant Certificate evidencing such Holder's Original Warrants and such Holder's Additional Warrants. AGREEMENT: NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties to this Agreement hereby agree as follows: 1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES 1.1 FORM OF WARRANT CERTIFICATES. The warrant certificates (individually, a "WARRANT CERTIFICATE" and, collectively, the "WARRANT CERTIFICATES") evidencing the Warrants, and the forms of assignment and of election to purchase shares to be attached to such certificates, shall be substantially in the form set forth in Exhibit A and may have such letters, numbers or other marks of identification or designation as may be required to comply with any law or with any rule or regulation of any governmental authority, stock exchange or self-regulatory organization made pursuant thereto. Each Warrant Certificate shall be dated as of the date of issuance thereof by the Company, either upon initial issuance or upon transfer or exchange, and on its face shall initially entitle the holder thereof to purchase the number of shares of Common Stock equal to the number of Warrants represented by such Warrant Certificate at a price per share equal to the Purchase Price, but the number of such shares and the Purchase Price shall be subject to adjustment as provided herein. 1.2 EXECUTION OF WARRANT CERTIFICATES; REGISTRATION BOOKS ETC. (a) EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates shall be executed on behalf of the Company by its President, one of its Vice Presidents or any other officer of the Company authorized by the Board of Directors, which execution shall be attested by the Secretary or an Assistant Secretary of the Company. In case any officer of the Company who shall have signed any Warrant Certificate shall cease to be such officer of the Company before issuance and delivery by the Company of such Warrant Certificate, such Warrant Certificate nevertheless may be issued and delivered with the same force and effect as though the individual who signed such Warrant Certificate had not ceased to be such officer of the Company, and any Warrant Certificate may be signed on behalf of the Company by any individual who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Agreement any such individual was not such an officer. (b) REGISTRATION BOOKS, ETC. The Company will keep or cause to be kept at its office maintained at the address of the Company set forth in Section 6.1 hereof, or at such other office of the Company in the United States of America of which the Company shall have given notice to each holder of Warrant 2 6 Certificates, books for registration and transfer of the Warrant Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Warrant Certificates, the registration number and the number of Warrants evidenced on its face by each of the Warrant Certificates and the date of each of the Warrant Certificates. Every holder of a Warrant Certificate by accepting the same consents and agrees with the Company and with every other holder of a Warrant Certificate that: (i) the Warrant Certificates are transferable only on the registry books of the Company if surrendered at the office of the Company referred to in this Section 1.2(b), duly endorsed or accompanied by an instrument of transfer (substantially in the form attached to Exhibit A); and (ii) the Company may deem and treat the Person in whose name each Warrant Certificate is registered as the absolute owner thereof and of the Warrants evidenced thereby (notwithstanding any notations of ownership or writing on the Warrant Certificates made by anyone other than the Company) for all purposes whatsoever, and the Company shall not be affected by any notice to the contrary. (c) ACQUISITION FOR INVESTMENT. Each Holder represents that it is acquiring the Warrants for its own account for investment and not with a view to any resale or distribution thereof, within the meaning of the Securities Act, but without prejudice to its right at all times to sell or otherwise dispose of all or any part of the Warrants or the shares of Common Stock issuable upon the exercise of such Warrant under a registration statement filed under the Securities Act or in a transaction exempt from the registration requirements of the Securities Act. Each Holder agrees that each outstanding Warrant Certificate (and each certificate representing a share or shares of Common Stock issued upon the exercise of a Warrant) which it owns shall, unless the Securities represented by such certificate have been registered or have been sold in accordance with Rule 144 (or any successor regulation thereto) under the Securities Act, bear an endorsement reading substantially as follows: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities law. These securities may not be sold, transferred, pledged or hypothecated in any transaction unless first registered under such laws or unless such transaction is exempt from the registration requirements of such laws. The securities represented by this certificate are subject to certain market holdback provisions set forth in that certain registration rights agreement dated November 19, 1993, as 3 7 amended, among The Cerplex Group, Inc. and the other parties thereto. 1.3 TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT CERTIFICATES; LOST OR STOLEN WARRANT CERTIFICATES. (a) TRANSFER, SPLIT UP, ETC. Any Warrant Certificate, with or without other Warrant Certificates, may be transferred, split up, combined or exchanged for another Warrant Certificate or Warrant Certificates, entitling the registered holder or transferee thereof to purchase a like number of shares of Common Stock as the Warrant Certificate or Warrant Certificates surrendered then entitled such registered holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Warrant Certificate shall make such request in writing delivered to the Company, and shall surrender the Warrant Certificate or Warrant Certificates to be transferred, split up, combined or exchanged at the office of the Company referred to in Section 1.2(b) hereof, whereupon the Company shall deliver promptly to the Person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. Each holder of Warrants after any such transfer or exchange shall, by its acceptance of the Warrants and Warrant Certificates being so transferred, be deemed to have agreed to the terms and provisions of confidentiality set forth on Exhibit C. (b) LOSS, THEFT, ETC. Upon receipt of written notice from the holder of any Warrant Certificate of the loss, theft, destruction or mutilation of such Warrant Certificate and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or, in the case of any such mutilation, upon surrender and cancellation of such Warrant Certificate, the Company will make and deliver a new Warrant Certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate. 1.4 SUBSEQUENT ISSUANCE OF WARRANT CERTIFICATES. Subsequent to their original issuance, no Warrant Certificates shall be issued except: (a) Warrant Certificates issued upon any transfer, combination, split up or exchange of Warrants pursuant to Section 1.3(a) hereof; (b) Warrant Certificates issued in replacement of mutilated, destroyed, lost or stolen Warrant Certificates pursuant to Section 1.3(b) hereof; and (c) Warrant Certificates issued pursuant to Section 2.3 hereof upon the partial exercise of any Warrant Certificate to evidence the unexercised portion of such Warrant Certificate. 4 8 2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE 2.1 EXERCISE OF WARRANTS. (a) PURCHASE PRICE PAYMENT UPON EXERCISE. At any time on or after the Effective Date and prior to 5:00 p.m. (Los Angeles, California time) on the Termination Date, the holder of any Warrant Certificate may exercise the Warrants evidenced thereby in whole or in part, by surrender of such Warrant Certificate, with an election to purchase (a form of which is attached as part of the form of Warrant Certificate attached as Exhibit A) attached thereto duly executed, to the Company at its office referred to in Section 1.2(b) hereof, together with payment of the Purchase Price, payable as set forth below in this Section 2. 1, for each share of Common Stock as to which the Warrants are exercised. The Purchase Price shall be (i) payable in cash, by certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to the account of the Company or (ii) satisfied by the delivery of Warrant Certificates to the Company for cancellation in accordance with the formula set forth in Section 2.1 (b). (b) NET EXERCISE PRICE. In lieu of any holder of a Warrant Certificate exercising the Warrants (or any portion thereof) evidenced by such Warrant Certificate for cash, as contemplated by Section 2.1 (a), such holder may, in connection with such exercise, elect to receive shares of Common Stock equal to the product of (i) the number of shares of Common Stock issuable upon such exercise of such Warrant Certificate (or, if only a portion of such Warrant Certificate is being exercised, issuable upon the exercise of such portion) multiplied by (ii) a fraction, the numerator of which is the Market Price per share of Common Stock at the time of such exercise minus the Purchase Price per share of Common Stock at the time of such exercise, and the denominator of which is the Market Price per share of Common Stock at the time of such exercise. 2.2 ISSUANCE OF COMMON STOCK. Upon timely receipt on or after the Effective Date of a Warrant Certificate, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for each of the shares to be purchased in the manner provided in Section 2.1 hereof and an amount equal to any applicable transfer tax (if not payable by the Company as provided in Section 3.4 hereof), the Company shall thereupon promptly cause certificates for the number of whole shares of Common Stock then being purchased to be delivered to or upon the order of the registered holder of such Warrant Certificate, registered in such name or names as may be designated by such holder, and, promptly after such receipt deliver the cash, if any, to be paid in lieu of fractional shares pursuant to Section 4.2 hereof to or upon the order of the registered holder of such Warrant Certificate. 5 9 2.3 UNEXERCISED WARRANTS. In case the registered holder of any Warrant Certificate shall exercise less than all the Warrants evidenced thereby, a new Warrant Certificate evidencing Warrants equal in number to the number of Warrants remaining unexercised shall be issued by the Company to the registered holder of such Warrant Certificate or to its duly authorized assigns. 2.4 CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All Warrant Certificates surrendered to the Company for the purpose of exercise, exchange, substitution or transfer shall be cancelled by it, and no Warrant Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall cancel and retire any other Warrant Certificates purchased or acquired by the Company otherwise than upon the exercise thereof. 2.5 CANCELLATION OF WARRANTS. [INTENTIONALLY OMITTED] 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY 3.1 REPRESENTATIONS AND WARRANTIES. (a) CORPORATE AUTHORITY. The Company has the corporate power and authority to: (i) authorize, execute, deliver and enter into this Agreement and the Warrant Certificates; (ii) issue and sell the Warrants; (iii) perform its obligations under this Agreement and the Warrants; (iv) authorize, execute, deliver, issue and sell the shares of the Common Stock issuable upon exercise of the Warrants. (b) ENFORCEABILITY OF OBLIGATIONS. This Agreement and the Warrant Certificates have been duly authorized, executed and delivered by the Company. This Agreement, the Warrant Certificates and the Warrants constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except: (c) as such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and 6 10 (d) as such enforceability may be subject to the availability of equitable remedies. The holders of the Warrants are entitled to the benefits of this Agreement. 3.2 RESERVATION OF COMMON STOCK. The Company represents and warrants that it has reserved for issuance a sufficient number of shares of Common Stock to permit the exercise of all the Warrants, and all other rights, options or warrants exercisable into Common Stock. The Company covenants and agrees that it will at all times cause to be reserved and kept available out of its authorized and unissued shares of Common Stock such number of shares of Common Stock as will be sufficient to permit the exercise in full of all Warrants outstanding hereunder. 3.3 COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND NONASSESSABLE. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Common Stock delivered upon the exercise of any Warrants, at the time of delivery of the certificates for such shares, shall be duly and validly authorized and issued and fully paid and nonassessable, free of any preemptive rights and free of any pledge, security interest, lien or other encumbrance. 3.4 TRANSFER TAXES. The Company covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of (a) the execution and delivery of this Agreement; (b) the initial issuance and delivery of each Warrant Certificate hereunder; (c) the issuance and delivery of each Warrant Certificate issued in exchange for any other Warrant Certificate pursuant to Section 1.3 or Section 2.3 hereof; and (d) the issuance and delivery of each share of Common Stock issued upon the exercise of any Warrant. The Company shall not, however, be required to (i) pay any transfer tax that may be payable in respect of the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates for shares of Common Stock in a name other than that of the registered holder of the 7 11 Warrant Certificate evidencing any Warrant surrendered for exercise (any such tax being payable by the holder of such Warrant Certificate at the time of surrender) or (ii) issue or deliver any such certificates referred to in the foregoing clause (i) for shares of Common Stock upon the exercise of any Warrant until any such tax referred to in the foregoing clause (i) shall have been paid. 3.5 COMMON STOCK RECORD DATE. Each Person in whose name any certificate for shares of Common Stock is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Warrant Certificate evidencing such Warrants was duly surrendered with an election to purchase attached thereto duly executed and payment of the aggregate Purchase Price (and any applicable transfer taxes, if payable by such Person) was made. Prior to the exercise of the Warrants evidenced thereby, the holder of a Warrant Certificate shall not be entitled to any rights of a shareholder in the Company with respect to shares for which the Warrants shall be exercisable, including, without limitation, any right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein or in any other applicable agreement between the Company and such holder. 3.6 FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to each holder of Warrants: (a) QUARTERLY STATEMENTS -- as soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), and in any event within forty-five (45) days thereafter, duplicate copies of (i) a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income and cash flows of the Company and the Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the immediately preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally (provided that such financial statements need not contain footnotes), and certified as complete and correct, subject to changes resulting from year-end adjustments, by a Senior Financial Officer; 8 12 (b) ANNUAL STATEMENTS -- as soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, duplicate copies of (i) consolidated and consolidating balance sheets of the Company and the Subsidiaries, as at the end of such year, and (ii) consolidated and consolidating statements of income, shareholders' equity and cash flows of the Company and the Subsidiaries for such year, setting forth in each case in comparative form the figures for the immediately preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) in the case of such consolidated statements, a report thereon of independent certified public accountants of recognized national standing, which report shall express an opinion in the form of the standard auditor's report under generally accepted auditing standards which shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, (B) a statement from such independent certified public accountants that such consolidating statements were prepared using the same work papers as were used in the preparation of such consolidated statements, and (C) a certification by a Senior Financial Officer that such consolidated and consolidating statements are complete and correct; (c) SEC AND OTHER REPORTS -- promptly upon their becoming available, a copy of each financial statement, report (including, without limitation, each Quarterly Report on Form 10-Q, each Annual Report on Form 10-K and each Current Report on Form 8-K), notice or proxy statement sent by the Company or any Subsidiary to shareholders generally and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and each amendment thereto, in respect thereof filed by the Company or any Subsidiary with, or received by, such Person in connection therewith from, the National Association of Securities Dealers, any securities exchange or the SEC; and 9 13 (d) REQUESTED INFORMATION -- with reasonable promptness, such other data and information as from time to time may be reasonably requested, including, without limitation, information required by 17 C.F.R. Section 230.144A, as amended from time to time. Each of the Holders hereby agrees to the terms of confidentiality set forth on Exhibit C. 4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK ISSUABLE PER WARRANT 4.1 MECHANICAL ADJUSTMENTS. The number of shares of Common Stock purchasable upon the exercise of each Warrant, and the Purchase Price, shall be subject to adjustment as follows: (a) DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event that the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision or combination shall be adjusted to the price determined by multiplying the Purchase Price in effect immediately prior to such event by the quotient of: (A) the total number of shares of Adjusted Outstanding Common Stock immediately prior to such event; divided by (B) the total number of Adjusted Outstanding Common Stock immediately after such event. An adjustment made pursuant to this Section 4.1(a) shall become effective on the effective date of such event. (b) RIGHTS, OPTIONS, WARRANTS AND CONVERTIBLE OR EXCHANGEABLE SECURITIES. In the event that the Company shall issue any rights, options, warrants or convertible or exchangeable Securities to all holders of its shares of Common Stock, without charge to such holders, entitling such holders to subscribe for or 10 14 purchase shares of Common Stock at a price per share (or having a conversion or exchange price per share, in the case of a Security convertible or exchangeable into shares of Common Stock) that is (or to amend or modify any provision of any thereof such that the conversion, exchange or exercise price becomes) lower at the record date in respect of which such rights, warrants, options or Securities were issued or amended than the Reference Price on such record date, then the Purchase Price in effect immediately after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by the quotient of: (i) the sum of (A) the number of shares of Adjusted Outstanding Common Stock as of such record date, plus (B) the quotient of (ii) the Aggregate Consideration Receivable in respect of such rights, options, warrants or convertible or exchangeable Securities, divided by (ii) the Reference Price on such record date; divided by (ii) the sum of (A) the number of shares of Adjusted Outstanding Common Stock as of such record date, plus (B) the number of additional shares of Common Stock initially issuable pursuant to such rights, options or warrants or into which such convertible or exchangeable Securities are initially convertible or exchangeable. Such adjustment shall be made whenever such rights, options, or warrants or convertible or exchangeable Securities are issued or amended, and shall become effective on the date of issuance or amendment of such rights, options, warrants or convertible or exchangeable Securities. (c) DISTRIBUTIONS OF PROPERTY. In the event that the Company shall distribute to holders of shares of Common Stock (including, without limitation, any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) shares of stock (other than Common Stock) or evidences of its indebtedness or assets (excluding (x) cash dividends paid out of retained earnings after November 19, 1998, (y) Regular Cash Dividends 11 15 paid after the date hereof and on or prior to November 19, 1998 and (z) dividends payable solely in additional shares of the Common Stock) or rights, options or warrants or convertible or exchangeable Securities (excluding those referred to in Section 4.1(b) and Section 4.1(d) hereof), then in each case the Purchase Price in effect immediately after the record date in respect of which such stock, indebtedness, assets, rights, options, warrants or Securities were issued shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by the quotient of: (i) the result of (A) the Reference Price on such record date, minus (B) the quotient of (i) the then fair value (as determined in good faith and on a reasonable basis by the Board of Directors, whose determination, if so made, shall be conclusive) of the shares of stock or assets or evidences of indebtedness so distributed or of such rights, options or warrants, or of such convertible or exchangeable Securities, divided by (ii) the number of shares of Adjusted Outstanding Common Stock as of the record date; divided by (ii) the Reference Price on such record date. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of such distribution. (d) ISSUANCES OF COMMON STOCK AND OTHER SECURITIES. (i) In the event that the Company shall issue or sell shares of Common Stock, or rights, options, warrants or convertible or exchangeable Securities containing the right to subscribe for or purchase shares of Common Stock (excluding Excluded Securities, as defined in Section 4.1 (d)(ii) hereof) at a price per share of Common Stock lower than the Reference Price in effect on the date (the "ADJUSTMENT DATE") of such issuance or sale, then the Purchase Price in effect immediately after the Adjustment Date shall be determined by multiplying the Purchase Price in effect immediately prior to such Adjustment Date by the quotient of: 12 16 (A) the sum of (i) the number of shares of Adjusted Outstanding Common Stock outstanding immediately prior to such issuance or sale, plus (ii) the quotient of (1) the Aggregate Consideration Receivable in respect of such rights, options, warrants or convertible or exchangeable Securities, divided by (2) the Reference Price on the Adjustment Date; divided by (B) the sum of (i) the number of shares of Adjusted Outstanding Common Stock outstanding immediately prior to such issuance or sale, plus (ii) the number of additional shares of Common Stock so issued or sold (or initially issuable pursuant to such rights, options or warrants or into which such convertible or exchangeable Securities are initially convertible or exchangeable). For purposes of this clause (i), "ADJUSTMENT DATE" may, in connection with certain consolidations and mergers, have the meaning provided for in Section 4.1 (e). (ii) "EXCLUDED SECURITIES" shall mean and include: (A) shares of Common Stock, rights, options, warrants or convertible or exchangeable Securities issued in any of the transactions described in Section 4.1(a), Section 4.1(b), Section 4.1(c) or Section 4.1 (e) hereof and with respect to which an adjustment to the Purchase Price has been made in accordance with any of such Sections ; (B) shares of Common Stock issuable upon exercise of the Warrants; (C) shares of Common Stock issuable upon exercise of rights, options or warrants or conversion or exchange of convertible or exchangeable Securities issued or sold under circumstances which caused an adjustment pursuant to this Section 4.1(d); 13 17 (D) options, and shares of Common Stock issuable upon exercise of such options, issued to individuals pursuant to the SOP or shares of Common Stock issuable pursuant to any restricted stock plan approved by the Board of Directors and implemented by the Company in the future, provided that any such options issued after the date hereof pursuant to the SOP and any shares of Common Stock issuable upon the exercise thereof and any shares of Common Stock issued pursuant to any such restricted stock plan after the date hereof which, in the aggregate, exceed, at the time of the issuance of thereof, ten percent (10%) of the Fully Diluted Outstanding Common Stock, determined at such time, shall not constitute Excluded Securities; (E) shares of Common Stock and/or rights, options, warrants or convertible or exchangeable Securities (and the shares of Common Stock issuable upon the exercise of such rights, options, warrants or convertible or exchangeable Securities), provided that (1) such shares of Common Stock and/or rights, options, warrants or convertible or exchangeable Securities are issued in connection with one or more private placements of equity Securities of the Company effected on or prior to July 15, 1996, (2) the total aggregate consideration paid in cash in respect of such shares of Common Stock and/or rights, options, warrants or convertible or exchangeable Securities is not more than $8,000,000, (3) all such shares of Common Stock together with all shares of Common Stock issuable upon the exercise of any of such rights, options, warrants or convertible or exchangeable Securities shall not, in the aggregate, exceed 12% of Fully Diluted Outstanding Common Stock, determined as of April 16, 1996, and (4) the sale of such shares of Common Stock and/or rights, options, warrants or convertible or exchangeable Securities is done on an arm's-length basis and the setting of the exercise, strike or conversion prices in respect of such rights, options, warrants or convertible or exchangeable Securities is done on an arm's-length basis; and (F) warrants (including Warrants), and shares of Common Stock issued or issuable upon exercise of warrants or Warrants, issued on or prior to April 9, 1997 to any then holder of the Company's senior or subordinated indebtedness. (iii) In the case of rights, options, warrants or convertible or exchangeable Securities, the "price per share of Common Stock" referred to in Section 4.1(d)(i) hereof shall be equal to the quotient of 14 18 (A) the Aggregate Consideration Receivable in respect of such rights, options, warrants or convertible or exchangeable Securities, divided by (B) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable Securities. (iv) "AGGREGATE CONSIDERATION RECEIVABLE" shall mean, in the case of a sale of shares of Common Stock, the aggregate gross amount paid (without deduction for fees and expenses, underwriting discounts or investment banking fees associated therewith) in connection therewith and, in the case of an issuance or sale of rights, options, warrants or convertible or exchangeable Securities, the sum of (A) the aggregate gross amount paid for such rights, options, warrants or convertible or exchangeable Securities, plus (B) the aggregate consideration or premiums stated in such rights, options, warrants or convertible or exchangeable Securities to be payable for the shares of Common Stock covered thereby. (v) In the event that the Company shall issue and sell shares of Common Stock, or rights, options, warrants or convertible or exchangeable Securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of Property other than cash, then in determining the "price per share of Common Stock" referred to in Section 4.1 (d)(i) and Section 4.1 (d)(iii) hereof and the "Aggregate Consideration Receivable" referred to in Section 4.1(d)(i), Section 4.1(d)(iii) and Section 4.1 (d)(iv) hereof, the Board of Directors shall determine, in good faith and on a reasonable basis, the fair value of such Property, and such determination, if so made, shall be binding upon all holders of Warrants. (e) CONSOLIDATION; MERGER; SALE OF THE COMPANY. In the event that there shall be: (i) any consolidation of the Company with, or merger of the Company with or into, another corporation (other than a merger in which the Company is the surviving corporation and that does not result in any reclassification or change of shares of Common Stock outstanding immediately prior to such merger); (ii) any sale or conveyance to another corporation of the Property of the Company substantially as an entirety; or 15 19 (iii) any reclassification of the Common Stock that results in the issuance of other Securities of the Company; then lawful provision shall be made as a part of the terms of such transaction or otherwise so that the holders of Warrants shall thereafter have the right to purchase the number and kind of shares of stock, other Securities, cash, Property and rights receivable upon such consolidation, merger, sale, conveyance or reclassification by a holder of such number of shares of Common Stock as the holder of a Warrant would have had the right to acquire upon the exercise of such Warrant immediately prior to such consolidation, merger, sale or conveyance, at the Purchase Price then in effect, provided that nothing in this clause (e) shall entitle any holder of Warrants to acquire or have the right to purchase any of the foregoing in connection with any sale or conveyance referred to in clause (ii) above if, with respect to such sale or conveyance, no holder of Common Stock would have the right to acquire or purchase any of the foregoing and none of the foregoing were in fact distributed to holders of Common Stock and provided further that nothing in the foregoing proviso in this clause (e) shall restrict the rights of the holders of Warrants under Section 4.1 (c). To the extent that (A) the Company shall issue any shares of Common Stock or rights, options, warrants or convertible or exchangeable Securities containing the right to subscribe for or purchase shares of Common Stock (other than Excluded Securities) in connection with any consolidation or merger of the Company and (B) such issuance of such shares, rights, options, warrants or convertible or exchangeable Securities would otherwise cause an adjustment under Section 4.1(d), the Adjustment Date in respect of such adjustment, notwithstanding the definition of such term, shall be the business day immediately preceding the date of the public announcement by the Company of such merger or consolidation or, if such merger or consolidation shall have been generally known to the public prior to such announcement date, the date on which the Required Warrantholders and the Company shall mutually agree upon in good faith and in accordance with the essential intent and principles of this Section 4 of fairly protecting the exercise rights of the holders of Warrants and, if no such date can be so mutually agreed upon, the Company shall appoint (at its expense) a firm of independent certified public accountants of recognized national standing, which may not be the regular auditors of the Company and which are reasonably acceptable to the Required Warrantholders, which shall give their opinion as to the appropriate date for such adjustment (after giving effect to the aforesaid intent and principles of this Section 4); upon receipt of such opinion, the Company will promptly mail a copy of such opinion to the holders of Warrants and make the adjustments required under this Section 4 as of the date stipulated therein. 16 20 (f) DE MINIMIS CHANGES IN PURCHASE PRICE. No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided that any adjustments that, at the time of the calculation thereof, are less than one percent (1%) of the Purchase Price at such time and by reason of this Section 4.1 (f) are not required to be made at such time shall be carried forward and added to any subsequent adjustment or adjustments for purposes of determining whether such subsequent adjustment or adjustments, as so supplemented, exceed the one percent (1%) amount set forth in this Section 4.1 (f) and, if any such subsequent adjustment, as so supplemented or otherwise, should exceed such one percent (1%) amount, all adjustments deferred prior thereto and not previously made shall then be made. In any case, all such adjustments being carried forward pursuant to this Section 4.1 (f) shall be given effect upon the exercise of any Warrants by any holder thereof for purposes of determining the Purchase Price thereof. All calculations shall be made to the nearest ten-thousandth of a Dollar ($0.0001). (g) ADJUSTMENT OF NUMBER OF SHARES ISSUABLE PURSUANT TO WARRANTS. Upon each adjustment of the Purchase Price as a result of the calculations made in this Section 4.1, each Warrant outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares of Common Stock (calculated to the nearest one thousandth) obtained by multiplying the number of shares of Common Stock covered by such Warrant immediately prior to such adjustment by the quotient of: (i) the Purchase Price in effect immediately prior to such adjustment, divided by (ii) the Purchase Price in effect immediately after such adjustment. All Warrants originally issued by the Company hereunder shall, subsequent to any adjustment made to the Purchase Price hereunder, evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock determined to be purchasable from time to time hereunder upon exercise of such Warrants, all subject to further adjustment as provided herein. Each such adjustment shall be valid and binding upon the Company and the holders of Warrants irrespective of whether the Warrant Certificates theretofore and thereafter issued express the Purchase Price per share of Common Stock and the number of shares of Common Stock that were expressed upon the initial Warrant Certificates issued hereunder. (h) MISCELLANEOUS. 17 21 (i) Adjustments shall be made pursuant to this Section 4.1 successively whenever any of the events referred to in Section 4.1 (a) through Section 4.1(e), inclusive, hereof shall occur. (ii) Shares of Common Stock owned by or held for the account of the Company, including shares acquired by the Company during any time any Warrants are outstanding, shall not, for purposes of the adjustments set forth in this Section 4.1, be deemed outstanding. (i) EXPIRATION OF RIGHTS, OPTIONS, ETC. Upon the expiration of any rights, options, warrants or conversion or exchange privileges referred to above in this Section 4.1 without the exercise thereof, the Purchase Price and the number of shares of Common Stock purchasable upon the exercise of each Warrant shall be readjusted and shall thereafter be such as such Purchase Price and such number of shares of Common Stock would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) as if: (i) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange privileges; and (ii) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion or exchange privileges whether or not exercised; provided that no such readjustment shall have the effect of increasing the Purchase Price by an amount in excess of the amount of the reduction initially made in respect of the issuance, sale, or grant of such rights, options, warrants or conversion or exchange privileges. (j) OTHER SECURITIES. In the event that at any time, as a result of an adjustment made pursuant to this Section 4.1, each holder of Warrants shall become entitled to purchase any Securities of the Company other than shares of Common Stock, the number or amount of such other Securities so purchasable and the Purchase Price of such Securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained in Section 4.1 (a) through Section 4.1 (e), inclusive, hereof, and all other relevant provisions of this Section 4. 1, and the definitions used in this Section 4. 1, that are applicable to shares of Common Stock shall be applicable to such other Securities. (k) NOTICE OF ADJUSTMENT. Whenever the number of shares of Common Stock issuable upon the exercise of Warrants is adjusted or the Purchase Price in 18 22 respect thereof is adjusted, as herein provided, the Company shall promptly give to each holder of Warrants notice of such adjustment or adjustments and shall promptly deliver to each holder of Warrants a certificate of the Company's chief financial officer setting forth: (i) the number of shares of Common Stock issuable upon the exercise of each Warrant and the Purchase Price of such shares after such adjustment; (ii) a brief statement of the facts requiring such adjustment; and (iii) the computation by which such adjustment was made. So long as any Warrant is outstanding and an adjustment in respect of the number of shares issuable upon the exercise of Warrants or the Purchase Price in respect thereof shall have occurred in any fiscal year of the Company, within ninety (90) days of the end of such fiscal year of the Company, the Company shall deliver to each holder of Warrants a certificate of independent certified public accountants of recognized national standing selected by the Company (which may be the regular auditors of the Company) setting forth (A) the number of shares of Common Stock issuable upon the exercise of each Warrant and the Purchase Price of such shares as of the end of such fiscal year, (B) a brief statement of the facts requiring each such adjustment required to be made in such fiscal year and (C) the computation by which each such adjustment was made. (l) NOTICE OF CERTAIN EVENTS. Whenever the Company shall authorize any Notice Event, the Company shall, not less than thirty (30) days prior to the record date with respect to such event, give to each holder of Warrants, notice of such event setting forth any change in the number of shares of Common Stock the Company estimates will be issuable upon the exercise of such holder's Warrants, the estimated Purchase Price of such shares after any adjustment required to be made hereunder and a brief statement of the facts requiring such adjustment and the computation by which the Company expects such adjustment will be made. "NOTICE EVENT" shall mean any of the following: (i) any event that would require an adjustment pursuant to this Section 4.1; (ii) any distribution of cash or other Property in respect of Common Stock (including, without limitation, a cash dividend payable out of retained earnings); 19 23 (iii) any consolidation, merger or sale, transfer or other disposition of all or substantially all of the Property of the Company, provided that, if as a result of the circumstances concerning such consolidation, merger, sale, transfer or other disposition, it shall be impossible for the Company to give the thirty (30) days' prior notice referred to above, the Company shall give such notice as far in advance of the record date in respect of such consolidation, merger, sale, transfer or other disposition as reasonably feasible and, in any case, no later than two (2) business days prior to such record date; and (iv) the liquidation, dissolution or winding up of the Company. The Company shall, not less than thirty (30) days prior to the issuance of any Preferred Stock, give to each holder of Warrants notice of such issuance setting forth any change in the number of shares of Common Stock the Company estimates will be issuable upon the exercise of such holder's Warrants, the estimated Purchase Price of such shares after any adjustment required to be made hereunder and a brief statement of the facts requiring such adjustment and the computation by which the Company expects such adjustment will be made. 4.2 FRACTIONAL SHARES. The Company shall not be required to issue fractional shares of Common Stock upon the exercise of any Warrant. Upon the exercise of any Warrant, there shall be paid to the holder thereof, in lieu of any fractional share of Common Stock resulting therefrom, an amount of cash equal to the product of: (a) the fractional amount of such share; multiplied by (b) the Market Price with respect to the Common Stock determined as of the date of exercise of such Warrant. 4.3 SPECIAL AGREEMENTS OF THE COMPANY. The Company covenants and agrees that: (a) The Company shall not, by amendment to the Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of Securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Warrant Certificates against dilution or other impairment. 20 24 (b) Before taking any action that would result in an adjustment to the then current Purchase Price to a price that would be below the then current par value of Common Stock issuable upon exercise of any Warrant, the Company will take or cause to be taken any and all necessary corporate or other action that may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon payment of such Purchase Price as so adjusted. 5. INTERPRETATION OF THIS AGREEMENT 5.1 TERMS DEFINED. ADJUSTED OUTSTANDING COMMON STOCK -- means, at any time, the number of shares of Common Stock outstanding at such time (excluding all shares constituting "treasury stock" and all shares held or beneficially owned by a Subsidiary) together with the number of shares of additional Common Stock that would be outstanding at such time assuming: (a) the conversion immediately prior to such time of all then Outstanding Securities that are convertible into shares of Common Stock or that are issuable upon exercise of any warrants, options and other rights, whether or not the conditions for such conversion or exercise then exist, provided that no such Securities shall be included in this clause (a) unless such Securities were issued and outstanding on the date hereof or are derived through transfers and/or exchanges from Securities that were issued and outstanding on the date hereof; and (b) the exercise immediately prior to such time of all then outstanding warrants, options and similar rights to acquire shares of Common Stock (including, without limitation, the Warrants), whether or not the conditions for such exercise then exist, provided that no such warrants, options and similar rights shall be included in this clause (b) unless they were issued and outstanding on the date hereof or are derived through transfers and/or exchanges from Securities that were issued and outstanding on the date hereof. ADJUSTMENT DATE -- Section 4.1(d)(i) hereof. AGGREGATE CONSIDERATION RECEIVABLE -- Section 4.1 (d)(iv) hereof. AGREEMENT -- introductory paragraph hereof. APPRAISER -- means and includes one or more nationally recognized investment banking firms or appraisers that shall be experienced in evaluating companies in the same or similar lines of business as the Company and the Subsidiaries. 21 25 BOARD OF DIRECTORS -- means, at any time, the board of directors of the Company or any committee thereof that, in the instance, shall have the lawful power to exercise the power and authority of such board of directors. CERTIFICATE OF INCORPORATION -- means the restated certificate of incorporation of the Company, as may be amended by the Company from time to time after the Effective Date. COMMON STOCK - means: (a) on the date hereof, the Company's $0.001 par value capital stock designated as "Common Stock"; and (b) on any other date, any capital stock into which such "Common Stock shall have been changed or any capital stock resulting from any reclassification of such "Common Stock", and all other capital stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions of any shares thereof entitled to preference. COMPANY -- introductory paragraph hereof. EFFECTIVE DATE -- means the date of the first issuance of any Warrants pursuant to this Agreement. EXCLUDED SECURITIES -- Section 4.1 (d)(ii) hereof. FAIR MARKET SHARE PRICE - means, at any time, the sale value of a single share of Common Stock, as determined by an Appraiser in accordance with the provisions of Exhibit B attached hereto. FULLY DILUTED OUTSTANDING COMMON STOCK -- means, at any time, the number of shares of Common Stock outstanding at such time (excluding all shares constituting "treasury stock" and all shares held or beneficially owned by a Subsidiary) together with the number of shares of additional Common Stock that would be outstanding at such time assuming: (a) the conversion immediately prior to such time of all Securities convertible into shares of Common Stock outstanding at such time or issuable upon exercise of any warrants, options and other rights outstanding at such time, whether or not the conditions for such conversion or exercise then exist; and 22 26 (b) the exercise immediately prior to such time of all then outstanding warrants, options and similar rights to acquire shares of Common Stock (including, without limitation, the Warrants), whether or not the conditions for such exercise then exist. HOLDER - introductory paragraph hereof. INITIAL PURCHASE PRICE -- means Fifty-Nine and Three Eighths Cents ($0.59375) per share. MARKET PRICE -- means, with respect to any date and any class of Common Stock, the per share price of such class equal to the product of (a) ninety-five percent (95%) times (b) the average of the daily Closing Prices of Common Stock for fifteen (15) consecutive trading days commencing twenty (20) trading days before-such date, provided that, if the Closing Prices referred to in clause (b) are not then available for such class of Common Stock in order to make the determination in said clause (b), "MARKET PRICE" shall mean the Fair Market Share Price. As used in this definition, Closing Price -- means, with respect to any date and any class of Common Stock, the per share price of such class determined as follows: (a) the last sale price, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices on such date, in each case as officially reported on the principal national securities exchange on which such class of Common Stock is then listed or admitted to trading; or (b) if such class of Common Stock is not then listed or admitted to trading on any national securities exchange, but is designated as a national market system security by the National Association of Securities Dealers, the last trading price of such class of Common Stock on such date, or if there shall have been no trading on such date or if such class of Common Stock is not so designated, the average of the reported closing bid and asked prices on such date as shown by the NASDAQ. NASDAQ -- means the National Association of Securities Dealers Automated Quotation System. NOTICE EVENT -- Section 4.1(1) hereof. 23 27 PERSON -- means an individual, partnership, corporation, limited liability or other company or partnership, trust, unincorporated organization, or a government or agency or political subdivision thereof. PREFERRED STOCK -- means the class of capital stock of the Company designated as "Preferred Stock," having a par value $.001 per share, and enjoying the rights and preferences set forth in, and subject to the restrictions of, the Certificate of Incorporation as in effect on November 19, 1993. PROPERTY -- means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. PURCHASE PRICE -- means, prior to any adjustment pursuant to Section 4.1 hereof, the Initial Purchase Price and thereafter, the Initial Purchase Price as adjusted and readjusted from time to time. REFERENCE PRICE -- means, in respect of any date, the Market Price of one share of Common Stock as of such date. REGULAR CASH DIVIDENDS -- means cash dividends paid by the Company out of its retained earnings, provided that any such cash dividends paid during any fiscal year of the Company shall be deemed to constitute Regular Cash Dividends to the extent, and only to the extent, that immediately after giving effect to the payment of such cash dividends the aggregate amount of all cash dividends paid by the Company out of its retained earnings during such fiscal year does not exceed five percent (5%) of the product of (a) the Market Price determined as of the record date in respect of such payment multiplied by (b) the aggregate number of shares of Common Stock outstanding as of such record date (after assuming that all then outstanding Warrants had been exercised). REQUIRED WARRANTHOLDERS -- means, at any time, any holder or holders (other than the Company, any Subsidiary or any Affiliate) then holding more than fifty percent (50%) of the Warrants (excluding any Warrants directly or indirectly held by the Company or any Subsidiary or Affiliate) then outstanding. SEC -- means, at any time, the Securities and Exchange Commission or any other federal agency at such time administering the Securities Act. SECURITIES ACT -- means the Securities Act of 1933, as amended. SECURITY -- means "security" as defined in section 2(1 ) of the Securities Act. SENIOR FINANCIAL OFFICER -- means the chief financial officer, the principal accounting officer, the controller or the treasurer of the Company. 24 28 SOP -- means the Company's 1990 Stock Option Plan (as amended, and as may be amended from time to time, to and including November 19, 1993). SUBSIDIARY -- means, at any time, any corporation more than fifty percent (50%) of the total combined voting power of all classes of the voting capital stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or indirectly through any one or more Subsidiaries. TERMINATION DATE -- means May 19, 2002. WARRANTS -- means the Original Warrants and the Additional Warrants. WARRANT CERTIFICATE -- Section 1.1 hereof. 5.2 DIRECTLY OR INDIRECTLY. Where any provision herein refers to action to be taken by any Person, or that such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership in which such Person is a general partner. 5.3 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION. (a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the Sections and the Table of Contents appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Agreement as a whole and not to any particular Section or other subdivision. Unless otherwise specified, references to Sections are to Sections of this Agreement, references to Annexes are to Annexes to this Agreement and references to Exhibits are to Exhibits to this Agreement. (b) CONSTRUCTION. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 5.4 GOVERNING LAW. THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW. 6. MISCELLANEOUS 25 29 6.1 COMMUNICATIONS. (a) METHOD; ADDRESS. All communications hereunder or under the Warrants shall be in writing, shall be hand delivered, deposited into the United States mail (registered or certified mail), postage prepaid, or sent by overnight courier of national or international reputation, and shall be addressed, (i) if to the Company, The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92680 Attention: Chief Executive Officer Facsimile: (714) 258-0730 (with a copy to: Brobeck, Phleger & Harrison LLP 4675 MacArthur Court, Suite 1000 Newport Beach, California 92660 Attention: Frederic A. Randall, Jr., Esq. Facsimile: (714) 752-7535 provided that the failure to provide any such copy shall in no way affect the validity or effectiveness of any communication to the Company for purposes of this Agreement) or at such other address as the Company shall have furnished in writing to all holders of the Warrants at the time outstanding; and (ii) if to any of the holders of the Warrants: (A) if such holders are the Holders, at their respective addresses set forth on Annex 1, and further including any parties referred to on such Annex 1 that are required to receive notices in addition to such holders of the Warrants; and (B) if such holders are not the Holders, at their respective addresses set forth in the register for the registration and transfer of Warrants maintained pursuant to Section 1.2(b) hereof; or to any such party at such other address as such party may designate by notice duly given in accordance with this Section 6.1 to the Company (which other address shall be entered in such register). 26 30 (b) WHEN GIVEN. Any communication so addressed and deposited in the United States mail, postage prepaid, by registered or certified mail (in each case, with return receipt requested) shall be deemed to be received on the third (3rd) succeeding business day after the day of such deposit (not including the date of such deposit). Any notice so addressed and otherwise delivered shall be deemed to be received when actually received at the address of the addressee. 6.2 REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by each Holder at the closing of the issuance of Warrants (except the Warrant Certificates themselves) and (c) financial statements, certificates and other information previously or hereafter furnished to any Holder or any other holder of Warrants, may be reproduced by any holder of Warrants by any photographic, photostatic, microfilm, micro-card, miniature photographic, digital or other similar process and each holder of Warrants may destroy any original document so reproduced. The Company agrees and stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such holder of Warrants in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Nothing in this Section 6.2 shall prohibit the Company or any holder of Warrants from contesting the accuracy of any such reproduction. 6.3 SURVIVAL. All warranties, representations, certifications and covenants made by the Company herein or in any certificate or other instrument delivered by it or on its behalf hereunder shall be considered to have been relied upon by the Holders and shall survive the delivery to the Holders of the Warrants regardless of any investigation made by the Holders or on their behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by the Company hereunder. 6.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. The provisions hereof are intended to be for the benefit of all holders, from time to time, of Warrants, and shall be enforceable by any such holder, whether or not an express assignment to such holder of rights hereunder shall have been made by any successor or assign of any Holder. 6.5 AMENDMENT AND WAIVER. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with and only with the written consent of the Company and 27 31 the Required Warrantholders, provided that no change in, or waiver of performance under, Section 1, Section 2, Section 4 or this Section 6.5 (or any definition used in connection with any of such sections) shall be effected without the written consent of all holders of Warrants. 6.6 RIGHT OF ACTION. All rights of action in respect of the Warrants are vested in the respective registered holders of the Warrant Certificates or, in lieu thereof, the beneficial owner thereof (to the extent such beneficial owner is a party to this Agreement or disclosed to the Company in writing), and any registered holder or beneficial owner (to the extent such beneficial owner is a party to this Agreement or disclosed to the Company in writing) of any Warrant Certificate, without the consent of the holder of any other Warrant Certificate, may, in its own behalf and for its own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, its right to exercise the Warrants evidenced by such Warrant Certificate in the manner provided in such Warrant Certificate and in this Agreement. 6.7 EXPENSES. The Company will promptly (and in any event within thirty (30) days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating hereto, including, but not limited to: (a) the cost of reproducing this Agreement and the Warrants; (b) the fees and disbursements of the special counsel to the Holders; (c) the cost of delivering to the home office or custodian bank of each Holder, insured to such party's satisfaction, the Warrant Certificates acquired by such party on the Effective Date; and (d) all fees, expenses, costs and disbursements (including, without limitation, the reasonable fees and the disbursements of the attorneys, accountants and other expert, legal and financial advisers of each holder of Warrant Certificates) relating to (i) the consideration, evaluation, analysis, assessment, negotiation, preparation and/or execution of any amendments, waivers or consents pursuant to the provisions hereof, whether in the ordinary course of performance hereof or in connection with any controversy or potential controversy hereunder or resulting from any work-out, restructuring or other similar proceedings relating to such performance and whether or not any such amendments, waivers or consents are executed or otherwise consummated and/or (ii) the enforcement of the rights of such holder hereunder. 6.8 FILINGS. 28 32 The Company shall, at its own expense, promptly execute and deliver, or cause to be executed and delivered, to any holder of Warrants all applications, certificates, instruments, registration statements, and all other documents and papers that such holder of Warrants may reasonably request in connection with the obtaining of any consent, approval, registration, qualification, or authorization of any federal, state or local government (or any agency or commission thereof) necessary or appropriate in connection with, or for the effective exercise of, any Warrants then held by such holder. 6.9 ENTIRE AGREEMENT. This Agreement constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. 6.10 TERM. All unexercised Warrants will be void and not exercisable after 5:00 p.m. (Los Angeles, California time) on the Termination Date and the Warrant Certificates in respect thereof shall after such time be deemed cancelled for all purposes of this Agreement. Shares of Common Stock issuable upon the exercise of a Warrant shall be issued after the Termination Date if such Warrant is exercised, as provided in Section 2.1, on or prior to 5:00 p.m. (Los Angeles, California time) on the Termination Date. 6.11 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART. Two or more duplicate originals hereof may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; NEXT PAGE IS SIGNATURE PAGE.] 29 33 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered by one of its duly authorized officers or representatives. THE CERPLEX GROUP, INC. By ------------------------------- Name: Robert W. Heigh Title: WELLS FARGO BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By ------------------------------- Name: Michael Ho Title: Vice President BHF-BANK AKTIENGESELLSCHAFT, AS A LENDER By ------------------------------- Name: Dana L. McDougall Title: Vice President By ------------------------------- Name: Paul Travers Title: Vice President CITIBANK, N.A. By ------------------------------- Name: Bradley I. Deitz Title: Vice President S-1 Amended and Restated Warrant Agreement 34 ANNEX 1 INFORMATION AS TO HOLDERS
================================================================================= HOLDER NAME WELLS FARGO BANK, NATIONAL ASSOCIATION - --------------------------------------------------------------------------------- Name in which to register Wells Fargo Bank, National Association Warrant Certificate(s) - --------------------------------------------------------------------------------- Warrant Certificate WR-[8]; registration numbers; Number of Warrants 218,750 Warrants - --------------------------------------------------------------------------------- Address for notices Wells Fargo Bank, National Association Attention: Facsimile: =================================================================================
Annex 1-1 35
====================================================================== HOLDER NAME BHF-BANK AKTIENGESELLSCHAFT - ---------------------------------------------------------------------- Name in which to register BHF-Bank Aktiengesellschaft Note(s) - ---------------------------------------------------------------------- Warrant Certificate WR-[9] registration numbers; Number of Warrants 218,750 Warrants - ---------------------------------------------------------------------- Address for notices BHF-Bank Aktiengesellschaft Attention: Facsimile: ======================================================================
Annex 1-2 36
====================================================================== HOLDER NAME CITIBANK, N.A. - ---------------------------------------------------------------------- Name in which to register Citibank, N.A. Note(s) - ---------------------------------------------------------------------- Warrant Certificate WR-[10] registration number; 437,500 Warrants Number of Warrants - ---------------------------------------------------------------------- Address for notices Citibank, N.A. Attention: Facsimile: ======================================================================
Annex 1-3 37 EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN ANY TRANSACTION UNLESS FIRST REGISTERED UNDER SUCH LAWS OR UNLESS SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE HOLDER OF THIS WARRANT CERTIFICATE IS A BANK FOR PURPOSES OF THAT CERTAIN REGISTRATION RIGHTS AGREEMENT, DATED NOVEMBER 19, 1993, AS AMENDED, AMONG THE CERPLEX GROUP, INC. AND THE OTHER PARTIES THERETO. WARRANT CERTIFICATE THE CERPLEX GROUP, INC. No. WR-________ ___________ Warrants Date: _____________ PPN: ___________________ This WARRANT CERTIFICATE certifies that ______________________, or registered assigns; is the registered holder of ____________________ (___________) Warrants. Each Warrant entitles the owner thereof to purchase, at any time on or after the Effective Date (as such term is defined in the Warrant Agreement referred to below) and prior to 5:00 p.m. (Los Angeles, California time) on the Termination Date (as such term is defined in the Warrant Agreement referred to below), one fully paid and nonassessable share of Common Stock (as such term is defined in the Warrant Agreement referred to below) of THE CERPLEX GROUP, INC., a Delaware corporation (the "COMPANY"), at an initial purchase price of Fifty-Nine and Three Eighths Cents ($0.59375) per share of Common Stock (the "PURCHASE PRICE") upon (i) presentation and surrender of this Warrant Certificate with a form of election to purchase duly executed and (ii) satisfaction of the Purchase Price in the manner set forth in the Warrant Agreement. The number of shares of Common Stock that may be purchased upon exercise of each Warrant, and the Purchase Price, are the number and the Purchase Price as of the date hereof and are subject to adjustment under certain circumstances as provided in the Warrant Agreement referred to below. The Warrants are issued pursuant to the Warrant Agreement, dated as of April 15, 1996, as amended and restated as of April 9, 1997 (as further amended from time to time, the "WARRANT AGREEMENT"), among the Company and certain initial holders named therein, and are subject to all of the terms, provisions and conditions thereof, which Exhibit A-1 38 Warrant Agreement is hereby incorporated herein by reference and made a part hereof and to which Warrant Agreement reference is hereby made for a full description of the rights, obligations, duties and immunities of the Company and the holders of the Warrant Certificates. Capitalized terms used, but not defined, herein have the meanings assigned to then, in the Warrant Agreement. This Warrant Certificate shall be exercisable, at the election of the holder, either as an entirety or in part from time to time. If this Warrant Certificate shall be exercised in part, the holder shall be entitled to receive, upon surrender hereof, another Warrant Certificate or Warrant Certificates for the number of Warrants not exercised. This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the office of the Company referred to in Section 1.2(b) of the Warrant Agreement, may be exchanged for another Warrant Certificate or Warrant Certificates of like tenor evidencing Warrants entitling the holder to purchase a like aggregate number of shares of Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant Certificates surrendered shall have entitled such holder to purchase. Except as expressly set forth in the Warrant Agreement, no holder of this Warrant Certificate shall be entitled to any right to vote or receive dividends or be deemed for any purpose the holder of shares of Common Stock or of any other Securities of the Company that may at any time be issued upon the exercise hereof, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a holder of a share of Common Stock in the Company or any right to vote upon any matter submitted to holders of shares of Common Stock at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of Securities, change of par value, consolidation, merger, conveyance, or otherwise) or, except as provided in the Warrant Agreement, to receive notice of meetings, or to receive dividends or subscription rights, or otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate shall have been exercised as provided in the Warrant Agreement. Other than with respect to the original issuance of the Warrants pursuant to the Warrant Agreement, if the Warrant Certificate of the immediate transferor of the holder of this Warrant Certificate bore the second paragraph of the legend set forth above, this Warrant Certificate shall also bear such second paragraph. THIS WARRANT CERTIFICATE AND THE WARRANT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW. Exhibit A-2 39 WITNESS the signature of a proper officer of the Company as of the date first above written. THE CERPLEX GROUP, INC., By ____________________________ Name: Title: ATTEST: - ---------------------------- [Assistant] Secretary Exhibit A-3 40 [FORM OF ASSIGNMENT] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE) FOR VALUE RECEIVED, ___________________________________ hereby sells, assigns and transfers unto _______________________________________________________________________________ (Please print name and address of transferee.) the accompanying Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint: _______________________________________________________________________________ attorney in fact, to transfer the accompanying Warrant Certificate on the books of the Company, with full power of substitution. Dated: _______________, _______. ________________________________ By _____________________________ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the accompanying Warrant Certificate or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. Exhibit A-4 41 [FORM OF ELECTION TO PURCHASE] (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO EXERCISE ANY WARRANTS REPRESENTED BY THE WARRANT CERTIFICATE) To THE CERPLEX GROUP, INC.: The undersigned hereby irrevocably elects to exercise ___________________ Warrants represented by the accompanying Warrant Certificate to purchase the shares of Common Stock issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of: _______________________________________________________________________________ (Please print name and address.) _______________________________________________________________________________ (Please insert social security or other identifying number.) If such number of Warrants shall not be all the Warrants evidenced by the accompanying Warrant Certificate, a new Warrant Certificate for the balance remaining of such Warrants shall be registered in the name of and delivered to: _______________________________________________________________________________ (Please print name and address.) _______________________________________________________________________________ (Please insert social security or other identifying number.) Dated: ________________, ____. _____________________________ By __________________________ NOTICE The signature to the foregoing Election to Purchase must correspond to the name as written upon the face of the accompanying Warrant Certificate or any prior assignment thereof in every particular, without alteration or enlargement or any change whatsoever. Exhibit A-5 42 EXHIBIT B DETERMINATION OF FAIR MARKET SHARE PRICE. (a) Within two (2) days of the happening of any event requiring a determination of the Fair Market Share Price, the Company shall give written notice thereof to each holder of Warrants (which notice shall contain a description of such event). (b) Within ten (10) days of the happening of each event requiring a determination of the Fair Market Share Price, each of the Required Warrantholders (as a group) and the Company shall designate an Appraiser for purposes of determining the Fair Market Share Price and shall notify the other party or parties of such designation (provided that, if the Company and such holders so agree, they may jointly designate a single Appraiser, in which event the determination of the Fair Market Share Price of the single Appraiser so jointly designated shall be binding upon both the Company and the holders of Warrants for the purposes of the determination of the Fair Market Share Price hereunder). Each Appraiser will take such evidence, make such investigations and examine such documents as it shall in its discretion determine to be necessary and advisable to make a determination with respect to the Fair Market Share Price. A detailed report from each Appraiser setting forth such Appraiser's determination with respect to the Fair Market Share Price shall be delivered to the Company and to each of the holders of Warrants as soon as possible following such determination and, in any event, not later than thirty (30) days following the happening of the event requiring determination of the Fair Market Share Price. (c) If either: (i) the Company or such holders shall fail, neglect or refuse to designate an Appraiser within the time period set forth in clause (b) above; or (ii) either of the two Appraisers so designated shall fail to deliver its detailed report within the time period set forth in said clause (b); then, in each such case, the determination of the Fair Market Share Price of the single Appraiser actually designated or the single Appraiser actually delivering its detailed report, as the case may be, shall be binding upon both the Company and the holders of Warrants for the purposes of the determination of the Fair Market Share Price hereunder. (d) If the determinations of the Fair Market Share Price by both such Appraisers do not differ by more than fifteen percent (15%) of the lower of the two determinations, then the Fair Market Share Price shall be the arithmetic average of those two determinations. Exhibit B-1 43 (e) If the determinations of the Fair Market Share Price by both such Appraisers differ by more than fifteen percent (15%) of the lower of the two determinations, then the parties shall promptly direct the two Appraisers to consult with one another for the purpose of jointly designating a third Appraiser, which designation shall be made not later than ten (10) days following the delivery of the determinations pursuant to clause (b) above. The third Appraiser shall review the first two appraisals and shall make an independent determination with respect to the Fair Market Share Price. (i) In the event that the third Appraiser's determination is equal to or greater than the greater determination made by the first two Appraisers, the Fair Market Share Price shall equal the higher of the determinations of the first two Appraisers. (ii) In the event that the third Appraiser's determination is equal to or less than the lesser determination made by the first two Appraisers, the Fair Market Share Price shall equal the lesser of the determinations of the first two Appraisers. (iii) In the event that the third Appraiser's determination is between those of the first two Appraisers, the Fair Market Share Price shall equal the arithmetic average of the determinations of all three Appraisers. A detailed report from the third Appraiser setting forth such Appraiser's determination with respect to the Fair Market Share Price shall be delivered to the Company and to each of the holders of Warrants as soon as possible following such determination and, in any event, not later than thirty (30) days following the earlier of (A) the delivery of the reports referred to in clause (b) above, and (B) the first date upon which such reports are due to be delivered pursuant to clause (b) above. (f) The Company agrees to cooperate with each Appraiser to the full extent necessary to permit determination of the Fair Market Share Price. (g) All fees and expenses incurred in connection with the foregoing determination of the Fair Market Share Price (including any and all fees and expenses of each Appraiser) shall be borne by the Company. Any determination made in accordance with this definition shall be effective for a period of ninety (90) days immediately following such determination, unless there has been a material development in the business of the Company and the Subsidiaries, in which case there shall be a redetermination in accordance with the provisions of this Exhibit. Exhibit B-2 44 EXHIBIT C CONFIDENTIALITY With respect to all data and information that has been or in the future is furnished to or obtained by any holder of Warrant Certificates in connection with this Agreement (excluding, in any case, any such data and information that was or is available to the public or was not or is not treated as confidential by any one or more of the Company, the Subsidiaries or the Affiliates), such holder will hold such data and information in confidence in accordance with the customary practices and standards of confidentiality generally employed by such holder in respect of similar data and information obtained in connection with other comparable investment transactions of such holder. Notwithstanding the foregoing, any such holder may disclose any data and information furnished to or obtained by it in connection with this Agreement: (a) the disclosure of which is, in such holder's sole good faith business and/or legal judgment, reasonably required in connection with regulatory requirements (including, without limitation, the requirements of the National Association of Insurance Commissioners but excluding, in any case, delivery of periodic financial statements and information to the National Association of Insurance Commissioners, the Securities Valuation Office thereof or any other agency thereof in connection with the rating, evaluation or other regulatory treatment of the Warrants or the Notes) or other legal requirements related to such holder's affairs, including, without limitation, the disclosure of such data and information in connection with or in response to (i) compliance with any law, ordinance or governmental order, regulation, rule, policy, subpoena, investigation or request, or (ii) any order, decree, judgment, subpoena, notice of discovery or similar ruling, or pleading issued, filed, served or purported on its face to be issued, filed or served (A) by or under authority of any court, tribunal, arbitration board or any governmental agency, commission, authority, board or similar entity or (B) in connection with any proceeding (including, without limitation, any proceeding to enforce the obligations of the Company under this Agreement), cause or matter pending (or on its face purported to be pending) before any court, tribunal, arbitration board or any governmental agency, commission, authority, board or similar entity; (b) to any one or more of the employees, officers, directors, agents, attorneys, accountants, professional consultants or trustees of such holder (or of any subsidiary or affiliate of such holder) who would have access to such data and information in the normal course of the performance of such Person's duties for such holder (or for such subsidiary or affiliate); (c) to Moody's Investors Service, Inc., Standard & Poor's Corporation or any other nationally recognized financial rating service that is reviewing the credit rating of any holder of Warrant Certificates or is rating or reviewing the Exhibit C-1 45 rating of the Warrants or the Common Stock issuable upon the exercise thereof; and (d) to any prospective purchaser, securities broker or dealer or investment banker in connection with the resale or proposed resale, in accordance with the terms hereof, of all or any portion of the Warrants or Common Stock issuable upon the exercise thereof by such holder. In connection with any disclosure by any holder of Warrant Certificates under clause (a) above, such holder will use reasonable efforts to notify the Company of any such pending disclosure, provided that (x) such holder shall in no case be liable to the Company for its failure to effect such notification, (y) the failure to effect such notification shall not affect the ability of such holder to make the disclosures contemplated under said clause (a) and (z) this sentence shall not apply to the delivery of periodic financial statements and information to the National Association of Insurance Commissioners, the Securities Valuation Office thereof or any other agency thereof in connection with the rating, evaluation or other regulatory treatment of the Warrants or the Notes. In connection with any disclosure by any holder of Warrant Certificates under clause (d) above, such holder will use reasonable efforts to cause any prospective purchaser, securities broker or dealer or investment banker referred to in said clause (d) to enter into a written confidentiality agreement with the Company containing terms of confidentiality substantially similar to the terms of confidentiality set forth in this Exhibit prior to effecting such disclosure, provided that (yy) such holder shall in no case be liable to the Company if such prospective purchaser, securities broker or dealer or investment banker shall for any reason not enter into any such confidentiality agreement with the Company and (zz) the failure of such prospective purchaser, securities broker or dealer or investment banker to enter into any such confidentiality agreement with the Company shall not affect the ability of such holder to make the disclosures contemplated under said clause (d). No holder of Warrant Certificates will be liable for the breach of the provisions of this Exhibit or of any provision in any aforesaid confidentiality agreement by any other holder of Warrant Certificates or by any Person to which any confidential data or information shall be delivered in accordance with the provisions of this Exhibit C. Exhibit C-2 EX-10.31 10 EXTENSION AND FORBEARANCE AGREEMENT 1 EXHIBIT 10.31 EXECUTION COPY THE CERPLEX GROUP, INC. EXTENSION AND FORBEARANCE AGREEMENT This EXTENSION AND FORBEARANCE AGREEMENT (this "Agreement") is dated as of March 31, 1997 and entered into by and among THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO BANK NATIONAL ASSOCIATION, as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of Section 4 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A. (collectively, "GUARANTORS"), and is made with reference to that certain Credit Agreement dated as of October 12, 1994, as amended by that certain First Amendment to Credit Agreement and Limited Waiver dated as of April 15, 1996 and that certain Second Amendment to Credit Agreement and Limited Waiver dated as of November 30, 1996 (the "CREDIT AGREEMENT"), by and among Company, Lenders Administrative Agent and Guarantors. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Commitment Termination Date with respect to the Loans outstanding under the Credit Agreement is March 31, 1997; and WHEREAS, Company and Lenders have entered into negotiations to restructure certain of the Loans outstanding under the Credit Agreement; and WHEREAS, Company and Lenders desire to enter into this Agreement in order to provide time to determine whether or not the parties are able to reach an agreement with respect to the terms of such a restructure; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. EXTENSION Lenders hereby agree to extend the Commitment Termination Date under the Credit Agreement to and including the earlier of (i) the date on which any agreement by the parties to the Note Purchase Agreement waiving all defaults under the Note Purchase Agreement expires or is terminated and (ii) April 9, 1997 (the period from the date hereof to 1 2 the earlier of the dates referred to in clause (i) and (ii) being referred to herein as the "EXTENSION PERIOD"). During the Extension Period, the Credit Agreement shall remain in full force and effect in accordance with its terms except that no Loans shall be extended to Company. The agreement of Lenders set forth herein is not, and should not be construed to be, a commitment to further extend the Commitment Termination Date or to restructure any of the obligations under the Credit Agreement. Company hereby acknowledges that any restructuring is subject to the negotiation, execution and delivery of definitive agreements, in each case satisfactory to all Lenders, Administrative Agent and their respective counsel. Company hereby further acknowledges that no Lender may enter into any agreement relating to a restructuring of Company's obligations under the Credit Agreement and the other Loan Documents unless it obtains all necessary approvals required under its internal credit approval policies and procedures. No statements made by any representative of any Lender of Administrative Agent shall be construed as a commitment of, and no such statement shall bind, any Lender or Administrative Agent. Only a fully approved, signed and delivered agreement shall constitute or be deemed to constitute a binding agreement. Moreover, no agreement relating to any restructuring issue shall create a binding obligation until an agreement is reached on all such issues and reduced to a fully approved, executed and delivered written contract. Company has informed Administrative Agent that as of March 31, 1997 Company will be in default under subsection 7.6 of the Credit Agreement (the "EXISTING DEFAULTS"). Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of Company herein contained, Lenders hereby agree to forbear from the exercise of remedies that are or may be available under the Credit Agreement and the other Loan Documents by reason of the occurrence and continuation of such Defaults during the Extension Period. The agreement of Lenders set forth herein shall not in any manner limit or impair any rights or remedies that Lenders may have (i) at the expiration of the Extension Period or (ii) with respect to any Defaults or Events of Default (other than the Existing Defaults) during the Extension Period. SECTION 2. CONDITIONS TO EFFECTIVENESS This Agreement shall become effective as of the date hereof only upon the satisfaction of all of the following conditions precedent: A. Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following: (i) Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Agreement, certified as of the date 2 3 hereof by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (ii) Signature and incumbency certificates of its officers executing this Agreement dated as of the date hereof; and (iii) Duly executed Allonges extending the maturity date of the Notes. B. Company and all Lenders shall have delivered (including by facsimile transmission) originally executed copies of this Agreement to Administrative Agent. C. Lenders and their respective counsel shall have received originally executed copies of one or more favorable written opinions of Brobeck, Phleger & Harrison, counsel for Company, dated March 31, 1997, in form and substance reasonably satisfactory to Administrative Agent and its counsel as to such matters as Administrative Agent acting on behalf of Lenders may reasonably request. D. Administrative Agent, on behalf of Lenders, shall have received duly executed copies of an agreement, in form and substance satisfactory to Lenders, waiving all defaults under the Note Purchase Agreement until April 9, 1997. SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Agreement. B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Agreement have been duly authorized by all necessary corporate action on the part of Company. C. NO CONFLICT. The execution and delivery by Company of this Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. 3 4 D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Agreement has been duly executed and delivered by Company and is the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 4. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Collateral Documents, in each case as amended through the date hereof, pursuant to which Company has created Liens in favor of Administrative Agent on certain Collateral to secure the Obligations. Guarantors are a party to the Guaranty and the Subsidiary Collateral Documents, in each case as amended through the date hereof, pursuant to which each Guarantor has (i) guarantied the Obligations and (ii) created Liens in favor of Administrative Agent on certain Collateral to secure the obligations of such Grantor under the Guaranty. Company and Guarantors are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Guaranty, the Company Collateral Documents and the Subsidiary Collateral Documents are collective referred to herein as the "CREDIT SUPPORT DOCUMENTS". Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including, without limitation, the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Credit Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable. SECTION 5. MISCELLANEOUS A. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 4 5 B. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. C. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE CERPLEX GROUP, INC. By: _________________________________________ Title: ______________________________________ CERTECH TECHNOLOGY, INC. (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ CERPLEX MASS., INC., (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ CERPLEX LIMITED (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ APEX COMPUTER COMPANY (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ 6 7 CERPLEX SUBSIDIARY, INC. (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ PERIPHERAL COMPUTER SUPPORT, INC. (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ MODCOMP/CERPLEX L.P. (for purposes of Section 4 only) as a Credit Support Party By: Cerplex Subsidiary, Inc., as general partner By: _________________________________________ Title: ______________________________________ MODCOMP JOINT VENTURE, INC. (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ MODULAR COMPUTER SERVICES, INC.(for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ 7 8 MODULAR COMPUTER SYSTEM GMBH (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ MODCOMP FRANCE S.A. (for purposes of Section 4 only) as a Credit Support Party By: _________________________________________ Title: ______________________________________ WELLS FARGO BANK, NATIONAL ASSOCIATION, Individually and as Administrative Agent By: _________________________________________ Title: ______________________________________ SUMITOMO BANK OF CALIFORNIA, as a Lender By: _________________________________________ Title: ______________________________________ BHF-BANK AKTIENGESELLSCHAFT, as a Lender By: _________________________________________ Title: ______________________________________ 8 9 COMMERCIAL BANK CALIFORNIA, as a Lender By: _________________________________________ Title: ______________________________________ 9 EX-10.32 11 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.32 EXECUTION COPY THE CERPLEX GROUP, INC. SECOND AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER This SECOND AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this "AMENDMENT") is dated as of November 30, 1996 and entered into by and among THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO BANK, NATIONAL BANK, as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of Section 5 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A. (collectively, "GUARANTORS"), and is made with reference to that certain Credit Agreement dated as of October 12, 1994, as amended by that certain First Amendment to Credit Agreement and Limited Waiver dated as of April 15, 1996, (the "CREDIT AGREEMENT"), by and among Company, Lenders, Administrative Agent and Guarantors. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lenders executed a Limited Waiver dated as of October 31, 1996 pursuant to which Lenders waived compliance with a number of provisions of the Credit Agreement through November 30, 1996; and WHEREAS, Company and Lenders now wish to amend the Credit Agreement in certain respects; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 1 2 SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT SECTION 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS. A. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the definitions of "BORROWING BASE", "BORROWING BASE CERTIFICATE", "CONSOLIDATED NET INCOME FROM NORTH AMERICAN AND MODCOMP OPERATIONS", "CONSOLIDATED EBITDA", "CONSOLIDATED FIXED CHARGES", "CONSOLIDATED RENTAL PAYMENTS", "CONSOLIDATED TOTAL FUNDED DEBT", "ELIGIBLE ACCOUNTS RECEIVABLE", and "SCHEDULED COMMITMENT REDUCTIONS" contained therein. B. Subsection 1.1 of the Credit Agreement is hereby further amended by adding the following definitions in the appropriate alphabetical order: "'CONSOLIDATED NET INCOME FROM NORTH AMERICAN AND CORPORATE OPERATIONS' means the sum of (i) the net income (or loss) of Company and its Domestic Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP and (ii) Corporate Overhead; provided that there shall be excluded (a) the income (or loss) of any Person (other than a Domestic Subsidiary of Company) in which any other Person (other than Company or any of its Domestic Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Domestic Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Domestic Subsidiary of Company or is merged into or consolidated with Company or any of its Domestic Subsidiaries or that Person's assets are acquired by Company or any of its Domestic Subsidiaries, (c) the income of any Domestic Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary and (d) (to the extent not included in clauses (a) through (c) above) any net extraordinary gains or net non-cash extraordinary losses." "'CONSOLIDATED TOTAL LIABILITIES' means, as at any date of determination, the total liabilities of Company and its Subsidiaries on a consolidated basis in conformity with GAAP." "'SECOND AMENDMENT EFFECTIVE DATE' means November 30, 1996." C. Subsection 1.1 of the Credit Agreement is hereby further amended by deleting the reference to subsection 2.4B(iii)(f) contained in the definition of "NET 2 3 PROCEEDS AMOUNT" contained therein and substituting a reference to "subsection 2.4B(iii)(k) therefor. SECTION 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS. A. Subsection 2.4A of the Credit Agreement is hereby amended to read in its entirety as follows: "A. SCHEDULED REDUCTIONS OF COMMITMENTS. The Commitments shall be permanently reduced on the dates and in the amounts set forth below:
SCHEDULED REDUCTION COMMITMENTS AFTER DATE OF COMMITMENTS SCHEDULED REDUCTION ---- ------------------- ------------------- September 30, 1996 $1,000,000 $47,000,000 December 31, 1996 2,000,000 45,000,000 March 28, 1997 2,000,000 43,000,000
; provided that the scheduled reductions of the Commitments set forth above shall be reduced in connection with any voluntary or mandatory reductions of the Commitments in accordance with subsection 2.4B(iv)." B. Subsection 2.4B(iii)(a) of the Credit Agreement is hereby amended to read in its entirety as follows: "(a) Prepayments and Reductions From Net Asset Sale Proceeds. No later than the first Business Day following the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale (other than any Asset Sale described in clauses (d) through (i)), Company shall prepay the Loans and/or the Commitments shall be permanently reduced in an aggregate amount equal to 66-2/3% of such Net Asset Sale Proceeds." C. Subsection 2.4B(iii) of the Credit Agreement is hereby amended by (i) renumbering subsection 2.4B(iii)(e) as 2.4B(iii)(j), subsection 2.4B(iii)(f) as 2.4B(iii)(k), and subsection 2.4B(iii)(g) as 2.4B(iii)(l) and (ii) adding new subsections 2.4B(iii)(e), 2.4B(iii)(f), 2.4B(iii)(g), 2.4B(iii)(h) and 2.4B(iii)(i) thereto as follows: "(e) Prepayments from the Sale of Modcomp. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from any Asset Sale relating to Modcomp or its Subsidiaries, Company shall prepay the Loans and/or the Commitments shall be permanently reduced, in an aggregate amount equal to the correlative 3 4 amounts set forth below for the period during which Company receives such Net Asset Sale Proceeds:
LENDER SHARE PERIOD OF PROCEEDS ------------ Second Amendment Effective Date through December 31, 1996 50% January 1, 1997 through January 31, 1997 55% February 1, 1997 through February 28, 1997 60% March 1, 1997 through March 31, 1997 65%
"(f) Prepayments from the Sale of On Command Video Stock. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from (i) the sale of the stock of On Command Video or (ii) the sale of its claim in the bankruptcy of Spectravision, Company shall prepay the Loans, and/or the Commitments shall be permanently reduced, (i) in an aggregate amount equal to 50% of such Net Asset Sale Proceeds if the date of receipt of such Net Asset Sale Proceeds is on or before December 31, 1996 or (ii) in an aggregate amount equal to 65% of such Net Asset Sale Proceeds if the date of receipt of such Net Asset Sale Proceeds is after December 31, 1996. "(g) Prepayments from the Sale of End-of-Life Inventory. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from the sale of any end-of-life Inventory of Company or its Subsidiaries, Company shall prepay the Loans, and/or the Commitments shall be permanently reduced, (i) in an aggregate amount equal to 50% of such Net Asset Sale Proceeds if the date of receipt of such Net Asset Sale Proceeds is on or before January 31, 1997 or (ii) in an aggregate amount equal to 65% of such Net Asset Sale Proceeds if the date of receipt of such Net Asset Sale Proceeds is after January 31, 1997. "(h) Prepayments from the Sale of Texas Operations. On the Second Amendment Effective Date, Company shall prepay the Loans, and/or the Commitments shall be permanently reduced, in an amount equal to the greater of (i) $175,000 and (ii) 50% of the Net Asset Sale Proceeds received by Company or any of its Subsidiaries from the sale of the Inventory and equipment of Company's Texas operations. "(i) Prepayments from Royalties. On or before December 10, 1996, Company shall prepay the Loans, and/or the Commitments shall 4 5 be permanently reduced, in an amount equal to the royalties payable by Cerplex SAS to Company and accrued through September 30, 1996. On the tenth day after the end of each fiscal quarter of Company, Company shall prepay the Loans, and/or the Commitment shall be permanently reduced, in an amount equal to the royalties payable by Cerplex SAS to Company and accrued during such fiscal quarter." SECTION 1.3 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS. A. Subsection 6.1(xxi) of the Credit Agreement is hereby amended to read in its entirety as follows: (xxi) Monthly Financials: as soon as available and in any event prior to December 10, 1996 with respect to the month ended October 31, 1996 and within 30 days after the end of each month thereafter, commencing with the month ended November 30, 1996, the consolidated balance sheet of Company and its Subsidiaries as at the end of such month, the related consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such month, and an income statement for such month showing the results of operations for each division of Company and its Subsidiaries, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; and" B. Subsection 6.11 of the Credit Agreement is hereby amended by amending the second sentence thereof to read in its entirety as follows: "Company shall use its best efforts to obtain and deliver to Administrative Agent landlord waivers, in form and substance satisfactory to Administrative Agent, with respect to any real property leases or subleases entered into or acquired by Company or any of its Subsidiaries after the date hereof; provided, however, Company shall not be required to obtain landlord waivers with respect to (i) property, other than property that constitutes the principal place of business of Company or any of its Subsidiaries, that is (a) located in a jurisdiction the laws of which do not create a statutory lien in favor of a landlord on the personal property of a tenant and (b) subject to a lease that does not create a contractual lien in favor of the landlord on the personal property of the tenant, and (ii) any property that Company and Requisite Lenders agree is not significant in terms of its size, its significance to the operations of Company and its Subsidiaries or the value of the Collateral located on such property." C. Section 6 of the Credit Agreement is hereby amended by adding the following as new subsection 6.16 thereof: 5 6 "6.16 NEW LEADERSHIP Company shall (i) hire a new chief executive officer or (ii) retain a management consultant to serve as interim chief executive officer no later than the earlier of March 31, 1997 or no later than 30 days following the occurrence of any Event of Default after November 30, 1996." SECTION 1.4 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS. A. Subsection 7.1(iv) of the Credit Agreement is hereby amended to read in its entirety as follows: "[intentionally omitted]" B. Subsection 7.6 of the Credit Agreement is hereby amended to read in its entirety as follows: "7.6 FINANCIAL COVENANTS. "A. LIQUIDITY RATIO. Company shall not permit the ratio of (i) Consolidated Current Assets as of the last day of any fiscal quarter of Company to (ii) Consolidated Current Liabilities as of such day to be less than 0.78:1.00. "B. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Company shall not permit Consolidated Tangible Net Worth at any time to be less than $3,150,000. "C. MINIMUM PROFITABILITY. Company shall not permit Consolidated Net Income for the fiscal quarter of Company ending December 31, 1996 to be less than ($6,000,000). "D. MINIMUM PROFITABILITY FROM NORTH AMERICAN AND CORPORATE OPERATIONS. Company shall not permit Consolidated Net Income From North American and Corporate Operations for the fiscal quarter of Company ending December 31, 1996 to be less than ($8,200,000). "E. MAXIMUM RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. Company shall not permit the ratio of (i) Consolidated Total Liabilities as of the last day of any fiscal quarter of Company to (ii) Consolidated Tangible Net Worth as of such day to be greater than 32.25:1.00. "F. MINIMUM RATIO OF ACCOUNTS RECEIVABLE TO LOANS. Company shall not permit the ratio of (i) the sum of (a) the aggregate amount of all Accounts Receivable of Company and its Subsidiaries as of the last day of any fiscal quarter of Company and (b) the book value as defined by GAAP of all Inventory of 6 7 Company and its Subsidiaries as of such day to (ii) the aggregate principal amount of all outstanding Loans as of such day to be less the 0.88:1.00." SECTION 1.5 AMENDMENTS TO SECTION 10: MISCELLANEOUS A. Subsection 10.6 of the Credit Agreement is hereby amended by (i) deleting the word "or" immediately prior to clause (xiv) thereof and adding the following immediately after the phrase "subsection 10.6" contained therein: "; or (xv) changes in any manner the provisions contained in subsection 7.7 with respect to any proposed acquisition by purchase or otherwise of all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person" SECTION 1.6 AMENDMENTS TO EXHIBITS AND SCHEDULES. A. Exhibit V of the Credit Agreement is hereby deleted and Exhibit I hereto substituted therefor. B. Exhibit XVII of the Credit Agreement is hereby deleted. SECTION 2. LIMITED WAIVER Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of Company herein contained, Lenders hereby waive compliance with the provisions of: (a) subsection 6.11 of the Credit Agreement with respect to the real property leases and subleases of Company and its Subsidiaries set forth on Schedule 1 hereto for the period from and including November 30, 1996 to and including January 31, 1997; (b) subsection 8.2(i) of the Credit Agreement with respect to the failure of Company to pay the promissory note payable to Lucent Technology, Inc. for the period from and including November 30, 1996 to and including March 31, 1997; (c) subsection 8.2(ii) of the Credit Agreement with respect to the failure of Company to comply with Sections 6.3 and 6.4 of the Note Purchase Agreement for the period from and including November 30, 1996 to and including December 9, 1996; and (d) subsection 8.5 of the Credit Agreement with respect to the failure of Company to comply with subsection 6.11 of the Credit Agreement for the period from and including November 30, 1996 to and including January 31, 1997. 7 8 SECTION 3. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective as of November 30, 1996 only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "SECOND AMENDMENT DATE"): A. Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following: 1. Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of Delaware, each dated a recent date prior to the Second Amendment Date; 2. Copies of its Bylaws, certified as of November 30, 1996 by its corporate secretary or an assistant secretary; 3. Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of November 30, 1996 by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4. Signature and incumbency certificates of its officers executing this Amendment dated as of November 30, 1996; and 5. Executed copies of this Amendment. B. Lenders and their respective counsel shall have received originally executed copies of one or more favorable written opinions of Brobeck, Phleger & Harrison, counsel for Company, in form and substance reasonably satisfactory to Administrative Agent and its counsel, dated as of the Second Amendment Date and setting forth substantially the matters in the opinions designated in Exhibit II to this Amendment and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request. C. On or before the Second Amendment Date, Administrative Agent, on behalf of Lenders, shall have received an amount equal to the greater of (i) $175,000 and (ii) 50% of the Net Asset Sale Proceeds from the sale of the Inventory and equipment of Company's Texas operations pursuant to Section 2.4B(iii)(h) of the Credit Agreement. D. On or before the Second Amendment Date, Administrative Agent, on behalf of Lenders, shall have received duly executed copies of a letter amending that certain Waiver and Amendment Agreement dated as of October 31, 1996 by and between Company and the parties to the Note Purchase Agreement, in form and substance 8 9 satisfactory to Lenders to extend the waiver of Sections 6.3 and 6.4 of the Note Purchase Agreement contained therein until December 9, 1996. E. On or before the Second Amendment Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company, as the case may be. C. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 9 10 E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. Except as set forth on Schedule 4F attached hereto, the representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of November 30, 1996 to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 5. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Collateral Documents, in each case as amended through the Second Amendment Date, pursuant to which Company has created Liens in favor of Administrative Agent on certain Collateral to secure the Obligations. Guarantors are a party to the Guaranty and the Subsidiary Collateral Documents, in each case as amended through the Second Amendment Date, pursuant to which each Guarantor has (i) guarantied the Obligations and (ii) created Liens in favor of Administrative Agent on certain Collateral to secure the obligations of such Guarantor under the Guaranty. Company and Guarantors are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Guaranty, the Company Collateral Documents and the Subsidiary Collateral Documents are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including, without limitation, the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. 10 11 Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of November 30, 1996 to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 6. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. 1. On and after November 30, 1996, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. 2. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 3. Without limiting the generality of the provisions of subsection 10.6 of the Credit Agreement, the waiver set forth above shall be limited precisely as written and relates solely to the noncompliance by Company with the provisions of subsections 2.4B(iii), 6.11, 8.2(i), 8.2(ii) and 8.5 of the Credit Agreement in the manner and to the extent described above. Nothing in this Waiver shall be deemed to: (i) constitute a waiver of compliance by Company with respect to (i) subsections 2.4B(iii), 6.11, 8.2(i), 8.2(ii) or 8.5 of the Credit Agreement in any 11 12 other instance or (ii) any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or (ii) prejudice any right or remedy that Administrative Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Waiver) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 12 13 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE CERPLEX GROUP, INC. By: ---------------------------------------- Title: ------------------------------------- CERTECH TECHNOLOGY, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- CERPLEX MASS., INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- CERPLEX LIMITED (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- APEX COMPUTER COMPANY (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- Second Amendment to Credit Agreement S-1 14 CERPLEX SUBSIDIARY, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- PERIPHERAL COMPUTER SUPPORT, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- MODCOMP/CERPLEX L.P. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- MODCOMP JOINT VENTURE, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- MODULAR COMPUTER SERVICES, INC. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- Second Amendment to Credit Agreement S-2 15 MODULAR COMPUTER SYSTEMS GMBH (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- MODCOMP FRANCE S.A. (for purposes of Section 5 only) as a Credit Support Party By: ---------------------------------------- Title: ------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By: ---------------------------------------- Title: ------------------------------------- SUMITOMO BANK OF CALIFORNIA, AS A LENDER By: ---------------------------------------- Title: ------------------------------------- BHF-BANK AKTIENGESELLSCHAFT, AS A LENDER By: ---------------------------------------- Title: ------------------------------------- By: ---------------------------------------- Title: ------------------------------------- Second Amendment to Credit Agreement S-3 16 COMERICA BANK- CALIFORNIA, AS A LENDER By: ---------------------------------------- Title: ------------------------------------- Second Amendment to Credit Agreement S-4 EX-10.33 12 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.33 THE CERPLEX GROUP, INC. THIRD AMENDMENT TO CREDIT AGREEMENT This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of April 9, 1997 and entered into by and among THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO BANK, NATIONAL BANK, as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of Section 7 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A. (collectively, "GUARANTORS"), and is made with reference to that certain Credit Agreement dated as of October 12, 1994, as amended by that certain First Amendment to Credit Agreement and Limited Waiver dated as of April 15, 1996 and that certain Second Amendment to Credit Agreement and Limited Waiver dated as of November 30, 1996 (the "CREDIT AGREEMENT"), by and among Company, Lenders, Administrative Agent and Guarantors. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT SECTION 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS. A. Subsection 1.1 of the Credit Agreement is hereby amended by amending the definition of "ACCEPTABLE CONTROL PERSON," "BUSINESS DAY," "COMMITMENT TERMINATION DATE," "COMPANY COLLATERAL DOCUMENTS," "CONSOLIDATED CURRENT LIABILITIES," "CONSOLIDATED TANGIBLE NET WORTH," "LETTER OF CREDIT," "LOAN DOCUMENTS," "NET PROCEEDS AMOUNT," "NET SECURITIES PROCEEDS," "NOTES," "OBLIGATIONS" and "REQUISITE LENDERS" contained therein to read in their entirety as follows: 1 2 "`ACCEPTABLE CONTROL PERSON' means any entity identified in Schedule 1.1 annexed hereto, any individual identified in Schedule 1.1 annexed hereto, any spouse, issue or adopted children or other relative of any such individual and any trust for the exclusive benefit of any such individual or his or her spouse, issue or adopted children or other relatives; provided, in the case of any such trust, that the existing beneficiaries or trustee(s) and/or grantor(s) of such trust have the power to act with respect to the trust's assets without court approval." "`BUSINESS DAY' means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of California or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close." "`COMMITMENT TERMINATION DATE' means May 1, 1998." "`COMPANY COLLATERAL DOCUMENTS' means the Company Pledge Agreement, the Company Security Agreement and the Charge." "`CONSOLIDATED CURRENT LIABILITIES' means, as at any date of determination, the total liabilities of Company and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, including, without limitation, the aggregate principal amount of all outstanding Revolving Loans as of such date." "`CONSOLIDATED TANGIBLE NET WORTH' means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) of Company and its Subsidiaries plus all Subordinated Indebtedness less (i) the aggregate amount of all treasury stock, (ii) Consolidated Intangible Assets, and (iii) the aggregate amount of all obligations owing to Company or any of its Subsidiaries from any stockholder, employee or Affiliate of Company or any of its Subsidiaries, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP." "`LETTER OF CREDIT' means any letter of credit issued for the account of Company pursuant to this Agreement prior to the Third Amendment Effective Date." "`LOAN DOCUMENTS' means this Agreement, the Notes, the Guaranty and the Collateral Documents." "`NET PROCEEDS AMOUNT' has the meaning assigned to that term in subsection 2.4A(iii)(i)." "`NET SECURITIES PROCEEDS' has the meaning assigned to that term in subsection 2.4A(iii)(b)." 2 3 "`NOTES' means one or more of the Term Notes, Revolving Notes or any combination thereof." "`OBLIGATIONS' means all obligations of every nature of Company or any other Loan Party from time to time owed to Administrative Agent, Lenders or any of them under any of the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise." "`REQUISITE LENDERS' means two or more Lenders having or holding 51% or more of the sum of (i) the aggregate Term Loan Exposure of all Lenders plus (ii) the aggregate Revolving Loan Exposure of all Lenders." B. Subsection 1.1 of the Credit Agreement is hereby amended by adding the following definitions in appropriate alphabetical order: "`APPLIED AMOUNT' has the meaning assigned to that term in subsection 2.4A(iv)(b)." "`BORROWING BASE' means an amount equal to 75% of Eligible Accounts." "`BORROWING BASE CERTIFICATE' means a certificate substantially in the form of Exhibit XVII annexed hereto delivered to Administrative Agent and Lenders by Company pursuant to subsection 6.1(xxii), with appropriate insertions, and all related reports and supporting documentation as reasonably requested by Lenders." "`CONSOLIDATED ACCOUNTS RECEIVABLE' means, as at any date of determination, all Accounts Receivable of Company and its Subsidiaries as of such date as determined in accordance with GAAP." "`CONSOLIDATED INVENTORY' means, as at any date of determination, the value (calculated as the lower of cost or market) of all Inventory of Company and its Subsidiaries as of such date as determined in accordance with GAAP." "`ELIGIBLE ACCOUNTS RECEIVABLE' means, as at any date of determination, all Accounts Receivable of Company and any of its Subsidiaries (other than PCS) other than any Account Receivable: (i) which does not represent a bona fide sale or lease and delivery of goods of or rendition of services by Company in the ordinary course of Company's business, or which is not for a liquidated amount payable by the account debtor thereon on the terms set forth in the invoice therefor; (ii) which is (a) not owed by an account debtor whose principal place of business and chief executive office is located in the United States of 3 4 America, (b) not payable in the United States of America or (c) not payable in Dollars; (iii) which represents a progress billing; (iv) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, repurchase or return basis; (v) which is evidenced by a promissory note or other instrument or by chattel paper; (vi) which is due no more than 30 days from the transaction date and with respect to which more than 60 days have elapsed since the original due date therefor or, if earlier, 180 days have elapsed since the date of the original invoice therefor; (vii) which is due more than 30 days from the transaction date and with respect to which more than 30 days have elapsed since the original due date therefor or, if earlier, 180 days have elapsed since the date of the original invoice therefor; (viii) which is not evidenced by an invoice rendered to the account debtor; (ix) owed by an account debtor which is a director, officer, employee, Affiliate or stockholder of Company or any of its Subsidiaries; (x) if the aggregate dollar amount of all Accounts Receivable owed by the account debtor thereon exceeds 25% of the aggregate amount of all Accounts Receivable at such time, but only to the extent of such excess; (xi) which is owed by an account debtor which, at the time of any determination of Eligible Accounts Receivable, owes any amount with respect to any Account Receivable that has been outstanding more than 60 days since the original due date therefor or 180 days since the date of the original invoice therefor, other than amounts which in total do not exceed (a) 50% of the aggregate of all Accounts Receivable owing by any such account debt set forth on Schedule 1.2 annexed hereto or (b) 20% of the aggregate of all Accounts Receivable owing by any other such account debtor; (xii) which is owed by the government of the United States of America, any department, agency, public corporation, or state, municipality, or other political subdivision thereof; 4 5 (xiii) as to which either the perfection, enforceability, or validity of the security interest in such Account Receivable, or Administrative Agent's right or ability to obtain direct payment to Administrative Agent of the proceeds of such Account Receivable, is governed by any federal, state, or local statutory requirements other than those of the Uniform Commercial Code; (xiv) with respect to which, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; (xv) which is owed by an account debtor to which Company is indebted in any way unless the account debtor has entered into an agreement acceptable to Administrative Agent in its commercially reasonable judgment to waive setoff rights; or if the account debtor thereon has disputed liability, asserted a right of setoff or made any claim with respect to such Account Receivable; but in each such case only to the extent of such indebtedness, setoff, dispute or claim; (xvi) as to which any one or more of the following events has occurred with respect to the account debtor on such Account Receivable: death or judicial declaration of incompetency of an account debtor who is an individual; the filing by or against the account debtor of a request or petition in a proceeding that is then pending for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States of America, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the account debtor for the benefit of creditors in a proceeding that is then pending; the appointment of a receiver or trustee for the account debtor or for any of the assets of the account debtor, including the appointment of or taking possession by a "custodian," as defined in the Bankruptcy Code in a proceeding that is then pending; the institution by or against the account debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States of America or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the account debtor in a proceeding that is then pending; the nonpayment generally by the account debtor of its debts as they become due; or the cessation of the business of the account debtor as a going concern; (xvii) if Administrative Agent believes in its commercially reasonable judgment that the prospect of collection of such Account Receivable is impaired or that the Account Receivable may not be paid by reason of the account debtor's financial inability to pay; 5 6 (xviii) on which Administrative Agent does not have a first priority lien; and (xix) which represents a rebilling of an account debtor for a discount or other adjustment inappropriately applied to an Account Receivable by such account debtor." "`PCS' means Peripheral Computer Support, Inc." "`REVOLVING LOAN COMMITMENT' means the commitment of a Lender to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and "REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate." "`REVOLVING LOAN EXPOSURE' means, with respect to any Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the aggregate outstanding principal amount of the Revolving Loans of that Lender." "`REVOLVING LOANS' means the Loans made by Lenders to Company pursuant to subsection 2.1A(ii)." "`REVOLVING NOTES' means (i) the promissory notes of Company issued pursuant to subsection 2.1D(ii) on the Third Amendment Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Revolving Loan Commitments and Revolving Loans of any Lenders, in each case substantially in the form of Exhibit IV- B annexed hereto, as they may be amended, supplemented or otherwise modified from time to time." "`TERM LOAN COMMITMENT' means the commitment of a Lender to make a Term Loan to Company pursuant to subsection 2.1A(i), and "TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate." "`TERM LOAN EXPOSURE' means, with respect to any Lender as of any date of determination (i) prior to the funding of the Term Loans, that Lender's Term Loan Commitment and (ii) after the funding of the Term Loans, the outstanding principal amount of the Term Loan of that Lender." "`TERM LOAN MATURITY DATE' means May 1, 1998." "`TERM LOANS' means the Loans made by Lenders to Company pursuant to subsection 2.1A(i)." 6 7 "`TERM NOTES' means (i) the promissory notes of Company issued pursuant to subsection 2.1D(i) on the Third Amendment Effective Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Term Loan Commitments and Term Loans of any Lenders, in each case substantially in the form of Exhibit IV-A annexed hereto, as they may be amended, supplemented or otherwise modified from time to time." "`THIRD AMENDMENT EFFECTIVE DATE' means April 9, 1997." "`TOTAL BANK INDEBTEDNESS' means, as at any date of determination, all Indebtedness of Company and its Subsidiaries owed to Lenders determined on a consolidated basis." C. Subsection 1.1 of the Credit Agreement is hereby amended to delete the definitions of "ADJUSTED EURODOLLAR RATE," "AFFECTED LENDER," "AFFECTED LOANS," "CASH FLOW FROM CORPORATE OVERHEAD," "CASH FLOW FROM NORTH AMERICAN OPERATIONS," "COLLATERAL ACCOUNT AGREEMENT," "COMMERCIAL LETTER OF CREDIT," "CORPORATE OVERHEAD," "EURODOLLAR RATE LOANS," "INTEREST PAYMENT DATE," "INTEREST PERIOD," "ISSUING LENDER," "LETTER OF CREDIT USAGE," "LOAN EXPOSURE," "NOTICE OF ISSUANCE OF LETTER OF CREDIT," "PAST DUE ACCOUNTS RECEIVABLE," "STANDBY LETTER OF CREDIT" and "TOTAL UTILIZATION OF COMMITMENTS" contained therein. SECTION 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS. A. Subsection 2.1A of the Credit Agreement is hereby amended to read in its entirety as follows: "A. COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(i) and 2.1A(ii). (i) Term Loans. Each Lender severally agrees to convert Loans outstanding on the Third Amendment Effective Date and the amount of all unreimbursed drawings under letters of credit issued hereunder prior to the Third Amendment Effective Date in an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Lender's Term Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Term Loan Commitments is $38,869,975.02; provided that the Term Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Term Loan Commitments 7 8 pursuant to subsection 10.1B. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Revolving Loans. Each Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Third Amendment Effective Date to but excluding the Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Commitments to be used for the purposes identified in subsection 2.5A. On the Third Amendment Effective Date, outstanding Loans in the aggregate principal amount of $6,000,000 shall be deemed to be Revolving Loans. The original amount of each Lender's Commitment as of the Third Amendment Effective Date is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Commitments is $6,000,000; provided that the Commitments of Lenders shall be adjusted to give effect to any assignments of the Commitments pursuant to subsection 10.1B; and provided, further that the amount of the Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4A. Each Lender's Commitment shall expire on the Commitment Termination Date and all Loans and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(ii) may be repaid and reborrowed to but excluding the Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Revolving Loans and the Revolving Loan Commitments shall be subject to the limitation that (i) during the period from the Third Amendment Effective Date to and excluding the date of the consummation of the sale of PCS, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect and (ii) thereafter in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the lesser of (a) the Revolving Loan Commitments then in effect and (b) the Borrowing Base then in effect." B. Subsection 2.1B of the Credit Agreement is hereby amended to read in its entirety as follows: "B. BORROWING MECHANICS. Loans made on any Funding Date shall be in an aggregate minimum amount of $25,000 and integral multiples of $25,000 in excess of that amount. Whenever Company desires that Lenders make Loans it shall give Administrative Agent telephonic notice of any proposed 8 9 borrowing under this subsection 2.1B and shall deliver to Administrative Agent by telefacsimile or courier service a Notice of Borrowing no later than 10:00 A.M. (Los Angeles time) at least one Business Day in advance of the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day) and (ii) the amount of Loans requested. Any Notice of Borrowing delivered to Administrative Agent by telefacsimile shall be confirmed by delivery by United States mail of an originally executed Notice of Borrowing to Administrative Agent postmarked the date telephonic notice of such proposed borrowing is given. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing." C. Subsection 2.1C of the Credit Agreement is hereby amended by amending the fourth sentence thereof to read in its entirety as follows: "Upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the case of all Loans), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at the Funding and Payment Office." D. Subsection 2.1D of the Credit Agreement is hereby amended to read in its entirety as follows: "Company shall execute and deliver to each Lender (or to Administrative Agent for that Lender) on the Third Amendment Effective Date (i) a Term Note, substantially in the form of Exhibit IV-A annexed hereto, to evidence that Lender's Term Loan, in the principal amount of that Lender's Term Loan and with other appropriate insertions and (ii) a Revolving 9 10 Note, substantially in the form of Exhibit IV-B annexed hereto, to evidence that Lender's Revolving Loans, in the principal amount of that Lender's Revolving Loan Commitment and with other appropriate insertions." E. Subsection 2.2A of the Credit Agreement is hereby amended to read in its entirety as follows: "A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and 2.7, (i) each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the sum of the Base Rate plus 2.25% per annum and (ii) each Term Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the sum of the Base Rate plus 3.125% per annum." F. Subsection 2.2C of the Credit Agreement is hereby amended to read in its entirety as follows: "C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to the last day of each month, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity)." G. Subsection 2.2D of the Credit Agreement is hereby amended to read in its entirety as follows: "[intentionally omitted]" H. Subsection 2.3A of the Credit Agreement is hereby amended to read in its entirety as follows: "A. COMMITMENT FEES. Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, commitment fees from and including the Third Amendment Effective Date equal to the average of the daily excess of the Revolving Loan Commitments over the aggregate principal amount of Revolving Loans outstanding multiplied by 1.0% per annum. All such commitment fees are to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on each March 31, June 30, September 30 and December 31 of each year, commencing on the first such date to occur after the Third Amendment Effective Date, and on the Commitment Termination Date." I. Subsection 2.3 of the Credit Agreement is hereby amended by adding the following as subsection C thereof: 10 11 "C. RESTRUCTURE FEE. Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, a restructure fee in the amount of $250,000, payable in quarterly installments of $62,500 each on April 11, June 30, September 30 and December 31 of each year, with the first such payment due on April 11, 1997." J. Subsection 2.4 of the Credit Agreement is hereby amended to read in its entirety as follows: "2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS. "A. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN COMMITMENTS. (i) Voluntary Prepayments. Company may, upon not less than one Business Day's prior notice, at any time and from time to time prepay, without penalty, any Loans on any Business Day in whole or in part in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. Company shall give Administrative Agent telephonic notice of any proposed prepayment under this subsection 2.4A(i) and shall confirm such notice by telefacsimile or courier service no later than 10:00 A.M. (Los Angeles time) on the date required. Any notice of proposed prepayment delivered to Administrative Agent by telefacsimile shall be confirmed by delivery by United States mail of an originally executed notice of prepayment postmarked the date telephonic notice of such proposed prepayment is given. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4A(iv). (ii) Voluntary Reductions of Revolving Loan Commitments. Company may, upon not less than five Business Days' prior notice, at any time and from time to time, terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the aggregate principal amount of Revolving Loans outstanding at the time of such proposed termination or reduction; provided that any such partial reduction of the Revolving Loan Commitments shall be in an aggregate minimum amount of $500,000 and integral multiples of $500,000 in excess of that amount. Company shall give Administrative Agent telephonic notice of any proposed Revolving Loan Commitment reduction under this subsection 2.4A(ii) and shall confirm such notice by telefacsimile or courier service 11 12 no later than 10:00 A.M. (Los Angeles time) on the date required. Any notice of proposed Revolving Loan Commitment reduction delivered to Administrative Agent by telefacsimile shall be confirmed by delivery by United States mail of an originally executed notice of Revolving Loan Commitment reduction postmarked the date telephonic notice of such proposed Revolving Loan Commitment reduction is given. Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Loan Commitment of each Lender proportionately to its Pro Rata Share. (iii) Mandatory Prepayments and Mandatory Reductions of Revolving Loan Commitments. The Loans shall be prepaid, and the Revolving Loan Commitments shall be permanently reduced, in the amounts and under the circumstances set forth below, all such prepayments and reductions to be applied as specified in subsection 2.4A(iv). (a) Prepayments and Reductions From Net Asset Sale Proceeds. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale (other than (1) any Asset Sale described in clauses (d) through (f) and (2) the sale of the stock of On Command Video and the sale of end-of-life Inventory), Company shall prepay the Loans and/or the Revolving Loan Commitments shall be permanently reduced in an aggregate amount equal to 66-2/3% of such Net Asset Sale Proceeds. (b) Prepayments and Reductions Due to Issuance of Securities. On the date of receipt by Company of the Cash proceeds (any such proceeds net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, being "NET SECURITIES PROCEEDS") from the issuance of any Securities of Company after the Third Amendment Effective Date, Company shall prepay the Loans, and the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to 25% of such Net Securities Proceeds. Any such mandatory prepayments shall be applied as specified in subsection 2.4A(iv). (c) Prepayments From Cash Flow From Operating Activities. On or before March 1, 1998, Company shall prepay the Loans, and the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to the amount by which 66-2/3% of "Net Cash Provided (Used) by Operating Activities" during such 12 13 period, as set forth on the internally prepared consolidated cash flow statement of Company and its Subsidiaries for the Fiscal Year ending December 31, 1997, exceeds $9,000,000. (d) Prepayments from the Sale of Modcomp. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from any Asset Sale relating to Modcomp or its Subsidiaries, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to (1) 66% of such Net Asset Sale Proceeds in the event the sale occurs prior to September 30, 1997 and (2) 80% of such Net Asset Sale Proceeds in the event the sale occurs on or after September 30, 1997. (e) Prepayments from the Sale of PCS. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from any Asset Sale relating to PCS or its Subsidiaries, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to the greater of (1) $8,000,000 or (2) 62.26% of such Net Asset Sale Proceeds. In addition, on the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from any Asset Sale relating to PCS or its Subsidiaries as a result of a payment from any holdback or reserve established by the purchaser, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to 100% of such Net Asset Sale Proceeds. (f) Prepayment from the Sale of Pen Interconnect Stock. On the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds from the sale of the stock of Pen Interconnect, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an amount equal to 100% of such Net Asset Sale Proceeds. (g) Prepayments from Royalties. On the date of receipt by Company thereof, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an amount equal to 100% of the royalties and dividend payments paid by Cerplex SAS. Such prepayments in respect of such royalty payments shall be in an amount not less than $275,000 each fiscal quarter and shall be made on the earlier of (1) the date any such payment is received by Company and (2) January 31, April 30, July 31 and October 31 of each year and such prepayments in respect of such dividend payments shall be in an amount not less than $400,000 each 13 14 Fiscal Year and shall be made on the earlier of (1) the date any such payment is received by Company and (2) July 31 of each year. (h) Mandatory Prepayments and Termination of Commitments. On the 5th day after the occurrence of a Change in Control, or on any earlier day after the occurrence of a Change in Control if requested by Administrative Agent with the consent of Requisite Lenders, (a) Company shall prepay, subject to subsection 2.6D, all of the outstanding Loans and (b) the Revolving Loan Commitments and the obligation of each Lender to make any Loan shall be terminated as of such date. (i) Calculations of Net Proceeds Amounts; Additional Prepayments and Reductions Based on Subsequent Calculations. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Loan Commitments pursuant to subsections 2.4A(iii)(a)-(f), Company shall deliver to Agent an Officers' Certificate demonstrating the calculation of the amount (the "NET PROCEEDS AMOUNT") of the applicable Net Asset Sale Proceeds, Net Securities Proceeds, or Net Cash Provided (Used) by Operating Activities, as the case may be, that gave rise to such prepayment and/or reduction. In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officers' Certificate, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Revolving Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officers' Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. (j) Prepayments Due to Restrictions on Revolving Loan Commitments. Company shall from time to time prepay the Revolving Loans to the extent necessary to give effect to the limitations set forth in subsection 2.1A(ii). (k) Reductions of Commitments Not Limited to Amount of Loans Outstanding. The amount of any required reduction of the Revolving Loan Commitments pursuant to any provision of this subsection 2.4A(iii) shall not be affected by the fact that the outstanding principal amount of Loans at the time of such reduction is less than the amount of such reduction. (iv) Application of Prepayments and Unscheduled Reduction of Revolving Loan Commitments. 14 15 (a) Application of Voluntary Prepayments by Type of Loans. Any voluntary prepayments pursuant to subsection 2.4A(i) shall be applied as specified by Company in the applicable notice of prepayment; provided that in the event Company fails to specify the Loans to which any prepayment shall be applied, such prepayment shall be applied first to repay outstanding Term Loans to the full extent thereof, and second to repay outstanding Revolving Loans to the full extent thereof. (b) Application of Mandatory Prepayments by Type of Loans. Any amount (the "APPLIED AMOUNT") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to subsections 2.4A(iii)(a)-(d) and (f)-(h) shall be applied first to prepay the Term Loans to the full extent thereof, second, to the extent of any remaining portion of the Applied Amount, to prepay the Revolving Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, and third, to the extent of any remaining portion of the Applied Amount, to further permanently reduce the Revolving Loan Commitments to the full extent thereof. Any Applied Amount required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments pursuant to subsection 2.4A(iii)(e) shall be applied first to prepay the Revolving Loans in the amount of $1,500,000, second to prepay the Term Loans to the full extent thereof, third, to the extent of any remaining portion of the Applied Amount, to prepay the Revolving Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, and fourth, to the extent of any remaining portion of the Applied Amount, to further permanently reduce the Revolving Loan Commitments to the full extent thereof. "B. GENERAL PROVISIONS REGARDING PAYMENTS. (i) Manner and Time of Payment. All payments by Company of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 10:00 A.M. (Los Angeles time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due 15 16 hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payment to Principal and Interest. All payments in respect of the principal amount of any Loan shall, to the extent required by subsection 2.2C, include payment of accrued interest on the principal amount being repaid and all such payments shall, except as otherwise required by subsection 2.2C, be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest payments shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. (iv) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note." K. Subsection 2.6 is hereby amended to read in its entirety as follows: "[intentionally omitted]" L. Subsection 2.9 is hereby amended to read in its entirety as follows: "[intentionally omitted]" 16 17 SECTION 1.3 AMENDMENTS TO SECTION 3: LETTERS OF CREDIT. A. Section 3 of the Credit Agreement is hereby amended to read in its entirety as follows: "[intentionally omitted]" SECTION 1.4 AMENDMENTS TO SECTION 4: CONDITIONS TO LOANS AND LETTERS OF CREDIT. A. Subsection 4.3 is hereby amended to read in its entirety as follows: "[intentionally omitted]" SECTION 1.5 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS. A. Subsection 6.1(i) of the Credit Agreement is hereby amended by deleting the reference to "50 days" contained therein and substituting "42 days" therefor. B. Subsection 6.1(iii) of the Credit Agreement is hereby amended by adding the phrase "and clause (xxi) below" after the phrase "clauses (i) and (ii) above" contained therein. C. Subsection 6.1(xvi) of the Credit Agreement is hereby amended to read in its entirety as follows: "(xvi) Agings. as soon as possible and within 20 days after the end of each month a summary of all Accounts Receivable and a summary of accounts payable agings." D. Subsection 6.1(xxi) of the Credit Agreement is hereby amended to read in its entirety as follows: "(xxi) Monthly Financials: as soon as available and in any event within 30 days after the end of each month, the consolidated balance sheet of Company and its Subsidiaries as at the end of such month, the related consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such month, and an income statement for such month showing the results of operations for each division of Company and its Subsidiaries, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; and" 17 18 E. Subsection 6.1 of the Credit Agreement is hereby further amended by (i) redesignating clause (xxii) thereof as clause (xxiii) thereof; and (ii) adding the following as new clause (xxii) thereof; "(xxii) Borrowing Base Certificates: as soon as available and in any event within 20 days after the last day of each month, a Borrowing Base Certificate dated as of the last day of such month, together with any additional schedules and other information as Administrative Agent may reasonably request; provided, however, that in the event the aggregate principal amount of outstanding Revolving Loans exceeds the Borrowing Base for any two consecutive months, a Borrowing Base Certificate shall be required to be delivered as of the last day of each two-week period within 20 days of the end of such period; and" F. Subsection 6.16 of the Credit Agreement is hereby amended to read in its entirety as follows: "Company shall hire a new chief executive officer no later than May 30, 1997. In addition, Company shall continue to retain the services of a financial advisor, satisfactory to Lenders, through the Commitment Termination Date." G. Section 6 of the Credit Agreement is hereby amended by adding the following as new subsections 6.17 and 6.18 thereof: "6.17 WARRANTS. On or before April 30, 1997, Lenders, Company and the other parties thereto shall enter into a Fifth Amendment to Registration Rights Agreement in form and substance satisfactory to Lenders. On or before May 15, 1997, Company shall file a Post-Effective Amendment to its Registration Statement on Form S-3, or shall file a Registration Statement on Form S-3, with respect to the shares of the common stock of Company underlying the 750,000 warrants issued to Lenders on the Third Amendment Effective Date, and shall use its best efforts to cause such Post-Effective Amendment or Registration Statement to become effective as soon as possible thereafter. On or prior to July 15, 1997, Company shall receive the approval of the stockholders of Company, and shall amend its Certificate of Incorporation, to increase the authorized shares of the common stock of Company from 30,000,000 to 50,000,000 shares. "6.18. POST-CLOSING DELIVERIES. On or before April 30, 1997, Company shall have delivered to Lenders: (i) originally executed copies of one or more favorable written opinions of counsel for each foreign Subsidiary of Company, in form and substance reasonably satisfactory to Administrative Agent and its counsel, 18 19 dated as of a recent date as to such matters as Administrative Agent acting on behalf of Lenders may reasonably request; (ii) originally executed copies of one or more favorable written opinions of Brobeck, Phleger & Harrison LLP, counsel for Company in form and substance reasonably satisfactory to Administrative Agent and its counsel with respect to the perfection of Administrative Agent's security interests; (iii) certified copies of the organizational documents of each of its foreign Subsidiaries, together with a good standing certificate from the jurisdiction of its incorporation, each dated a recent date; and (iv) resolutions of the Board of Directors of each of its foreign Subsidiaries approving and authorizing the execution, delivery, and performance of the Third Amendment to Credit Agreement dated as of April 9, 1997, certified as of a recent date by the corporate secretary or an assistant secretary of such Subsidiary as being in full force and effect without modification or amendment. In addition, Company agrees that, on or before April 30, 1997, Company will execute and deliver all instruments and documents, and take all other actions, that Administrative Agent reasonably requests, in order to perfect and protect any security interest granted or purported to be granted to Lenders pursuant to the Collateral Documents with respect to any Collateral acquired by Company or any of its Domestic Subsidiaries since the Closing Date or as a result of any changes in the location of any such Collateral or in the principal place of business or location of records of Company or any of its Domestic Subsidiaries." 19 20 SECTION 1.6 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS. A. Subsection 7.1(vi) of the Credit Agreement is hereby amended to read in its entirety as follows: "[intentionally omitted]" B. Subsections 7.4(i) and 7.4(vi) of the Credit Agreement are hereby amended to read in their entirety as follows: "[intentionally omitted]" C. Subsection 7.6 of the Credit Agreement is hereby amended to read in its entirety as follows: "7.6 FINANCIAL COVENANTS. "A. LIQUIDITY RATIO. Company shall not permit the ratio of (i) Consolidated Current Assets to (ii) Consolidated Current Liabilities as of the last day of any fiscal quarter of Company set forth below to be less than the correlative amount indicated:
PERIOD MINIMUM LIQUIDITY RATIO ------ ----------------------- Fiscal quarter ended March 31, 1997 0.66:1.00 Fiscal quarter ended June 30, 1997 0.71:1.00 Fiscal quarter ended September 30, 1997 0.69:1.00 Fiscal quarter ended December 31, 1997 0.72:1.00 Fiscal quarter ended March 31, 1998 and thereafter 0.74:1.00
"B. MINIMUM WORKING CAPITAL RATIO. Company shall not permit the ratio of (a) Consolidated Accounts Receivable plus Consolidated Inventory to (b) Total Bank Indebtedness as of the last day of any fiscal quarter of Company set forth below to be less than the correlative amount indicated:
PERIOD MINIMUM WORKING CAPITAL RATIO ------ ----------------------------- Fiscal quarter ended March 31, 1997 0.73:1.00 Fiscal quarter ended June 30, 1997 0.71:1.00 Fiscal quarter ended September 30, 1997 0.71:1.00 Fiscal quarter ended December 31, 1997 0.74:1.00 Fiscal quarter ended March 31, 1998 and thereafter 0.75:1.00
20 21 "C. MAXIMUM LEVERAGE RATIO. Company shall not permit the ratio of Consolidated Total Liabilities as of the last day of any fiscal quarter of Company to Consolidated Tangible Net Worth for the period set forth below then ended to be greater than (i.e., less negative but not positive) the correlative amount indicated:
PERIOD MAXIMUM LEVERAGE RATIO ------ ---------------------- Fiscal quarter ended March 31, 1997 -13.00:1.00 Fiscal quarter ended June 30, 1997 -39.00:1.00 Fiscal quarter ended September 30, 1997 -35.00:1.00 Fiscal quarter ended December 31, 1997 -60.00:1.00 Fiscal quarter ended March 31, 1998 and thereafter -120.00:1.00
"D. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Company shall not permit Consolidated Tangible Net Worth at any time during any period set forth below to be less than the correlative amount indicated plus 100% of any Net Securities Proceeds from the issuance of any Securities of Company after the Third Amendment Effective Date:
MINIMUM CONSOLIDATED TANGIBLE PERIOD NET WORTH ------ --------- March 31, 1997 through June 29, 1997 ($9,566,000) June 30, 1997 through September 29, 1997 ($3,112,000) September 30, 1997 through December 30, 1997 ($3,254,000) December 31, 1997 through March 30, 1998 ($2,013,000) March 31, 1998 and thereafter ($1,113,000)
"E. MINIMUM PROFITABILITY. Company shall not permit Consolidated Net Income (excluding any gain on the sale of PCS) for any period set forth below to be less than the correlative amount indicated:
PERIOD MINIMUM PROFITABILITY ------ --------------------- Fiscal quarter ended March 31, 1997 ($5,537,000) Fiscal quarter ended June 30, 1997 (3,570,000) Fiscal quarter ended September 30, 1997 (641,000) Fiscal quarter ended December 31, 1997 857,000 Fiscal quarter ended March 31, 1998 900,000
"F. MINIMUM PROFITABILITY FROM NORTH AMERICAN AND CORPORATE OPERATIONS. Company shall not permit Consolidated Net Income From North American and Corporate Operations for any period set forth below to be less than the correlative amount indicated: 21 22
PERIOD MINIMUM PROFITABILITY ------ --------------------- Fiscal quarter ended March 31, 1997 ($7,023,000) Fiscal quarter ended June 30, 1997 (4,308,000) Fiscal quarter ended September 30, 1997 (2,128,000) Fiscal quarter ended December 31, 1997 (1,099,000) Fiscal quarter ended March 31, 1998 (900,000)"
D. Subsection 7.8 of the Credit Agreement is hereby amended to read in its entirety as follows: "Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures in an amount exceeding (i) $5,500,000 in the aggregate during the Fiscal Year ending December 31, 1997 or (ii) $750,000 in the aggregate during any fiscal quarter thereafter." SECTION 1.7 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT. A. Subsection 8.1 is hereby amended to read in its entirety as follows: "Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or" B. Subsection 8.3 of the Credit Agreement is hereby amended by inserting the phrase ", 6.1(iii)" after the phrase "2.5" contained therein and by adding the phrase ", 6.17" after the phrase "6.10" contained therein. C. Section 8 of the Credit Agreement is hereby amended by (i) adding the word "or" at the end of subsection 8.13 thereof and (ii) adding the following as new subsection 8.14 thereof: "8.14. Sale of Assets; Repayment of Loans. Company shall fail to consummate the sale of PCS on or prior to April 15, 1997 or to receive cash proceeds on or prior to such date in connection with such sale in an amount equal to at least $12,850,000; or Company shall fail to consummate the sale of the Pen Interconnect stock held by Company on or prior to June 30, 1997; or the sum of (a) the Revolving Loan Commitments and (b) the aggregate principal amount of the Term Loans then outstanding shall exceed $36,500,000 as of December 31, 1997;" 22 23 D. The three paragraphs of the THEN clause following new subsection 8.14 are hereby amended to read in their entirety as follows: "THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans and (b) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of each Lender to make any Loan hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (b) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan hereunder shall thereupon terminate. Notwithstanding anything contained in the preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Lenders having or holding 80% of the aggregate Loan Exposure of all Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of such Lenders and are not intended to benefit Company and do not grant Company the right to require Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met." SECTION 1.8 AMENDMENTS TO SECTION 10: MISCELLANEOUS. A. Subsection 10.6(ix) of the Credit Agreement is hereby amended to read in its entirety as follows: "(ix) changes the payment dates of interest payable hereunder;" B. Subsections 10.6(ii), 10.6(x) and 10.6(xii) of the Credit Agreement are hereby amended to read in their entirety as follows: "[intentionally omitted]" 23 24 SECTION 1.9 AMENDMENTS TO EXHIBITS AND SCHEDULES. A. Schedule 1.1 of the Credit Agreement is hereby deleted and Schedule 1.1 hereto substituted therefor. B. Schedule 1.2 hereto is hereby added as Schedule 1.2 of the Credit Agreement. C. Schedule 2.1 of the Credit Agreement is hereby deleted and Schedule 2.1 hereto substituted therefor. D. Exhibit IV of the Credit Agreement is hereby deleted and Exhibits I-A and I-B hereby substituted therefor. E. Exhibit V of the Credit Agreement is hereby deleted and Exhibit II hereto substituted therefor. F. Exhibit III hereto is hereby added as Exhibit XVII to the Credit Agreement. G. Exhibit VIII of the Credit Agreement is hereby deleted and Exhibit IV hereto substituted therefor. H. Exhibit III of the Credit Agreement is hereby deleted. SECTION 2. CONSENT Lenders hereby consent to (a) the release of their Liens on the assets and capital stock of PCS provided the proposed sale by Company of PCS is consummated or prior to April 15, 1997 and Company receives cash proceeds on or prior to such date in connection with such sale in an amount equal to at least $12,850,000, which proceeds are applied to prepayment of the Loans in accordance with subsection 2.4 and (b) the release of their Liens on the Pen Interconnect stock held by Company provided the proposed sale by Company of such stock is consummated on or prior to June 30, 1997 and Company receives cash proceeds on or prior to such date in connection with such sale in an amount equal to the market price per share of such stock, which proceeds are applied to prepayment of the Loans in accordance with subsection 2.4. Lenders hereby authorize Administrative Agent to take such action as may be necessary to (i) release the Lien of Lenders on the stock and assets of PCS in connection with any such sale of PCS and to release PCS from its obligations under the Subsidiary Guaranty and the Collateral Documents to which PCS is a party and (ii) release the Lien of Lenders on the stock of Pen Interconnect in connection with any such sale of such stock. 24 25 SECTION 3. WAIVER Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of Company herein contained, Lenders hereby waive compliance with the provisions of: (a) subsection 6.11 of the Credit Agreement with respect to the real property leases and subleases of Company and its Subsidiaries set forth on Schedule 3 hereto for the period from and including January 31, 1997 to and including April 30, 1997; (b) subsection 8.2(i) of the Credit Agreement with respect to the failure of Company to pay the promissory note payable to Lucent Technology, Inc. for the period from and including March 31, 1997 to and including May 1, 1998, provided that Company makes no payments in connection with any settlement of the pending dispute with respect to the payment of such note; and (c) subsection 8.5 of the Credit Agreement with respect to the failure of Company to comply with subsection 6.11 of the Credit Agreement for the period from and including January 31, 1997 to and including April 30, 1997. SECTION 4. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT EFFECTIVE DATE"): A. On or before the Third Amendment Effective Date, Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Third Amendment Effective Date: 1. Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of Delaware, each dated a recent date prior to the Third Amendment Effective Date; 2. Copies of its Bylaws, certified as of the Third Amendment Effective Date by its corporate secretary or an assistant secretary; 3. Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment the Pledge Amendment dated as of April 9, 1997 (the "PLEDGE AMENDMENT") and the WARRANT AGREEMENT, certified as of the Third Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 25 26 4. Signature and incumbency certificates of its officers executing this Amendment, the Pledge Amendment and the Warrant Agreement; 5. Executed copies of this Amendment and the Pledge Amendment; and 6. Executed copies of the Notes. B. On or before the Third Amendment Effective Date, Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Third Amendment Effective Date: 1. Certified copies of the organizational documents of each of its Domestic Subsidiaries, together with a good standing certificate from the jurisdiction of its incorporation, each dated a recent date prior to the Third Amendment Effective Date; 2. Resolutions of the Board of Directors of each of its Domestic Subsidiaries approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the Third Amendment Effective Date by the corporate secretary or an assistant secretary of such Subsidiary as being in full force and effect without modification or amendment; 3. Signature and incumbency certificates of the officers of each of its Subsidiaries executing this Amendment; and 4. Executed copies of this Amendment. C. On or before the Third Amendment Effective Date, and in consideration for the concessions made by Lenders in connection with this Third Amendment, Administrative Agent and Lenders shall have received duly executed copies of the Amended and Restated Warrant Agreement, dated as of April 9, 1997, between Company and Lenders (the "WARRANT AGREEMENT"), in form and substance satisfactory to Lenders. On or before the Third Amendment Effective Date, Company shall have issued to Lenders Warrants for 875,000 shares of the common stock, $0.01 par value per share, of Company (the "COMMON STOCK"), in form and substance satisfactory to Lenders, pursuant to the Warrant Agreement with an exercise price per share equal to the market price of a share of the Common Stock on April 4, 1997 in exchange for the 125,000 Warrants currently held by Lenders. D. Lenders and their respective counsel shall have received originally executed copies of one or more favorable written opinions of Brobeck, Phleger & Harrison LLP, counsel for Company, in form and substance reasonably satisfactory to Administrative Agent and its counsel, dated as of the Third Amendment Effective 26 27 Date and setting forth substantially the matters in the opinions designated in Exhibit V to this Amendment and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request. E. On or before the Third Amendment Effective Date, Administrative Agent and Lenders shall have received duly executed copies of the Amended and Restated Note Purchase Agreement, in form and substance satisfactory to Administrative Agent and Lenders. Such Amended and Restated Note Purchase Agreement shall provide, among other things, that interest thereunder shall be payable on February 19 and August 19 of each year. F. On or before the Third Amendment Effective Date, Company shall have delivered to Administrative Agent and Lenders a Borrowing Base Certificate prepared as of March 31, 1997. Such Borrowing Base Certificate shall reflect a Borrowing Base of at least $4,500,000. G. On or before the Third Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. SECTION 5. CONDITIONS SUBSEQUENT On or before April 11, 1997, Administrative Agent, on behalf of Lenders, shall have received the portion of the restructuring fee from Company payable on such date and Administrative Agent shall have received the agent's fee for the period from and including March 31, 1997 to and excluding May 1, 1998. SECTION 6. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly 27 28 authorized by all necessary corporate action on the part of Company, as the case may be. C. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 28 29 SECTION 7. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Collateral Documents, in each case as amended through the Third Amendment Effective Date, pursuant to which Company has created Liens in favor of Administrative Agent on certain Collateral to secure the Obligations. Guarantors are a party to the Guaranty and the Subsidiary Collateral Documents, in each case as amended through the First Amendment Effective Date, pursuant to which each Guarantor has (i) guarantied the Obligations and (ii) created Liens in favor of Administrative Agent on certain Collateral to secure the obligations of such Guarantor under the Guaranty. Company and Guarantors are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Guaranty, the Company Collateral Documents and the Subsidiary Collateral Documents are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including, without limitation, the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Third Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit 29 30 Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 8. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. 1. On and after the Third Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. 2. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 3. Without limiting the generality of the provisions of subsection 10.6 of the Credit Agreement, the waiver set forth above shall be limited precisely as written and relates solely to the noncompliance by Company with the provisions of subsections 6.11, 8.2(i) and 8.5 of the Credit Agreement in the manner and to the extent described above. Nothing in this Waiver shall be deemed to: (i) constitute a waiver of compliance by Company with respect to (i) subsections 6.11, 8.2(i) or 8.5 of the Credit Agreement in any other instance or (ii) any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or (ii) prejudice any right or remedy that Administrative Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to the waiver set forth above) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. 30 31 C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 31 32 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE CERPLEX GROUP, INC. By: ---------------------------------------------- Title: -------------------------------------------- CERTECH TECHNOLOGY, INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- CERPLEX MASS., INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- CERPLEX LIMITED (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- APEX COMPUTER COMPANY (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- S-1 33 CERPLEX SUBSIDIARY, INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- PERIPHERAL COMPUTER SUPPORT, INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- MODCOMP/CERPLEX L.P. (for purposes of Section 7 only) as a Credit Support Party By:Cerplex Subsidiary, Inc., as general partner By: ---------------------------------------------- Title: -------------------------------------------- MODCOMP JOINT VENTURE, INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- MODULAR COMPUTER SERVICES, INC. (for purposes of Section 7 only) as a Credit Support Party By: ---------------------------------------------- Title: -------------------------------------------- S-2 34 MODULAR COMPUTER SYSTEMS GMBH (for purposes of Section 7 only) as a Credit Support Party By: /s/ Manfred Funel ------------------------------------------ Title: --------------------------------------- MODCOMP FRANCE S.A. (for purposes of Section 7 only) as a Credit Support Party By: /s/ Manfred Funel ------------------------------------------ Title: Director General WELLS FARGO BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By: /s/ Michael Ho ------------------------------------------ Title: Vice President BHF-BANK AKTIENGESELLSCHAFT, AS A LENDER By: /s/ Dana L. McDougall ------------------------------------------ Title: Vice President By: /s/ Paul Travers ------------------------------------------ Title: Vice President CITIBANK, N.A., AS A LENDER By: /s/ Bradley L. Deitz ------------------------------------------ Title: Vice President S-3 EX-21.1 13 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE CERPLEX GROUP, INC., ---------------------------------------- a Delaware corporation ("Cerplex") ----------------------------------
JURISDICTION OF ORGANIZATION ---------------------------- ENTITY AND TYPE OF ENTITY OWNERSHIP ------ ------------------ --------- CERTECH Technology, Inc. Texas corporation 100% BY CERPLEX Cerplex Mass., Inc. Massachusetts corporation 100% BY CERPLEX Cerplex Limited England and Wales corporation 100% BY CERPLEX Apex Computer Company Washington corporation 100% BY CERPLEX Cerplex Subsidiary, Inc. ("Cerplex Sub") Delaware corporation 100% BY CERPLEX Peripheral Computer Support, Inc. ("PCS") California corporation 100% BY CERPLEX Modcomp Joint Venture, Inc. ("MJVI") Delaware corporation 100% BY CERPLEX Modcomp/Cerplex L.P. ("Modcomp") Delaware limited partnership 44% BY CERPLEX SUB AND 51% BY MJVI Modular Computer Services, Inc. Florida corporation 100% BY MODCOMP Modcomp Canada Ltd. Canada corporation 100% BY MODCOMP Modcomp France French societe anonyme 100% BY MODCOMP Modcomp C.A. Venezuela corporation 100% BY MODCOMP Cerplex S.A.S. French corporation 100% BY CERPLEX AND CERPLEX LIMITED
EX-23.1 14 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors The Cerplex Group, Inc.: We consent to incorporation by reference in the registration statements (Nos. 33-84946 and 333-18431) on Form S-8 and the registration statement (No. 333-12581) on Form S-3 of The Cerplex Group, Inc. of our report dated February 21, 1997 except as to Notes 12(a), 12(b) and the first and second paragraphs of Note 18 which are as of April 9, 1997 and Note 20 which is as of April 11, 1997, relating to the consolidated balance sheets of The Cerplex Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which reports appear in the December 31, 1996 annual report on Form 10-K of The Cerplex Group, Inc. Our report noted above contains an explanatory paragraph that states that the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," during 1996. KPMG PEAT MARWICK LLP Orange County, California April 15, 1997 EX-27.1 15 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 23,782 0 28,592 (9,053) 17,326 70,474 40,977 (12,938) 105,494 57,600 63,031 0 7,197 51,662 (73,996) 105,494 0 191,493 0 165,248 44,453 4,785 8,269 (25,670) 1,718 (27,388) 0 0 0 (27,388) (2.04) (2.04)
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