-----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, STzCKnhsXc1ZlbcpTXWVqLc20ffmP1kpjA+5WRSNb7gk2DAA7MOyTuV4V6QaG/56 4ByVlC2G1DX5E4MnYvqIhQ== 0000892569-97-002192.txt : 19970813 0000892569-97-002192.hdr.sgml : 19970813 ACCESSION NUMBER: 0000892569-97-002192 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NONE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23602 FILM NUMBER: 97657457 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-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1997 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------- Commission file number 0-23602 ------------------- THE CERPLEX GROUP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0411354 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1382 Bell Avenue, Tustin, CA 92780 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 258-5600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Registrant's Common Stock on July 27, 1997 was 34,217,655. 2 THE CERPLEX GROUP, INC. TABLE OF CONTENTS
Page ---- PART I --- FINANCIAL INFORMATION Condensed Consolidated Balance Sheets.................................. 4 Condensed Consolidated Statements of Operations........................ 5 Condensed Consolidated Statement of Stockholders' Deficiency........... 6 Condensed Consolidated Statements of Cash Flows........................ 7 Notes to Condensed Consolidated Financial Statements................... 8 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 PART II --- OTHER INFORMATION Legal Proceedings...................................................... 19 Changes in Securities.................................................. 19 Defaults Upon Senior Securities........................................ 19 Submission of Matters to a Vote of Security Holders.................... 19 Other Information...................................................... 19 Exhibits and Reports on Form 8-K....................................... 23 SIGNATURE................................................................... 24
2 3 THE CERPLEX GROUP, INC. PART I FINANCIAL INFORMATION 3 4 THE CERPLEX GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (Unaudited)
June 30, December 31, 1997 1996 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 21,788 $ 23,782 Accounts receivable, net 17,023 19,539 Inventories 8,987 17,326 Net assets of discontinued operations -- 1,681 Prepaid expenses and other current assets 5,116 8,146 ------- --------- Total current assets 52,914 70,474 Property, plant and equipment, net 23,836 28,039 Goodwill -- 4,953 Other long-term assets 1,367 2,028 ------- --------- Total assets $ 78,117 $ 105,494 ======= ========= LIABILITIES & STOCKHOLDERS' DEFICIENCY Current liabilities: Notes payable to banks $ 35,897 $ 6,000 Notes payable 4,826 5,026 Accounts payable 15,117 19,498 Accrued and other current liabilities 28,083 25,347 Income taxes payable -- 1,729 ------- --------- Total current liabilities 83,923 57,600 ------- --------- Long-term debt, less current portion 18,114 56,817 Long-term obligations 6,214 6,214 COMMITMENTS AND CONTINGENCIES SUBSEQUENT EVENTS Stockholders' deficiency: Preferred stock, par value $0.001; 3,066,340 shares authorized, none outstanding. 8,000 shares Series B Convertible Preferred Stock of which 657 and 7,197 are issued and outstanding as of June 30, 1997 and December 31, 1996, respectively; aggregate liquidation preference of $1,314 and $14,394 as of June 30, 1997 and December 31, 1996, respectively 657 7,197 Common stock, par value $0.001 per share; 60,000,000 and 30,000,000 shares authorized as of June 30, 1997 and December 31, 1996, respectively; 34,217,655 and 14,110,949 issued and outstanding as of June 30, 1997 and December 31, 1996, respectively 34 14 Additional paid-in capital 58,646 51,648 Notes receivable from stockholders -- (139) Unearned compensation -- (73) Accumulated deficiency (88,774) (74,414) Cumulative translation adjustment (697) 630 ------- --------- Total stockholders' deficiency (30,134) (15,137) ------- --------- Total liabilities and stockholders' deficiency $ 78,117 $ 105,494 ======= =========
See accompanying notes to condensed consolidated financial statements. 4 5 THE CERPLEX GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net sales $ 39,266 $ 51,339 $ 85,606 $ 92,185 Cost of sales 37,465 40,370 76,076 74,285 -------- -------- -------- -------- Gross profit 1,801 10,969 9,530 17,900 Selling, general and administrative expenses 10,993 8,870 20,121 15,860 Restructuring charge 4,307 -- 4,307 -- -------- -------- -------- -------- Operating income (loss) (13,439) 2,099 (14,898) 2,040 Equity in earnings from joint venture -- -- -- 357 Gain on sale of PCS 6,607 -- 6,607 -- Gain on sale of InCirT Division -- 450 -- 450 Other (income) expense, net 422 (288) 998 (221) Interest expense, net 1,709 1,658 3,956 3,169 -------- -------- -------- -------- Income (loss) before income taxes (8,963) 1,179 (13,245) (101) Provision for income taxes 394 477 1,115 770 -------- -------- -------- -------- Net income (loss) $ (9,357) $ 702 $(14,360) $ (871) ======== ======== ======== ======== Net income (loss) per common share $ (0.30) $ 0.05 $ (0.60) $ (0.07) ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding 31,678 14,846 23,742 13,286 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements 5 6 THE CERPLEX GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (in thousands, except share data) (Unaudited)
Convertible Preferred Stock Common Stock Additional Total ---------------- ------------------- Paid-In Accumulated Stockholders' Shares Amount Shares Amount Capital Other Deficiency Deficiency ------ ------- ----------- ------ ---------- ----- ----------- ------------- Balance at December 31, 1996 7,197 $ 7,197 14,110,949 $ 14 $ 51,648 $ 418 $ (74,414) $ (15,137) Stock options exercised -- -- 10,665 -- -- -- -- -- Conversion of Preferred Stock (1,608) (1,608) 2,955,038 3 1,605 -- -- -- Net loss -- -- -- -- -- -- (5,003) (5,003) Amortization of unearned compensation -- -- -- -- -- 18 -- 18 Translation adjustment -- -- -- -- -- (945) -- (945) ------ ------- ---------- ----- -------- ----- --------- ----------- Balance at March 31, 1997 5,589 5,589 17,076,652 17 53,253 (509) (79,417) (21,067) Stock options exercised -- -- 5,887 -- -- -- -- -- Conversion of Preferred Stock (4,932) (4,932) 17,135,116 17 4,915 -- -- -- Net loss -- -- -- -- -- -- (9,357) (9,357) Amortization of unearned compensation -- -- -- -- -- 55 -- 55 Translation adjustment -- -- -- -- -- (382) -- (382) Reduction of notes receivable from shareholder -- -- -- -- -- 139 -- 139 Repricing of Warrants -- -- -- -- 103 -- -- 103 Issuance of Warrants -- -- -- -- 375 -- -- 375 ------ ------- ---------- ----- -------- ----- --------- --------- Balance at June 30, 1997 657 $ 657 34,217,655 $ 34 $ 58,646 $(697) $ (88,774) $ (30,134) ====== ======= ========== ===== ======== ===== ========= =========
See accompanying notes to condensed consolidated financial statements 6 7 THE CERPLEX GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited)
Six Months Ended June 30, --------------------- 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(14,360) $ (871) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4,639 3,878 Amortization of unearned compensation 73 35 Foreign currency transaction (gain) loss (204) 28 Equity in earnings of joint venture -- (357) Distribution of earning of joint venture -- 3,090 Non-cash charges related to restructure 4,307 -- Gain on sale of InCirT Division -- (450) Gain on sale of PCS (6,607) -- Decrease (increase) in: Accounts receivable 356 4,153 Inventories 5,847 (854) Prepaid expenses and other current assets 2,888 6,335 Other long-term assets (747) (1,364) Net assets of discontinued operations 1,681 1,250 Increase (decrease) in: Accounts and notes payable (6,903) 1,854 Accrued and other current liabilities 6,203 (8,605) Income taxes payable (1,708) (549) -------- -------- Net cash provided by (used in) operating activities (4,535) 7,573 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment, net (701) (450) Acquisition of businesses, net of cash acquired* -- 5,147 Proceeds from sale of InCirT Division -- 5,500 Proceeds from sale of PCS 13,750 -- -------- -------- Net cash used in investing activities 13,049 10,197 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred stock -- 7,911 Proceeds from issuance of common stock -- 47 Repricing/issuance of warrants 478 -- Decrease in notes receivable from stockholders 139 (3) Principal payments of long-term debt -- (304) Net payments of borrowings (9,361) (2,000) Other (12) -- -------- -------- Net cash provided by (used in) financing activities (8,756) 5,651 -------- -------- Effect of exchange rate changes on cash (1,752) (22) -------- -------- Net increase (decrease) in cash and cash equivalents (1,994) 23,399 Cash and cash equivalents at beginning of period 23,782 3,807 -------- -------- Cash and cash equivalents at end of period $ 21,788 $ 27,206 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the quarter for: Interest $ 3,555 $ 3,319 ======== ======== Income taxes $ 2,617 $ 25 ======== ======== Acquisition of business* Amount paid $ -- $ (8,977) Cash acquired $ -- 14,124 -------- -------- $ -- $ 5,147 ======== ========
See accompanying notes to condensed consolidated financial statements. 7 8 THE CERPLEX GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- (a) ORGANIZATION, BASIS OF REPORTING 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 and logistics services for a wide range of electronic equipment for the computer and peripheral, telecommunications and office automation markets. The Company's key service offerings are depot repair, logistics services and spare parts management and sales, as well as a variety of ancillary services. 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 June 30, 1997 was $16.8 million. (c) INVENTORIES Inventories are stated at the lower of cost (determined by the weighted-average method) or market. (d) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation for the plant in the United Kingdom 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) OTHER ASSETS Long-term investments are recorded at cost. The Company periodically assesses whether there has been an other than temporary decline in the market value below cost of the 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. Realized gains, realized losses and decline in value, judged to be other than temporary, are included in other income. 8 9 THE CERPLEX GROUP, INC. (f) GOODWILL 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 assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through projected undiscounted future cash flows. The amount of goodwill impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company's average cost of funds. (g) FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries are translated at quarter-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 or loss and are recorded as a separate component of stockholders' deficiency. Gains and losses resulting from foreign currency transactions are included in net income. (h) INCOME TAXES Provisions are made for the amount of income taxes on the reported operations of each year. Tax credits are treated as reductions of the applicable Federal income tax provisions in the years earned. On a quarterly basis, the Company provides for state and foreign income taxes based on an estimate of the effective rate for the entire year. (i) 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. (j) 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 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. In 1997, Financial Accounting Standards No. 128 ("FAS 128") Earnings Per Share was issued. FAS 128 is effective for earnings per share calculations for periods ending after December 15, 1997. At that time the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods, as needed. The effects of this change are not expected to have a material effect on income (loss) per common share. (k) 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. 9 10 THE CERPLEX GROUP, INC. NOTE 2 - BASIS OF PRESENTATION - ------------------------------ In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position as of June 30, 1997 and consolidated statement of operations and statement of cash flows for the six months ended June 30, 1997 and 1996. Results of operations for the three and six months ended June 30, 1997 are not necessarily indicative of results to be expected in the future. Although the Company believes that the disclosures in the accompanying financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and these financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1996. The Company's fiscal year is the 52 or 53 week period ending on the Saturday closest to December 31. For purposes of presentation, the Company has indicated its accounting quarter and year end as June 30 and December 31, respectively. Certain reclassifications have been made to the 1996 consolidated financial statements and the financial statements for the six-month period ended June 30, 1997 to conform to the most recent 1997 presentation. NOTE 3 - CONVERSIONS OF SERIES B PREFERRED 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 and could impact adversely the ability of the Company to consummate an equity financing. The stockholders approved an increase in the Company's authorized Common Stock from 30,000,000 to 60,000,000 shares at the Annual Stockholders' Meeting held on June 10, 1997. NOTE 4 - ACQUISITIONS - --------------------- 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. 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 liabilities 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 #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' current ratio greater than one; and restrictions on guarantees with respect to Cerplex and its subsidiaries (excluding 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 for the six months ended June 30, 1997 were $29.3 million and $3.9 million, respectively. Revenues and income before taxes for the five week period ending June 30, 1996, were $5.3 million and $1.0 million, respectively. 10 11 THE CERPLEX GROUP, INC. In April 1996, the Company acquired the remaining 51% interest in Modcomp/Cerplex L.P. (Modcomp/Cerplex") for $2.8 million. Modcomp/Cerplex is a supplier of real-time computer systems, products and services for the process control industry. As a result of the acquisition of the remaining interest in Modcomp/Cerplex, the Company consolidated the results of operations and financial position of this entity effective April 1, 1996. Prior to April 1, 1996, the Company recorded its 49% interest in Modcomp/Cerplex on 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 #16, Business Combinations, the Company reduced other long-term assets to zero and recorded the remaining amount of $500,000 as negative goodwill, which is being amortized into income over a five year period. Assuming the above acquisitions occurred at the beginning of 1996, the pro forma results of operations of the Company for the six months ended June 30, 1996, would have been as follows:
In Thousands, except per share data Pro Forma ----------------------------------- ---------- Net Sales $ 126,653 Income from continuing operations 323 Net income per share from continuing operations .02
NOTE 5 - SALES OF INCIRT DIVISION AND PCS SUBSIDIARY - ------------------------------------------------------ Effective April 1, 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. The gain on the sale of InCirT Division was $450,000. 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 escrow deposit will be used to pay or reimburse any losses or tax liabilities, as defined in the Purchase Agreement and Tax Allocation Agreement, respectively, or any other amounts incurred by the purchaser or PCS in connection with the sale. Subject to resolution of certain pending tax audit issues with PCS, the Company is entitled to any amounts remaining in the escrow deposit on the first anniversary of the closing date. The gain on the sale of PCS was $6.6 million. NOTE 6 - RESTRUCTURING COSTS - ------------------------------ During the second quarter of 1997, the Company's Board of Directors authorized and committed management to implement a consolidation and cost reduction plan to reduce North America staffing levels by 16%, eliminating 125 positions. As part of the restructure, the Company closed its Poughkeepsie, New York operations, relocating it to the Lawrence, Massachusetts. In addition, the Company plans to consolidate its Redmond, Washington and Tustin, California operations, transferring their service programs to the Company's hub-based operations in northern and southern California, Kentucky, and Massachusetts. As a result of these actions, the Company recorded a restructuring charge of $4.3 million, primarily for severance and termination benefits, lease termination costs and write-down of plant and equipment related to vacated facilities. NOTE 7 - GOODWILL - ------------------- During the second quarter of 1997, the Company wrote-off $1.1 million of goodwill as a result of continued declining sales based at its Leeds, England operation and $3.2 million in connection with the sale of PCS. The Company also wrote-down an additional $0.5 million in goodwill as a result of facility closures. 11 12 THE CERPLEX GROUP, INC. NOTE 8 - SUBSEQUENT EVENTS - -------------------------- On August 11, 1997, the Company entered into an agreement to sell all of the assets of Modcomp/Cerplex L.P. to CSP, Inc. for approximately $8.2 million. The closing of the transaction is subject to the fulfillment of certain closing conditions which the Company believes will be fulfilled by the end of August, 1997. Effective August 6, 1997, the Company entered into the Sixth Amendment to its Senior Credit Agreement, which reduced the maximum amount available under the revolver and changed the lending rate. See Management Discussion and Analysis for further discussion. 12 13 THE CERPLEX GROUP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- 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 under "Item 5. Other Information (a) 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. The results of operations for 1996 and the first quarter of 1997 reflected, 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 approved the consolidation of certain operations, 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, uncollectible receivables and other assets. The financial problems of SpectraVision, Novadyne and other clients resulted in write-offs of receivables and assets by the Company during 1995, 1996 and 1997 of over $16 million, which adversely affected the Company's results of operations. RESULTS OF OPERATIONS - --------------------- The following table sets forth items from the Company's Condensed Consolidated Statements of Operations as a percentage of net sales.
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1997 1996 1997 1996 --------- --------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 95.4 78.6 88.9 80.6 Gross margin 4.6 21.4 11.1 19.4 Selling, general & administrative 27.8 17.3 23.5 17.2 Restructuring charge 11.0 -- 5.0 -- Operating income (loss) (34.2) 4.1 (17.4) 2.2
13 14 THE CERPLEX GROUP, INC. NET SALES Net sales for the three and six month periods ended June 30, 1997 decreased $12.1 million and $6.6 million, respectively, to $39.3 million and $85.6 million, respectively, over the net sales for the corresponding periods of 1996. The decrease in net sales of 23.5% and 7.1% in the three and six month periods of 1997 compared to the corresponding periods of the prior year is primarily attributable to the April 1997 sale of Peripheral Computer Support, Inc. ("PCS") a decrease in net sales in the Company's North American operations, particularly in relation to spare parts sales, the April 1, 1996 sale of the InCirT Division, and the closing of Certech Technology, Inc., the Company's Texas subsidiary. These actions were partially offset by the May 1996 purchase of Cerplex SAS and April 1996 acquisition of the remaining 51% interest in Modcomp/Cerplex. GROSS PROFIT Gross profit as a percentage of net sales for the three and six month periods ended June 30, 1997 were 4.6% and 11.1%, respectively, compared to 21.4% and 19.4% during the corresponding periods of the prior year. The gross profit ratio during the three and six month periods ended June 30, 1997 decreased primarily as a result of a $4.2 million write-down of excess/obsolete inventory, property, plant and equipment and other assets in the second quarter of 1997. In addition, there was a decrease in margins due to inefficiencies due to lower overall sales volumes in the Company's North America depot repair and spare parts businesses. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three and six month periods ended June 30, 1997 increased to 27.8% and 23.5%, respectively, from 17.3% and 17.2% during the corresponding periods of the prior year. The increase in selling, general and administrative expenses as a percentage of net sales is primarily due to the write-down of $600,000 in other assets and plant and equipment resulting from plant consolidations, the write-down of $1.6 million of goodwill, an increase in staffing of information systems personnel and higher legal and consulting expenses related to bank debt restructuring. RESTRUCTURING CHARGES In the second quarter of 1997, the Company recorded a restructuring charge of $4.3 million, primarily for severance and termination benefits, lease termination costs and write-down of plant and equipment. EQUITY IN EARNINGS FROM JOINT VENTURE & OTHER EXPENSES Equity in earnings of joint venture relates to the Company's ownership interest in Modcomp/Cerplex. As discussed in the Company's financial statements, Note 4 - Acquisitions, the Company acquired the remaining 51% of Modcomp/Cerplex effective April 1, 1996. As a result, the Company consolidated the results of operations and financial position of this entity effective April 1, 1996. Prior to April 1, 1996, the Company recorded its 49% interest in Modcomp/Cerplex on the equity method of accounting. On April 11, 1997, the Company sold 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 gain on the sale of PCS was $6.6 million. Effective April 1, 1996, the Company sold its contract manufacturing division in Tustin, California to Pen Interconnect for $3.5 million in cash and approximately $2.0 million in restricted common stock. The gain on the sale of the InCirT Division was $450,000. 14 15 THE CERPLEX GROUP, INC. INTEREST EXPENSE Interest expense for the three and six month periods ended June 30, 1997 increased $51,000 and $787,000 as a result of increased amortization of loan fees, debt discount and warrants, and a higher weighted average interest rate. Average borrowings outstanding were $58.2 million during the six month period ended June 30, 1997, compared to $65.5 million during the six month period ended June 30, 1996. The effective interest rate on credit facilities increased to 10.86% during the six month period ended June 30, 1997, from 9.68% during the six month period ended June 30, 1996. INCOME TAXES Income tax expense for the six months ended June 30, 1997 and 1976, is primarily related to income taxes on earnings of the Company's operations in Europe at an effective tax rate of 34%. The Company has not recorded an income tax benefit related to operating losses in the United States, and, accordingly, a full valuation allowance for deferred tax assets has continued to be maintained due to uncertainties surrounding their realization. 15 16 THE CERPLEX GROUP, INC. 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 (the "Lenders"). During part of 1996 and part of 1997, 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 November 1996, the Company entered into amendments to the Credit Agreement. As compensation for the amendments, the company repriced the 125,000 warrants issued in April 1996 from $6.00 per share to $2.50 per share. In April 1997, the agreement was again amended to provide for borrowings comprising a revolver and a term loan. The revolver had a maximum amount available of $6.0 million. The interest rate on the revolver was the prime lending rate plus 2.25%. The term loan was for $38.9 million and carried 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 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. 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 addition, the warrants issued April 1996 were repriced to an exercise price of $0.60. The April 1997 Credit Agreement included revised covenants for profitability, current ratio, minimum tangible net worth, leverage and working capital. In June 1997, the Company and the Lenders entered into another amendment to the Credit Agreement which eliminated or revised certain covenants. On August 6, 1997, the Credit Agreement was again amended to reduce the maximum amount available under the revolver to $4,886,984. The interest rate on revolving loans outstanding on August 6, 1997 was changed to the prime lending rate plus 2.00% per annum; however, the interest rate for all new revolving loans after August 6, 1997 will be 15%. The term loan was also reduced to $31,371,520 and now carries an interest rate at the prime lending rate plus 3.125%. In the event the Company fails to pay all outstanding obligations under the Credit Agreement by September 30, 1997 the interest rates under the term loan and revolver increase by 1% per month, effective September 1, 1997, for each month which such obligations are not paid in full up to a maximum of 4%. In addition, the mandatory pay down of the term loans and/or the revolving loans with the proceeds of any equity offering has been reduced from 25% to 20%, although the first $1,500,000 of any equity offers must be used to permanently reduce the term loans and/or the revolver. Under the new agreement, $6,000,000 of the net proceeds from the sale of Modcomp shall be used to pay down the term loans, $2,000,000 (or the remainder, whichever is less) of such proceeds shall be applied to the revolver, and one half of the remainder shall again be used to pay down the term loans. Subject to certain limitations, the Company may reborrow up to $2,000,000 of the Modcomp proceeds used to pay down the revolver. The sixth amendment to the Credit Agreement also resulted in revised financial covenants. The sixth amendment to the Credit Agreement is subject to certain post-effective date deliveries which must be supplied on or before August 14, 1997, including, without limitation, the issuance of warrants to the Lenders to purchase 1,235,313 shares of Common Stock at $0.59 per share and the execution of an amendment with the holders of the Company's Senior Subordinated Notes. 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 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. 16 17 THE CERPLEX GROUP, INC. 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. On June 30, 1997, the Company received waivers with respect to various provisions of the Amended and Restated Note Purchase Agreement. Such waivers have been twice extended and presently run through August 14, 1997. The Company is currently negotiating with the subordinated note holders to amend the Amended and Restated Note Purchase Agreement, although there is no assurance that any such agreement will be reached. Failure to reach an agreement will result in a default under the Company's Senior Credit Agreement. 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 acquire 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 Preferred 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 Preferred 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 Preferred Stock based upon the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible. As of June 30, 1997, 7,343 shares of the Series B Preferred Stock had been converted into 20,725,147 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. On August 11, 1997, the Company entered into an agreement to sell all of the assets of Modcomp/Cerplex L.P. to CSP, Inc. for approximately $8.2 million. The closing of the transaction is subject to the fulfillment of certain closing conditions which the Company believes will be fulfilled by the end of August, 1997. Proceeds will be used to repay the term loan and revolver under the Company's Credit Agreement. Although approximately $2,000,000 may be available under the revolver for future borrowings, there can be no assurance that the sale of Modcomp will be consummated in a timely manner, if at all. The Company or its subsidiaries are required to pay BT 1.8 million pounds in 1999 or earlier if certain sales volumes are reached in connection with the purchase of BT's plant in Enfield, England. 17 18 THE CERPLEX GROUP, INC. The Company acquired inventory consisting of used telephones from Lucent Technologies, Inc. ("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. 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 $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 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 was 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 received trade credits for approximately $4.5 million in goods and services. 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 sources for liquidity are cash flow from operations and its ability to reduce working capital requirements and, potentially, are subject to the sale of Modcomp and borrowings under the revolver under the Credit Agreement. The Company's ability to remain in compliance with, and borrow additional funds under the Credit Agreement remain subject to the Company amending its Note Purchase Agreement prior to August 14, 1997, consummating the sale of Modcomp and remaining in compliance with the terms of the Credit Agreement and Note Purchase Agreement. There can be no assurance that the foregoing will occur or that such borrowing capacity and cash flow from operations will be adequate to meet the Company's obligations in the future. 18 19 THE CERPLEX GROUP, INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - -------------------------- Refer to disclosure set forth in Part I, Item 3 (Legal Proceedings) of the Company's Annual Report on Form 10-K for the 1996 fiscal year. ITEM 2. CHANGES IN SECURITIES - ------------------------------ None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- During portions of 1996 and 1997, the Company was in default under its senior Credit Agreement. The Company has renegotiated and amended such agreement to cure such defaults, subject to the Company fulfilling certain conditions subsequent by August 14, 1997. See "Liquidity and Capital Resources" herein for a more detailed discussion. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ At the Company's Annual Meeting of Stockholders held on June 10, 1997 (the "Meeting"), the following matters were submitted and voted on by stockholders and were adopted: A. The approval of an amendment of the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 30,000,000 to 60,000,000 shares.
FOR AGAINST ABSTAIN BROKER NON-VOTE --- ------- ------- --------------- 20,300,026 21,295 0 0
B. The election of Richard C. Davis, Robert Finzi, Jerome Jacobson, Patrick S. Jones, William A. Klein and Myron Kunin as directors of the Company to serve until the next Meeting of Stockholders and until their respective successors have been elected and qualified was carried.
NAME FOR WITHHELD ---- --- -------- Richard C. Davis 20,317,753 3,568 Robert Finzi 20,317,753 3,568 Jerome Jacobson 20,301,126 20,195 Patrick S. Jones 20,317,753 3,568 William A. Klein 20,301,126 20,195 Myron Kunin 20,301,126 20,195
C. The approval of a series of amendments to the Company's Restated 1993 Stock Option Plan (the "1993 Plan"), including without limitation (a) an increase in the number of shares of Common Stock available for issuance under the 1993 Plan by an additional 4,000,000 shares and (b) increases in the number of shares subject to the periodic stock option grants made to non-employee directors pursuant to the Automatic Option Grant Program of such 1993 Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTE --- ------- ------- --------------- 20,300,726 20,595 0 0
D. The ratification of KPMG Peat Marwick LLP as the Company's independent auditor for the current fiscal year.
FOR AGAINST ABSTAIN BROKER NON-VOTE --- ------- ------- --------------- 20,298,430 20,195 2,696 0
ITEM 5. OTHER INFORMATION - -------------------------- (a) 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 differences include, but are not limited to, those discussed below. LOSSES AND ACCUMULATED DEFICIT. For the six month period ended June 30, 1997, the Company reported a net loss of $14.4 million, including an operating loss of $14.9 million. As of June 30, 1997, the Company had an accumulated deficit of $88.8 million. There can be no assurance that the Company will reduce its operating losses or 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. DEPENDENCE ON KEY CUSTOMERS. During 1996, Rank Xerox, IBM, BT and Digital Equipment Corporation accounted for approximately 17%, 12%, 11%, and 4% of revenues, respectively. In the six month period ended June 30, 1997, these customers accounted for approximately 30%, 6%, 10%, and 10% of revenues, respectively. During 1995 and 1996, 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. During the first half of 1997, sales to IBM decreased 68% from the first half of 1996. Sales to BT significantly decreased during 1996 to approximately $21.4 million representing a 36% decrease from 1995. During the first half of 1997, sales to BT decreased 29% from the first half of 1996. 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. 19 20 THE CERPLEX GROUP, INC. 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. The Company's financial condition and limited capital has adversely impacted the Company's relationship with certain customers and may adversely impact its relationship with customers in the future. During portions of 1996 and 1997, the Company was in default under its senior credit agreement and subordinated note agreement. The Company has renegotiated amendments to its senior credit facility and is negotiating amendments to its subordinated note agreement. The terms of the senior credit agreement provide for a limited borrowing base which will be further reduced through May 1998. The Company is required to use a portion of cash generated from operations, and from sales of assets to further reduce its borrowing base under the senior credit agreements. The interest rate payable by the Company has increased significantly and will be subject to significant further increases in the event the Company does not repay the senior credit agreement in full by September 30, 1997. 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. The Company is required to maintain or fulfill certain covenants and obligations in order to maintain its credit facility. No assurance can be given that the Company will be able to fulfill such obligations and covenants or to otherwise 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. In June 1996, the Company issued 8,000 shares of Series B Preferred Stock at $1,000 per share in a private placement. The Series B Preferred 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 Preferred 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 dividend to the holders of Series B Preferred Stock based upon the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible. As of June 30, 1997, 7,343 shares of the Series B Preferred Stock had been converted into approximately 20,725,147 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. 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. 20 21 THE CERPLEX GROUP, INC. RISK OF EXCESS AND UNUSABLE INVENTORY; DECREASED VALUE OF ASSETS. At June 30, 1997, inventory constituted approximately 11% of the Company's assets. Any decrease in the demand for the Company's repair services could result in an additional 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 in the fourth quarter of 1996 and $0.5 million in the second quarter of 1997. 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 entered into an agreement to sell its phone inventory 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. 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. The Company wrote down the value of the trade credits on the Company's financial statements at the end of 1996 to $3 million. 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. 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 original equipment manufacturers ("OEM's") and third party maintainers ("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. 21 22 THE CERPLEX GROUP, INC. EXPANSION OF INTERNATIONAL SALES. During the six months ended June 30, 1997, approximately 64% of the Company's sales were international. 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 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. The Company is no longer permitted under the terms of its credit facility to engage in acquisitions. There can be no assurance that the Company will be able to acquire additional repair programs or complementary businesses in the future 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 and further declined to $9.2 million in 1996. Sales from end-of-life program during 1997 were not material. 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 July 31, 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 3,663,898 shares of Common Stock upon the conversion of Series B Preferred Stock, Richard C. Davis acquired 166,667 shares of Common Stock upon the conversion of Series B Preferred Stock and the Sprout Growth, II L.P. acquired 7,563,333 shares of Common Stock upon the conversion of Series B Preferred Stock. In addition, DLJ Capital Corporation converted 231 shares of Preferred Stock into 770,000 shares of Common Stock. 22 23 THE CERPLEX GROUP, INC. 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. The Company hired a new chief executive officer on July 8, 1997. 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. ITEM 16. EXHIBITS. a) Exhibits.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 2.1 Agreement of Merger dated as of August 30, 1993, Incorporated herein by reference to by and among Cerplex Incorporated, Diversified Exhibit 2.1 to the Company's Manufacturing Services, Inc. ("DMS"), EMServe, Registration Statement on Form S-1 Inc. ("EMServe"), InCirT Technology Incorporated (File No. 33-75004) which was ("InCirT") and Testar, Inc. ("Testar"). declared effective by the Commission on April 8, 1994. 2.2 Agreement and Plan of Merger dated November 12, Incorporated herein by reference to 1993, between The Cerplex Group Subsidiary, Inc. Exhibit 2.2 to the Company's and 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. 2.3 Certificate of Ownership and Merger of Registrant Incorporated herein by reference to with and into The Cerplex Group Subsidiary, Inc. Exhibit 2.2 to the Company's dated as of 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, Incorporated herein by reference to 1993 by and between Certech Technology, Inc., a Exhibit 2.4 to the Company's wholly-owned subsidiary of the Registrant Registration Statement on Form S-1 ("Certech"), and 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, Incorporated herein by reference to 1994, by and among The Cerplex Group, Inc., Exhibit 2 to the Form 8-K filed July Cerplex Limited, BT Repair Services Limited and 29, 1994. BT. 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 29, 1994. Limited and BT. 2.7 Formation and Contribution Agreement effective Incorporated herein by reference to December 1, 1994 by and among Modcomp/Cerplex Exhibit 2.7 to the Company's Annual L.P., Modular Computer Systems, Inc., Cerplex Report on Form 10-K for the fiscal Subsidiary, Inc. and 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 Exhibit 2.8 to the Company's Annual Computer Systems, Inc. Report on Form 10-K for the fiscal year ended January 1, 1995. 2.9 Limited Partnership Agreement of Modcomp/Cerplex Incorporated herein by reference to L.P. 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.
23 24 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------ ----- ---------------- 2.10 Put/Call Option Agreement effective December 1, Incorporated herein by reference to 1994 by and among Cerplex Subsidiary, Inc., The Exhibit 2.8 to the Company's Annual Cerplex Group, Inc., Modular Computer Systems, Report on Form 10-K for the fiscal Inc. and Modcomp Joint Venture Inc. year ended January 1, 1995. 2.11 Stock Purchase Agreement dated as of June 29, 1995 Incorporated herein by reference to by and among The Cerplex Group, Inc., Tu Nguyen Exhibit 2.11 to the Company's and Phuc Le. Quarterly Report on Form 10-Q for the quarter ended October 1, 1995. 2.12 Letter Agreement dated April 5, 1996 by and among Incorporated herein by reference to Modular Computer Systems, Inc., Modcomp Joint Exhibit 2.12 to the Company's Venture, Inc., AEG Aktiengesellschaft, the Annual Report on Form 10-K for the Company, Cerplex Subsidiary, Inc. and fiscal year ended December 31, 1995. Modcomp/Cerplex L.P. 2.13 Stock Purchase Agreement dated as of May 24, Incorporated herein by reference to 1996, by and among The Cerplex Group, Inc., Exhibit 2.13 to the Company's Cerplex Limited, Rank Xerox - The Document Current Report on Form 8-K dated Company SA and Rank Xerox Limited (conformed May 24, 1996. copy to original). 2.14 Contract of Warranty dated as of May 24, 1996, by Incorporated herein by reference to and among The Cerplex Group, Inc., Cerplex Exhibit 2.14 to the Company's Limited, Rank Xerox - The Document Company SA Current Report on Form 8-K dated and Rank Xerox Limited (conformed copy to the May 24, 1996. original). 2.15 Supply and Services Agreement dated as of May 24, Incorporated herein by reference to 1996, by and among The Cerplex Group, Inc., Exhibit 2.15 to the Company's Cerplex Limited, Rank Xerox - The Document Current Report on Form 8-K dated Company SA and Rank Xerox Limited (conformed May 24, 1996. copy to the original). 2.16 Stock Purchase Agreement dated March 28, 1997 Incorporated herein by reference to relating to all of the outstanding stock of Peripheral Exhibit 2.13 to the Company's Computer Support, Inc. among the Company, PCS Annual Report on Form 10-K for the Acquisition Co., Inc., and Lincolnshire Equity fiscal year ended December 31, 1996. Partners, L.P. 2.17 Asset Purchase Agreement dated August 6, 1997 by Filed herein. and among the Company, Cerplex Subsidiary, Inc., Modcomp Joint Venture, Inc., Modcomp/Cerplex L.P. and CSP Inc. 3.1 Restated Certificate of Incorporation of the Incorporated herein by reference to Registrant. Exhibit 3.1 to the Company's Registration Statement on From S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
24 25 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 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. 3.3 Certificate of Amendment of the Restated Certificate Filed herein. of Incorporation of the Registrant (filed June 16, 1997). 4.1 Stock Purchase Agreement dated as of November 19, Incorporated herein by reference to 1993 by and among the Registrant, the stockholders Exhibit 4.1 to the Company's of the Registrant identified in Part A of Schedule I Registration Statement on Form S-1 thereto and the purchasers of shares of the (File No. 33-75004) which was Registrant's Series A Preferred Stock identified in declared effective by the Commission Schedule I thereto (including the Schedules thereto; on April 8, 1994. Exhibits omitted). 4.2 Registration Rights Agreement dated as of November Incorporated herein by reference to 19, 1993, by and among the Registrant, the investors Exhibit 4.2 to the Company's listed on Schedule A thereto and the security holders Registration Statement on Form S-1 of the Registrant listed on Schedule B thereto, (File No. 33-75004) which was together with Amendment No. 1. declared effective by the Commission on April 8, 1994. 4.3 Co-Sale Agreement dated as of November 19, 1993, Incorporated herein by reference to by and among the Registrant, the managers listed on Exhibit 4.3 to the Company's Schedule A thereto and the investors listed on Registration Statement on Form S-1 Schedule B thereto. (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, Incorporated herein by reference to by and among the Registrant and the purchasers Exhibit 4.4 to the Company's listed in Annex 1 thereto. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.5 Placement Agent Warrant Purchase Agreement dated Incorporated herein by reference to as of November 19, 1993, between the Registrant Exhibit 4.5 to the Company's and Donaldson, Lufkin & Jenrette Securities Registration Statement on Form S-1 Corporation. (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.6 Observation Rights Agreement dated as of November Incorporated herein by reference to 19, 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.
25 26 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 4.7 Observation Rights Agreement dated as of November Incorporated herein by reference to 19, 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, Incorporated herein by reference to 1993, by and among the Registrant and The Exhibit 4.8 to the Company's Northwestern Mutual Life Insurance Company, John Registration Statement on Form S-1 Hancock Mutual Life Insurance, Registrant and Bank (File No. 33-75004) which was of Scotland London Nominees Limited. declared effective by the Commission on April 8, 1994. 4.9 Amendment No. 2 to Registration Rights Agreement Incorporated herein by reference to dated as of April 6, 1994, by and among the Exhibit 4.9 to the Company's Registrant and 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 Incorporated herein by reference to of October 27, 1994, by and among the Company, Exhibit 4.10 to the Company's Northwestern Mutual Life Insurance Company, John Annual Report on Form 10-K for the Hancock Mutual Life Insurance Company and North fiscal year ended March 31, 1995. Atlantic Smaller Companies Trust P.L.C. (collectively, the "Noteholders"). 4.11 Waiver and Amendment Agreement dated April 15, Incorporated herein by reference to 1996 by and among Company, The Northwestern Exhibit 4.11 to the Company's Mutual Life Insurance Company, John Hancock Annual Report on Form 10-K for the Mutual Life Insurance Company and North Atlantic fiscal year ended December 31, 1995. Smaller Companies Investment Trust PLC. 4.12 Warrant Agreement dated as of April 15, 1996 by Incorporated herein by reference to and among Company, The Northwestern Mutual Life Exhibit 4.12 to the Company's Insurance Company, John Hancock Mutual Life Annual Report on Form 10-K for the Insurance Company and North Atlantic Smaller fiscal year ended December 31, 1995. Companies Investment Trust PLC. 4.13 First Amendment to Warrant Agreement dated April Incorporated herein by reference to 15, 1996 by and among Company and each of the Exhibit 4.13 to the Company's holders of warrants listed on Schedule A thereto, Annual Report on Form 10-K for the with respect to that certain Warrant Agreement dated fiscal year ended December 31, 1995. November 19, 1993. 4.14 First Amendment to Observation Rights Agreement Incorporated herein by reference to dated as of April 15, 1996 between Company and Exhibit 4.14 to the Company's certain note purchasers. Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
26 27 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 4.15 Third Amendment to Registration Rights Agreement Incorporated herein by reference to dated as of April 15, 1996 by and among Company, Exhibit 4.15 to the Company's the investors of Company listed on Schedule A Annual Report on Form 10-K for the thereto and the security holders of Company listed on fiscal year ended December 31, 1995. Schedule B thereto. 4.16 Warrant Agreement dated April 15, 1996 by and Incorporated herein by reference to among Company, Wells Fargo Bank, National Exhibit 4.16 to the Company's Association, Sumitomo Bank of California, BHF Annual Report on Form 10-K for the Bank Aktiengesellschaft and Comerica Bank- fiscal year ended December 31, 1995. California. 4.17 Stock Purchase Agreement dated June 10, 1996 by Incorporated herein by reference to and among the Company and the investors listed on Exhibit 4.17 to the Company's Schedule A thereto. Quarterly Report on Form 10-Q filed August 14, 1996. 4.18 Fourth Amendment to Registration Rights Agreement Incorporated herein by reference to dated June 10, 1996 by and among Company, the Exhibit 4.18 to the Company's investors listed on Schedule A thereto, the security Quarterly Report on Form 10-Q filed holders of Company listed on Schedule B thereto, the August 14, 1996. banks listed on Schedule C thereto and each of the parties listed on Schedule D thereto. 4.19 Certificate of Designation of Preferences of Series B Incorporated herein by reference to Preferred Stock of The Cerplex Group, Inc. Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q filed August 14, 1996. 4.20 Waiver and Amendment Agreement dated October Incorporated herein by reference to 31, 1996 by and among the company and the Exhibit 4.17 to the Company's Noteholders. Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.21 Waiver and Amendment Agreement dated December Incorporated herein by reference to 9, 1996 by and among the company and the Exhibit 4.18 to the Company's Noteholders. Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.22 Side Letter dated March 28, 1997 by and among the Incorporated herein by reference to Company and the Noteholders. Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.23 Amended and Restated Note Purchase Agreement Incorporated herein by reference to dated April 9, 1997 by and among the Company and Exhibit 4.20 to the Company's the Noteholders. Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.24 Second Amendment to Warrant Agreement dated Incorporated herein by reference to April 9, 1997, by and among the Company and each Exhibit 4.21 to the Company's of the holders of warrants listed on Schedule A Annual Report on Form 10-K for the thereto, which Second Amendment amends the fiscal year ended December 31, 1996. Warrant Agreement dated November 19, 1993 as amended by the First Amendment to Warrant Agreement dated April 15, 1996.
27 28 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 4.25 Second Amendment to Warrant Agreement dated Incorporated herein by reference to April 9, 1997 by and among the Company and each Exhibit 4.22 to the Company's of the holders of warrants listed on Schedule A Annual Report on Form 10-K for the thereto, which Second Amendment amends the fiscal year ended December 31, 1996. Warrant Agreement dated April 15, 1996, as amended by a Waiver and Amendment Agreement dated October 31, 1996. 4.26 Amended and Restated Warrant Agreement dated Incorporated herein by reference to April 9, 1997 by and among the Company; Wells Exhibit 4.23 to the Company's Fargo Bank, National Association; BHF-Bank Annual Report on Form 10-K for the Aktiengesellschaft; and Citibank, N.A. fiscal year ended December 31, 1996. 4.27 Fifth Amendment to Registration Rights Agreement Filed herein. dated as of April 9, 1997 by and among the Company, the investors listed on Schedule A thereto, the security holders of the Company listed on Schedule B thereto, the banks listed on Schedule C thereto, and the parties listed on Schedule D thereto. 4.28 Waiver Agreement dated as of June 30, 1997 among Filed herein. the Company and the Noteholders. 4.29 Side letter dated July 10, 1997 by and among the Filed herein. Company and the Noteholders. 4.30 Side letter dated August 6, 1997 by and among the Filed herein. Company and the Noteholders. 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 Incorporated herein by reference to 1990 Plan. Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 33-75005) which was declared effective by the Commission on April 8, 1994. 10.3 Form of Stock Purchase Agreement pertaining to the Incorporated herein by reference to 1990 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.
28 29 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 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 Incorporated herein by reference to employees) 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 Incorporated herein by reference to and 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. 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 Incorporated herein by reference to (the "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 Incorporated herein by reference to Addenda, 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 Incorporated herein by reference to and between International Business Machines Exhibit 10.11 to the Company's Incorporated ("IBM") and the Registrant, together Registration Statement on Form S-1 with Amendment to Master Agreement and Task (File No. 33-75004) which was Order. declared effective by the Commission on April 8, 1994.
29 30 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 10.12 Master Agreement dated May 6, 1992 by and Incorporated herein by reference to between IBM 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, Incorporated herein by reference to 1993, by and between Novadyne Computer Systems, Exhibit 10.13 to the Company's Inc. ("Novadyne") and Cerplex Incorporated (a Registration Statement on Form S-1 California corporation and a predecessor of the (File No. 33-75004) which was Registrant), together with Amendments Nos. 1 and declared effective by the Commission 2. on April 8, 1994. 10.14 Technology Services Agreement effective December Incorporated herein by reference to 17, 1993, by and between Spectradyne, Inc. Exhibit 10.14 to the Company's ("Spectradyne") and the Registrant. Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 10.15 Repair Services Agreement dated January 1, 1994 by Incorporated herein by reference to and between Bull HN Information Systems, Inc. and Exhibit 10.24 to the Company's the 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 Incorporated herein by reference to between Henry G. Page Jr., and Diversified Exhibit 10.16 to the Company's Manufacturing 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 Incorporated herein by reference to and Cerplex Group, Inc. (a Massachusetts Exhibit 10.17 to the Company's corporation). 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 Exhibit 10.18 to the Company's Kilroy Building 73 Partnership, Cerplex Incorporated Registration Statement on Form S-1 and InCirT, together with Amendment No. 1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
30 31 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 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 Incorporated herein by reference to Novadyne and the Registrant together with Lease Exhibit 10.20 to the Company's Amendment dated July 22, 1991 by and between Registration Statement on Form S-1 McDonnell Douglas Realty Company and Novadyne. (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 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 Registration Statement on Form S-1 ("Cartwright"), together with Addendum and (File No. 33-75004) which was Sublease dated September 6, 1991 by and between declared effective by the Commission Cartwright and the Registrant. on April 8, 1994. 10.23 Sublease dated July 30, 1992 by and between Incorporated herein by reference to Cartwright 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, Exhibit 10.24 to the Company's Inc., as Borrower; the lenders listed therein, as Annual Report on Form 10-K for the Lenders; and Wells Fargo Bank, National fiscal year ended January 1, 1995. Association, as Administrative Agent; and those certain exhibits, schedules and collateral documents to such Credit Agreement. 10.25 Limited Waiver dated as of November 14, 1995 Incorporated herein by reference to ("Waiver") by and among The Cerplex Group, Inc. Exhibit 10.25 to the Company's (the "Company"), the financial institutions listed on Quarterly Report on Form 10-Q for the signature pages thereof ("Lenders"), and Wells the quarter ended October 1, 1995. Fargo Bank, 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 Incorporated herein by reference to Plan (Restated and Amended as of January 13, Exhibit 10.26 to the Company's 1995). Quarterly Report on Form 10-Q for the quarter ended October 1, 1995.
31 32 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 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 Incorporated herein by reference to 15, 1996 by and among Company, the lenders whose Exhibit 10.28 to the Company's signatures appear on the signature pages thereof, as Annual Report on Form 10-K for the Lenders; Wells Fargo Bank, National Association, as fiscal year ended December 31, 1995. Administrative Agent; and the Subsidiaries for certain limited purposes. 10.29 Promissory Noted dated June 21, 1996 payable by Incorporated herein by reference to the 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 Exhibit 10.29 to the Company's Agent, and for certain limited purposes, the Quarterly Report on Form 10-Q for Subsidiaries, Modcomp/Cerplex L.P., Modcomp the quarter ended September 29, Joint Venture, Inc., Modular Computer Services, 1996. 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 Incorporated herein by reference to 31, 1997 by and among the Company, the financial Exhibit 10.31 to the Company's institutions listed on the signature pages thereof and Annual Report on Form 10-K for the Wells Fargo Bank, National Association. fiscal year ended December 31, 1996. 10.32 Second Amendment to Credit Agreement dated Incorporated herein by reference to November 30, 1996 (the "Second Amendment") by Exhibit 10.32 to the Company's and among the Company, the financial institutions Annual Report on Form 10-K for the listed on the signature pages thereof ("Lenders") and fiscal year ended December 31, 1996. 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.
32 33 THE CERPLEX GROUP, INC.
EXHIBIT NUMBER TITLE METHOD OF FILING - ------- ----- ---------------- 10.33 Third Amendment to Credit Agreement dated April Incorporated herein by reference to 9, 1997 (the "Third Amendment") by and among the Exhibit 10.33 to the Company's Company, the financial institutions listed on the Annual Report on Form 10-K for the signature pages thereof ("Lenders") and Wells Fargo fiscal year ended December 31, 1996. 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. 10.34 Fourth Amendment to Credit Agreement and Limited Incorporated herein by reference to Waiver dated as of May 30, 1997 and entered into Exhibit 10.34 to the Company's by and among the Company, the financial institutions Registration Statement on Form S-2 listed on the signature pages thereof ("Lenders") and (Registration No. 333-28425). 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., Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A. 10.35 Fifth Amendment to Credit Agreement and Limited Filed herein. Waiver dated June 30, 1997 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, certain subsidiaries of the Company. 10.36 Sixth Amendment to Credit Agreement and Consent Filed herein. dated August 6, 1997 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 as administrative agent for the Lenders and, for certain limited purposes, certain subsidiaries of the Company. 27.1 Financial Data Schedule. Filed herein.
b. Reports on Form 8-K for the quarter ended June 28, 1997 None. 33 34 SIGNATURE Pursuant to the requirements 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. Date: August 12, 1997 THE CERPLEX GROUP, INC. /s/ ROBERT W. HUGHES ------------------------------ Robert W. Hughes Senior Vice President and Chief Financial Officer (Principal Accounting Officer) 34 35 EXHIBIT INDEX QUARTER ENDED JUNE 28, 1997
Sequential Exhibit Description of Exhibits Page No. - ------- ----------------------- ---------- 2.17 Asset Purchase Agreement dated August 6, 1997 by and among the Company, Cerplex Subsidiary, Inc., Modcomp Joint Venture, Inc., Modcomp/Cerplex L.P. and CSP, Inc. 3.3 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant (filed June 16, 1997). 4.27 Fifth Amendment to Registration Rights Agreement dated as of April 9, 1997 by and among the Company, the investors listed on Schedule A thereto, the security holders of the Company listed on Schedule B thereto, the banks listed on Schedule C thereto, and the parties listed on Schedule D thereto. 4.28 Waiver Agreement dated as of June 30, 1997 among the Company and the Noteholders. 4.29 Side letter dated July 10, 1997 by and among the Company and the Noteholders. 4.30 Side letter dated August 6, 1997 by and among the Company and the Noteholders. 10.35 Fifth Amendment to Credit Agreement and Limited Waiver dated June 30, 1997 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 ("Wells") and, for certain limited purposes, certain subsidiaries of the Company. 10.36 Sixth Amendment to Credit Agreement and Consent dated August 6, 1997 by and among the Company, the Lenders, Wells and, for certain limited purposes, certain subsidiaries of the Company. 27.1 Financial Data Schedule.
36 SCHEDULE I - CONDENSED FINANCIAL INFORMATION CERPLEX S.A.S (A SUBSIDIARY OF THE CERPLEX GROUP, INC.) CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) (Unaudited)
December 31, 1996 ------------ ASSETS Current assets: Cash and cash equivalents $ 18,412 Accounts receivable, net 1,307 Inventories 3,014 Prepaid expenses and other current assets 325 --------- Total current assets 23,058 Property, plant and equipment, net 12,005 Other long-term assets (102) --------- Total assets $ 34,961 ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,525 Accrued and other current liabilities 10,398 Income taxes payable 1,719 --------- Total current liabilities 19,642 Long-term obligations 6,214 Stockholders' equity: Common stock 6,134 Retained earnings 3,098 Cumulative translation adjustment (127) --------- Total stockholders' equity 9,105 --------- Total liabilities and stockholders' equity $ 34,961 =========
37 CERPLEX S.A.S (A SUBSIDIARY OF THE CERPLEX GROUP, INC.) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands) (Unaudited)
Seven Months Ended December 31, 1996 (1) ------------- Net sales $33,443 Cost of sales 25,862 ------- Gross profit 7,581 Selling, general and administrative expenses 3,275 ------- Operating income 4,306 Other expense, net 11 Interest income, net (329) ------- Income before income taxes 4,624 Provision for income taxes 1,526 ======= Net income $ 3,098 =======
(1) Cerplex S.A.S. was acquired in June 1996. 38 CERPLEX S.A.S (A SUBSIDIARY OF THE CERPLEX GROUP, INC.) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Seven Months Ended December 31, 1996 (1) ------------ Cash flows from operating activities: Net income $ 3,098 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 399 Foreign currency transaction loss 22 Decrease (increase) in: Accounts receivable (1,220) Inventories (2,715) Prepaid expenses and other 7,888 Other long-term assets 836 Increase (decrease) in: Accounts payable 3,022 Accrued and other current liabilities (4,346) Income taxes payable 1,759 ------- Net cash provided by operating activities 8,743 ------- Cash flows from investing activities: Purchase of plant and equipment, net (178) ------- Net cash used in investing activities (178) ------- Cash flows from financing activities: Investment from affiliates 102 ------- Net cash provided from financing activities 102 ------- Effect of exchange rate changes on cash (381) ------- Net increase in cash and cash equivalents 8,286 Cash and cash equivalents at beginning of period 10,126 ======= Cash and cash equivalents at end of period $18,412 =======
(1) Cerplex S.A.S. was acquired in June 1996. EX-2.17 2 ASSET PURCHASE AGREEMENT DATED AUGUST 6, 1997 1 EXHIBIT 2.17 EXECUTION COPY ASSET PURCHASE AGREEMENT 2 TABLE OF CONTENTS
Page 1. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.3 U.S. Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. PURCHASE AND SALE OF THE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1 Purchase and Sale of the Assets . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Consideration for Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 Delivery of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5 Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.6 Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.7 Liabilities Not Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.8 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 8 2.9 Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. REPRESENTATIONS AND WARRANTIES BY SELLING ENTITIES . . . . . . . . . . . . . . . . . 8 3.1 Organization, Good Standing and Qualification . . . . . . . . . . . . . . . 8 3.2 Capital Stock and Ownership of Subsidiaries . . . . . . . . . . . . . . . . 9 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4 No Conflict; No Consents or Approvals . . . . . . . . . . . . . . . . . . . 10 3.5 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.6 No Termination of Relationships . . . . . . . . . . . . . . . . . . . . . . 11 3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.9 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.10 Equipment Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.11 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.12 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.16 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.17 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.18 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.19 U.S. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 16 3.20 Foreign Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 17 3.21 Indebtedness and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . 18 3.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.23 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.24 Certain Business Relationships . . . . . . . . . . . . . . . . . . . . . . . 19
i 3 3.25 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.26 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.27 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.28 Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.29 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.30 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . 20 4.1 Due Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.3 No Conflict; No Consents or Approvals . . . . . . . . . . . . . . . . . . . 21 5. COVENANTS OF THE SELLING ENTITIES . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2 Absence of Material Changes . . . . . . . . . . . . . . . . . . . . . . . . 21 5.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.5 Continued Truth of Representations and Warranties of . . . . . . . . . . . 23 5.6 Continuing Obligation to Inform . . . . . . . . . . . . . . . . . . . . . . 23 5.7 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.8 Consents and Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.9 Access to Financial, Operating and Other Information . . . . . . . . . . . . 24 5.10 Relinquishment of Intellectual Property . . . . . . . . . . . . . . . . . . 24 6. COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.1 Continued Truth of Representations and Warranties of Buyer . . . . . . . . . 24 6.2 Continuing Obligation to Inform . . . . . . . . . . . . . . . . . . . . . . 25 6.3 Consents and Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.4 Taxes and Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . 25 6.5 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6.6 Assignment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7. CLOSING CONDITIONS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.1 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . 25 7.2 Conditions to Obligations of the Selling Entities. . . . . . . . . . . . . . 27 8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.1 Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.2 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . 28 8.3 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 8.4 Indemnification of Selling Entities. . . . . . . . . . . . . . . . . . . . 30 8.5 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9. TERMINATION AND CERTAIN WAIVERS AND DAMAGE . . . . . . . . . . . . . . . . . . . . . 30 10.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . 31 10.2 Benefit of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ii 4 10.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.4 Construction of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.5 Each Party to Bear Own Costs . . . . . . . . . . . . . . . . . . . . . . . . 31 10.6 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.8 Entire Agreement; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.9 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10.12 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.16 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.17 No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 34
iii 5 EXHIBITS A Escrow Agreement B. Allocation of Purchase Price C. Bill of Sale D. Assignment and Assumption Agreement E. Form of Certificate of Modcomp Officers SCHEDULES 2.1 Assets 3 Selling Entities' Officers and Employees 3.1 Jurisdictions Authorized to Do Business 3.2 Capital Stock and Ownership of Subsidiaries 3.2.5 Financing Statements 3.4 No Conflict; No Consent or Approvals 3.7 Financial Statements 3.8 Tax Matters 3.9 Real Property 3.10 Equipment Leases 3.12 Intellectual Property 3.12.3 Infringement 3.12.4 Exceptions 3.13 Insurance Policies 3.14 Contracts 3.15 Litigation 3.16 Compliance with Law 3.17 No Material Adverse Change 3.18 Labor Matters 3.19 U.S. Employee Benefit Plans 3.20 Foreign Employee Benefit Plans 3.21 Indebtedness and Guaranties 3.22 Environmental Matters 3.23 Permits 3.24 Certain Business Relationships 3.26 Bank Accounts 3.28 Officers iv 6 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of August 6, 1997, by and among The Cerplex Group, Inc., a Delaware corporation ("Cerplex"), Cerplex Subsidiary, Inc., a Delaware corporation ("Cerplex Sub"), Modcomp Joint Venture, Inc., a Delaware corporation ("MJVI"), Modcomp/Cerplex, L.P., a Delaware limited partnership ("Modcomp"; Cerplex, Cerplex Sub, MJVI and Modcomp are hereinafter referred to collectively as the "Selling Entities"), and CSP Inc., a Massachusetts corporation ("Buyer"). RECITALS WHEREAS, Cerplex owns all of the issued and outstanding shares of capital stock of Cerplex Sub and MJVI. Cerplex Sub and MJVI are the sole general and limited partners of Modcomp; and WHEREAS, Modcomp desires to sell to Buyer, and Buyer desires to purchase from Modcomp, all of the assets of Modcomp (including all of the capital stock of the Subsidiaries which is owned by Modcomp) on the terms and conditions set forth herein. WHEREAS, the parties desire that 12:01 a.m. June 30, 1997 (the "Effective Date") be the date as of which the Purchase Price (as defined herein) will be determined and the Business (as defined herein) will be run for the benefit of Buyer from and after such date; NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and other good and valuable consideration, the parties hereto, on the basis of, and in reliance upon, the representations, warranties, covenants, obligations and agreements set forth in this Agreement, and upon the terms and subject to the conditions contained herein, hereby agree as follows: 1. GENERAL 1.1 Definitions. The terms defined in this Section 1.1, whenever used in this Agreement, shall have the following meanings for all purposes of this Agreement: 1.1.1 "Agreement" shall have the meaning given such term in the Recitals. 1.1.2 "Assets" shall have the meaning given such term in Section 2.1. 7 1.1.3 "Assumed Liabilities" shall mean (a) all liabilities of the Subsidiaries other than any contract, commitment or agreement to which a Subsidiary is a party and is not listed in Schedule 3.14 but otherwise falls within the definition of "Contract" in Section 3.14; provided, however, such contract, commitment or agreement shall be an Assumed Liability hereunder if after the Closing, Buyer or a Subsidiary assumes any related assets or elects to receive, retain or use related benefits arising therefrom; (b) all liabilities reflected in the Closing Balance Sheet; (c) all obligations from and after the Effective Date under the Contracts or, subject to Section 2.7.5, any other contract, commitment or agreement to which Modcomp is a party; and (d) all other liabilities and obligations arising from the conduct of the Business from and after the Effective Date which have not arisen as a result of a breach of a covenant set forth in either Section 5.1 or 5.2, except for Excluded Liabilities. 1.1.4 "Business" means the business carried on by Modcomp and the Subsidiaries on the date of this Agreement. 1.1.5 "Buyer" shall have the meaning given such term in the Recitals. 1.1.6 "CERCLA" shall have the meaning given such term in Section 3.22.1. 1.1.7 "Cerplex" shall have the meaning given such term in the Recitals. 1.1.8 "Cerplex Sub" shall have the meaning given such term in the Recitals. 1.1.9 "Closing" shall have the meaning given such term in Section 2.4. 1.1.10 "Closing Balance Sheet" shall have the meaning given such term in Section 2.5. 1.1.11 "Closing Balance Sheet Date" shall mean June 27, 1997. 1.1.12 "Closing Date" shall mean the date set forth in Section 2.4. 1.1.13 "Code" means the U.S. Internal Revenue Code of 1986, as amended. 1.1.14 "Contracts" shall have the meaning given such term in Section 3.14. 1.1.15 "Deadline" shall have the meaning given such term in Section 9.1. 1.1.16 "Deposit" shall have the meaning given such term in Section 2.2.1. 1.1.17 "Disclosure Schedule" means all the Schedules delivered by Cerplex pursuant to Section 3 of this Agreement and made a part hereof. 2 8 1.1.18 "Effective Date" shall have the meaning given such term in the third Recital of this Agreement. 1.1.19 "Encumbrances" means liens, pledges, charges, encumbrances, and any other security interests whatsoever. 1.1.20 "Environmental Law" shall have the meaning given such term in Section 3.22.1. 1.1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.1.22 "ERISA Affiliate" means any entity which is or was a member of (i) a controlled group of corporations (as defined in Section 414(b) of the Code), (ii) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), or (iii) an affiliated service group (as defined in Section 414(m) of the Code or the regulations under Section 414(0) of the Code). 1.1.23 "Excluded Liabilities" shall have the meaning given such term in Section 2.7. 1.1.24 "Financial Statements" means (i) the Closing Balance Sheet, (ii) the audited consolidated balance sheet of Modcomp and the Subsidiaries as of December 29, 1996, and the audited consolidated statements of operations and cash flows of Modcomp and the Subsidiaries for the twelve (12) months ended December 29, 1996, and (iii) the unaudited consolidated income statement of Modcomp and the Subsidiaries for the six (6) month period ended June 27, 1997, prepared by Cerplex and attached as Schedule 3.7. 1.1.25 "Foreign Plans" shall have the meaning given such term in Section 3.20.2. 1.1.26 "Foreign Subsidiary" and "Foreign Subsidiaries" mean, respectively, each of, and all of, the following wholly-owned subsidiaries of Modcomp: Modcomp Canada, Ltd., a Canada corporation; Modular Computer Systems GmbH, a Germany corporation; Modcomp France S.A., a France corporation; and Modcomp C.A., a Venezuela corporation. 1.1.27 "Foreign Retirement Plan" shall have the meaning given such term in Section 3.20.1. 1.1.28 "Foreign Welfare Plan" shall have the meaning given such term in Section 3.20.2. 1.1.29 "FTC" means Federal Trade Commission. 1.1.30 "GAAP" shall have the meaning given such term in Section 3.5. 3 9 1.1.31 "Governmental Body" shall have the meaning given such term in Section 3.15. 1.1.32 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.1.33 "Indemnifiable Claims" shall have the meaning given such term in Section 8.2.1. 1.1.34 "Intellectual Property" shall have the meaning given such term in Section 3.12.2. 1.1.35 "IRS" means the U.S. Internal Revenue Service. 1.1.36 "Laws and Regulations" shall have the meaning given such term in Section 3.16.1. 1.1.37 "Leased Real Estate" shall mean the real property listed on Schedule 3.9. 1.1.38 "Losses" shall have the meaning given such term in Section 8.1. 1.1.39 "Material Adverse Effect" shall mean any fact, event or occurrence, the existence of which would have a material adverse effect on the business, assets, properties, financial condition or results of operations of the Business taken as a whole and, in the case of contracts, where a termination thereof or a default thereunder would result in loss, damage, costs, fines and penalties of more than $50,000. 1.1.40 "Materials of Environmental Concern" shall have the meaning given such term in Section 3.22.2. 1.1.41 "MJVI" shall have the meaning given such term in the Recitals. 1.1.42 "Modcomp" shall have the meaning given such term in the Recitals. 1.1.43 "Modcomp Florida" shall mean Modular Computer Services, Inc., a Florida corporation and a wholly-owned subsidiary of Modcomp. 1.1.44 "Permits" means all material permits, licenses, registrations, certificates, orders, approvals, franchises, variances and similar rights issued by or obtained from any Governmental Body. 1.1.45 "Permitted Encumbrance" means any lien, pledge, charge, encumbrance, or any other security interest which (i) arises from current taxes or assessments not yet due and payable or the validity of which is being contested in good faith by appropriate 4 10 proceedings and which have been properly reflected in the Closing Balance Sheet, or (ii) which is a purchase money security interest arising in the ordinary course of business. 1.1.46 "Person" means an individual, firm, corporation, division, partnership, joint venture, unincorporated association, government agency or political subdivision thereof, or other entity. 1.1.47 "Plans" shall have the meaning given it in Section 3.19.1. 1.1.48 "Prevailing Party" shall have the meaning given such term in Section 10.11. 1.1.49 "Proprietary Rights" means all (i) patents, patent applications, patent disclosures and all related continuation, continuation-in-part, divisional, reissue, re-examination, utility, model, certificate of invention and design patents, patent applications, registrations and applications for registrations, (ii) trademarks, service marks, logos, trade names and corporate names and registrations and applications for registration thereof and the goodwill associated therewith, (iii) copyrights and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data and documentation, (vi) trade secrets and confidential business information, whether patentable or nonpatentable, and know how, manufacturing and product processes and techniques, research and development information, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (vii) other proprietary rights relating to any of the foregoing (including without limitation remedies against infringements thereof and rights of protection of interest therein under the laws of all jurisdictions) and (viii) copies and tangible embodiments thereof. 1.1.50 "Purchase Price" shall have the meaning given such term in Section 2.2. 1.1.51 "Retirement Plans" shall have the meaning given such term in Section 3.19.1. 1.1.52 "Sellers' Knowledge" shall have the meaning given such term in Section 3. 1.1.53 "Shares" means all of the issued and outstanding shares of capital stock owned by Modcomp in each of the Subsidiaries. 1.1.54 "Subsidiary" or "Subsidiaries" means any or all of the Foreign Subsidiaries of Modcomp and Modcomp Florida. 1.1.55 "Taxes" means any and all federal, state, local and foreign income, profits, franchise, sales, value added, use, stamp duty, employment, payroll, transfer, 5 11 occupation, real property, personal property, severance, production, excise, gross receipts, license, stamp, premium, customs, duties, capital stock, windfall profit, environmental, withholding, social security (or similar), unemployment, disability, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including any interest, additions to tax and penalties with respect to any such tax), including without limitation all sales, value added, use, transfer and other non-income taxes, fees and duties (including any interest, additions to tax and penalties with respect thereto) imposed in connection with the consummation of the transactions contemplated hereunder. 1.1.56 "Tax Returns" means all reports, returns, declarations, statements or other information required to be supplied to a Governmental Body or taxing authority in connection with Taxes. 1.1.57 "Third-Party Claim" shall have the meaning given such term in Section 8.4.1. 1.2 Schedules and Exhibits. A "Schedule" which is identified in this Agreement means part of the Disclosure Schedule prepared by the Selling Entities and delivered to Buyer pursuant to this Agreement. An "Exhibit" is an agreement or other document attached hereto and made a part hereof. 1.3 U.S. Dollars. Unless otherwise indicated herein or on the Schedules, all references to amounts in dollars ($) shall mean dollars of the United States of America. 2. PURCHASE AND SALE OF THE ASSETS 2.1 Purchase and Sale of the Assets. At the Closing of the transactions contemplated by this Agreement, Modcomp shall exchange, sell, transfer and deliver to Buyer, and Buyer shall purchase from Modcomp, the Assets, free from any Encumbrance other than Permitted Encumbrances. The Assets consist of the Shares and all other assets (including, without limitation, cash, cash equivalents and accounts receivable), properties and rights, tangible or intangible, used in the Business and owned by Modcomp or a Subsidiary. The Assets (other than the Shares) are listed on Schedule 2.1 hereto. 2.2 Consideration for Assets. The aggregate purchase price (the "Purchase Price") for the exchange, sale, transfer and delivery of the Assets (including the Shares) shall be an amount equal to (i) Eight Million five hundred and forty thousand dollars ($8,540,000) minus (ii) the amount of the French Tax Liability (as defined hereinafter), if any, and shall be paid as follows: 2.2.1 One Million Dollars ($1,000,000) (the "Deposit") by wire transfer of immediately available funds which Buyer will deposit with State Street Bank and Trust Company (the "Escrow Agent") concurrently with the execution of this Agreement as an earnest money deposit. The Escrow Agent shall hold and dispose of the Deposit and any income earned thereon pursuant to the provisions of an Escrow Agreement of even date herewith among the Escrow Agent, Cerplex and Buyer in form and substance as set forth in Exhibit A hereto (the 6 12 "Escrow Agreement"). The parties agree that, subject to Sections 9.1 and 9.2, they will deliver joint escrow instructions to the Escrow Agent instructing the Escrow Agent to deliver at the Closing by wire transfer of immediately available funds the Deposit and any income earned thereon to one or more accounts designated by Cerplex and approved by Wells Fargo Bank, National Association; and 2.2.2 At the Closing, Buyer shall pay to Cerplex, by wire transfer of immediately available funds to one or more accounts designated by Cerplex and approved by Wells Fargo Bank, National Association, an amount equal to (i) Seven Million Five Hundred and Forty Thousand Dollars ($7,540,000) minus (ii) the amount of accrued tax liability (the "French Tax Liability"), if any, of Modcomp France, S.A. that was not accrued in accordance with generally accepted accounting principles, as of the Effective Date. The parties agree that the amount of the French Tax Liability shall be finally and conclusively determined by the Paris affiliate of KPMG Peat Marwick, whose written statement as to the amount thereof shall be delivered to Cerplex and to Buyer at least two business days before the Closing Date. 2.3 Delivery of Assets. At the Closing, Cerplex shall deliver to Buyer, in addition to those items set forth in Section 5, stock certificates (if applicable for Foreign Subsidiaries) representing all of the Shares, duly endorsed in favor of Buyer or accompanied by stock powers duly executed in favor of and in a form reasonably acceptable to Buyer and its counsel, free from any Encumbrance (other than Permitted Encumbrances), together with a bill of sale representing the transfer of the Assets and any other assignments, licenses and instruments of transfer provided for in Section 2.9. 2.4 Closing. The closing of the transactions contemplated hereby (the "Closing") shall take place at 11:00 a.m. at the offices of Brobeck, Phleger & Harrison LLP, in Newport Beach, California (unless the parties agree in writing to a different time and location) on August 22, 1997 (the "Closing Date"). 2.5 Closing Balance Sheet. The parties hereby acknowledge and agree that the balance sheet prepared by Cerplex as of the Effective Date and attached hereto in Schedule 3.7 (the "Closing Balance Sheet") is true and correct in all material respects and shall be final and binding upon, the parties hereto. 2.6 Liabilities Assumed. On the Closing Date, subject to the terms and conditions set forth herein, the Selling Entities shall assign or cause to be assigned to Buyer, and the Buyer shall assume, perform and in due course discharge, the Assumed Liabilities. At the Closing, the assumption of the Assumed Liabilities by Buyer shall be evidenced by the execution and delivery of the parties of an Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit D. 2.7 Liabilities Not Assumed. Any liability of Modcomp which is not an Assumed Liability (other than liabilities specifically assumed by Buyer hereunder) shall be referred to as an "Excluded Liability". Modcomp shall remain solely responsible for payment of or performance of all Excluded Liabilities, whether accrued or contingent, known or unknown. The Buyer shall not assume any Excluded Liability, including, without limitation, any of the following: 7 13 2.7.1 Any liability of Modcomp associated with the conduct of the Business prior to the Effective Date which has not been reflected on or reserved against in the Closing Balance Sheet other than Assumed Liabilities which are not required to be included in the Closing Balance Sheet in accordance with generally accepted accounting principles; 2.7.2 Any and all taxes of Modcomp attributable to any period prior to the Effective Date to the extent not reflected on or reserved against on the Closing Balance Sheet; 2.7.3 Any claims against or liabilities or obligations of any pension or employee benefit plan, program, or policy of Modcomp not specifically assumed by Buyer pursuant to this Agreement and any claims for compensation or benefits of any nature whatsoever, severance pay, termination pay or pay in lieu of notice made by any employees of Modcomp with respect to services performed or terminations occurring prior to the Effective Date (other than payments required in connection with a breach of Buyer's obligations pursuant to Section 6.5); 2.7.4 Any obligation of Modcomp under the Limited Partnership Agreement of Modcomp/Cerplex, L.P., effective December 1, 1994, as amended to date, including, without limitation, any obligation to pay Cerplex management fees thereunder; and 2.7.5 Any contract, commitment or agreement to which Modcomp is a party which is not listed in Schedule 3.14 but otherwise falls within the definition of "Contract" in Section 3.14; provided, however, such contract, commitment or agreement shall be an Assumed Liability hereunder if Buyer assumes any related assets or elects to receive, retain or use related benefits arising therefrom. 2.8 Allocation of Purchase Price. The total amount of the Purchase Price shall be allocated among the Assets (including the Shares) in the manner set forth in Exhibit B. It is acknowledged by the parties that such allocation was arrived at by arm's length negotiation, appropriately reflects the fair market value of the Assets (including the Shares), will be binding on the parties for federal and state income tax purposes in connection with the purchase and sale of the Assets (including the Shares), and will be consistently reflected by the parties in their respective tax returns. Cerplex, Modcomp and Buyer shall each file a Form 8594 (Asset Acquisition Statement) with the Internal Revenue Service consistent with such allocation. 2.9 Instruments of Transfer. The transfer of the Assets (including the Shares) to be transferred to Buyer at the Closing shall be effected by bills of sale, assignments, licenses and such other instruments of transfer as shall be required to transfer to Buyer full title to the Assets (including the Shares), free and clear of Encumbrances other than Permitted Encumbrances. All of such documents shall be in form and substance reasonably acceptable to Buyer and its counsel. 3. REPRESENTATIONS AND WARRANTIES BY SELLING ENTITIES The Selling Entities hereby, jointly and severally, make the following representations and warranties to Buyer, except as set forth in the Disclosure Schedule. All references herein to 8 14 "Sellers' Knowledge" shall mean solely to the knowledge of the officers or employees of the Selling Entities, identified in Schedule 3 of the Disclosure Schedule or to matters as to which any Cerplex officer reasonably should have been expected to have knowledge of in the course of preparing the Disclosure Schedule; provided, however, as to any Modcomp officer or employee listed in Schedule 3, the Selling Entities shall be entitled to rely upon written representations delivered to the Selling Entities and Buyer from such officer or employee as to their knowledge. Such representations shall be in form and substance substantially similar to those set forth in Exhibit E. 3.1 Organization, Good Standing and Qualification. Each of the Selling Entities and the Subsidiaries is a corporation or partnership duly incorporated or otherwise duly organized, validly existing and in good standing (in such jurisdictions where such concept is applicable) under the laws of its respective jurisdiction of incorporation or organization as set forth on Schedule 3.1. Each of the Selling Entities and each of the Subsidiaries has all requisite corporate power and authority to own or lease its properties and carry on its business as presently conducted. Except as set forth in Schedule 3.1, each Subsidiary is licensed or qualified to transact business in the jurisdictions listed therein. The jurisdictions listed on Schedule 3.1 are the only jurisdictions in which the nature of the properties owned or leased by Modcomp or the Subsidiaries or the business transacted by them requires them to be so licensed or qualified. 3.2 Capital Stock and Ownership of Subsidiaries. 3.2.1 The total number of shares of capital stock, and the classes and par values thereof, which each Subsidiary is authorized to issue, the number of such shares which are issued and outstanding and the number of such outstanding shares owned, directly or indirectly, legally or beneficially by Cerplex or any Subsidiary, the number of shares of each Subsidiary owned by other stockholders and the identities of such other stockholders, are set forth in Schedule 3.2. The ownership of the general and limited partnership interests of Modcomp is as set forth in Schedule 3.2. 3.2.2 Except as set forth in Schedule 3.2, there are not outstanding any (i) securities of any Subsidiary convertible into or exchangeable for any shares of capital stock, partnership interests or other securities of any such Subsidiary; (ii) subscriptions, options, warrants or other rights, contingent or otherwise, obligating any Subsidiary to issue or purchase or entitling any third party to acquire from any Subsidiary any shares of capital stock, partnership interests or other securities of any such Subsidiary; or (iii) other than this Agreement, any agreements or understandings with respect to the voting, sale, transfer or other contractual restriction on shares of capital stock or partnership interests of any Subsidiary. 3.2.3 The outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid, non-assessable and free of preemptive rights. 3.2.4 The shares of capital stock of each Subsidiary will, as of the Closing, be free and clear of all Encumbrances. The transfer of the Shares to Buyer pursuant to this 9 15 Agreement will vest in Buyer good title to the Shares, free and clear of all Encumbrances, except for those created by Buyer. 3.2.5 Modcomp has, or at the Closing will have, valid title to the Assets, free and clear of all Encumbrances other than Permitted Encumbrances. Except as set forth on Schedule 3.2.5, no financing statement under the Uniform Commercial Code or similar law naming any Selling Entity or Subsidiary as a debtor has been filed in any jurisdiction, and no Selling Entity or Subsidiary is bound under any agreement or arrangement authorizing the filing of such financing statements. 3.3 Authority. 3.3.1 The Selling Entities have all requisite right, power, capacity and authority to enter into, deliver and perform this Agreement and any other agreement or document contemplated hereby. The Selling Entities have all requisite right, power, capacity and authority to consummate the transactions contemplated hereby, and this Agreement has been duly and validly executed and delivered by each of the Selling Entities. 3.3.2 Assuming due authorization, execution and delivery by Buyer, this Agreement is legal, valid and binding upon and enforceable against each of the Selling Entities in accordance with its terms. 3.4 No Conflict; No Consents or Approvals. 3.4.1 Neither the execution and delivery by the Selling Entities of this Agreement or any agreement, instrument or document contemplated hereby, nor the consummation of the transactions contemplated herein or therein by the Selling Entities will (i) conflict with, result in a violation or breach of or constitute a default under (or would result in a violation, breach or default with the giving of notice or the passage of time or both) (A) the certificate of incorporation or bylaws (or other similar charter or governing documents) of any of the Selling Entities, (B) any contract, commitment or agreement described in Schedule 3.14, or (C) assuming compliance with the HSR Act (to the extent applicable) and any other similar applicable law in a foreign jurisdiction, any law, statute, ordinance, writ, injunction, decree, rule, regulation or court or administrative order by which any of the Selling Entities or any Subsidiary (or any of the properties or assets of the respective businesses of the Subsidiaries) is subject or bound, except, in the case of (B) and (C), such violations, breaches or defaults which would not, in the aggregate, have a Material Adverse Effect; (ii) except as set forth in Schedule 3.4, result in the creation or imposition of, or give any party other than Buyer the right to create or impose, any Encumbrance on the Assets (including the Shares) or (iii) terminate, modify or cancel, or give any other party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract, commitment or agreement described in Schedule 3.14, except for such terminations, modifications or cancellations (or rights of termination, modification or cancellation) or such requirements of notice, consent or waiver as to which requisite consents or waivers have been obtained or which would not, in the aggregate, have a Material Adverse Effect. 10 16 3.4.2 Except for requirements of the HSR Act (to the extent applicable) and any other similar applicable law in a foreign jurisdiction and except as disclosed on Schedule 3.4, none of the Selling Entities or Subsidiaries is required to submit any notice, report or other filing with or to any Governmental Body in connection with the execution, delivery or performance of this Agreement by the Selling Entities and the consummation of the transactions contemplated hereby by the Selling Entities or any Subsidiary. 3.4.3 No litigation, claim, administrative proceeding or other proceeding or governmental investigation is pending or, to the Sellers' Knowledge, threatened which would prevent or delay the execution, delivery or performance of this Agreement or any agreement, instrument or document contemplated hereby to be executed and delivered by the Selling Entities or the consummation by the Selling Entities of the transactions contemplated hereby or thereby. 3.5 Undisclosed Liabilities. Except as disclosed in this Agreement or the Disclosure Schedule, to the Sellers' Knowledge, the Subsidiaries have no material liability or obligation, whether known or unknown, fixed, contingent or otherwise, liquidated or unliquidated and whether due or to become due, of a nature required by U.S. generally accepted accounting principles ("GAAP") to be reflected in a corporate balance sheet or disclosed in the notes thereto or which is otherwise a "loss contingency" as defined in Statement of Financial Accounting Standards No. 5 of the Financial Accounting Standards Board, except for: 3.5.1 liabilities and obligations set forth or adequately provided for in the Closing Balance Sheet; and 3.5.2 liabilities and obligations incurred in the ordinary course of business since the Effective Date that have not been discharged. 3.6 No Termination of Relationships. As of the date hereof, to the Sellers' Knowledge no Selling Entity or Subsidiary has received any written or oral notice, or has knowledge of any facts which would lead it to conclude that any relationship between a Subsidiary and any material distributor, customer or supplier to such Subsidiary is likely to be terminated or materially adversely affected as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. 3.7 Financial Statements. Attached hereto as Schedule 3.7 are the Financial Statements. The Closing Balance Sheet presents fairly the financial condition of the Business as of the date thereof and the statements at December 29, 1996 and for the twelve (12) months then ended, and at the Closing Balance Sheet Date and for the six (6) month period then ended, included in the Financial Statements (including any notes thereto) present fairly the results of operations and cash flows of the Business as of the dates and for the periods indicated therein. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis, except that unaudited statements do not contain notes thereto and are subject to normal year-end adjustments. 3.8 Tax Matters. Except as set forth in Schedule 3.8: all material Tax Returns relating to, or including items attributable to, the Business that were required to be filed by 11 17 Modcomp and the Subsidiaries (taking into account all extensions) on or before the date hereof have been filed and are accurate and correct in all material respects, and all Taxes shown to be due on such Tax Returns have been paid. No deficiencies for Taxes with respect to the Business (or for which any Subsidiary may be liable) have been proposed or assessed by any taxing authority or other Governmental Body against any of the Subsidiaries or any current or prior affiliates thereof. The unpaid Taxes of the Subsidiaries relating to the Business for taxable periods through the Closing Balance Sheet Date do not exceed the aggregate amount of the reserves and accruals for Taxes set forth on the Closing Balance Sheet. All Taxes relating to the Business which are or were required by law to be withheld or collected have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Body. 3.9 Real Property. Neither Modcomp nor the Subsidiaries own or hold title to any real property. Schedule 3.9 lists and describes briefly all real property leased or subleased as of the date hereof to Modcomp or a Subsidiary and lists the term of such lease. The Selling Entities have delivered to, or made available for inspection by Buyer correct and complete copies of the leases and subleases (as amended to date) listed in Schedule 3.9. Except as set forth on Schedule 3.9, with respect to each such lease and sublease, to the Sellers' Knowledge: 3.9.1 the lease or sublease is legal, valid, binding, enforceable in accordance with its terms and in full force and effect with respect to Modcomp or one of the Subsidiaries; 3.9.2 consummation of the transactions contemplated herein will not conflict with, result in violation or breach of, or constitute a default under or would result in a violation, breach or default (with the giving of notice or the passage of time or both), any lease or sublease listed on Schedule 3.9; and 3.9.3 neither Modcomp nor any Subsidiary nor any other party is in breach or default under any such lease or sublease, and no event has occurred which, with notice and/or lapse of time, would constitute such a breach or default. 3.10 Equipment Leases. Schedule 3.10 contains a list of all equipment leases of Modcomp or the Subsidiaries involving an annual expense per lease in excess of $100,000 to which Modcomp or a Subsidiary is a lessee. Except as set forth on Schedule 3.10, with respect to each equipment lease listed therein, to the Sellers' Knowledge: 3.10.1 the lease is legal, valid, binding, enforceable in accordance with its terms and in full force and effect with respect to Modcomp or the Subsidiary which is a party thereto and, with respect to every other party thereto; 3.10.2 the consummation of the transactions contemplated herein will not conflict with, result in a violation or breach of or constitute a default under (or would result in a violation, breach or default with the giving of notice or the passage of time or both) any lease listed on Schedule 3.10; and 12 18 3.10.3 no Subsidiary is in breach or default under any such lease, and no event has occurred which, with notice and/or lapse of time, would constitute such a breach or default by such Subsidiary. 3.11 Accounts Receivable. All accounts receivable reflected on the Closing Balance Sheet are valid receivables, arose in the ordinary course of business and are subject to no setoffs or counterclaims. All accounts receivable reflected in the financial or accounting records of the Business that have arisen since the Closing Balance Sheet Date are valid receivables, arose in the ordinary course of business and are subject to no setoffs or counterclaims. 3.12 Intellectual Property. 3.12.1 Schedule 3.12 contains a list of all of the following to the extent owned by or licensed to Modcomp or any Subsidiary and used in the Business (other than non-custom third-party software which is commercially available and not material to the Business): (i) patents and patent applications; (ii) trademarks, tradenames and service marks and registrations thereof and applications therefor; (iii) registered copyrights and applications for copyright registration; and (iv) licenses relating to any of the foregoing. Schedule 3.12 identifies the owner of each item listed thereon and, in the case of registrations and applications, the application or registration number. Schedule 3.12(v) contains a non-exhaustive list of proprietary systems developed by Modcomp. 3.12.2 To the Sellers' Knowledge, Modcomp or one or more of the Subsidiaries owns or has the right to use, subject to the provisions of the license agreements set forth in Schedule 3.12, all Proprietary Rights used or held for use in connection with the operation of the Business including, but not limited to, the Proprietary Rights identified in Schedule 3.12 (collectively, the "Intellectual Property"). To the Sellers' Knowledge, on the Closing Date, Buyer or one of the Subsidiaries will own or have the right to use, subject to the provisions of the license agreements set forth in Schedule 3.12(iv), the Intellectual Property (other than items of Intellectual Property disposed of prior to the Closing in the ordinary course of business), and except for such Intellectual Property the absence or inability to use of which would not have a Material Adverse Effect. 3.12.3 Except as set forth in Schedule 3.12.3, to the Sellers' Knowledge none of the activities or business presently conducted by Modcomp or the Subsidiaries or conducted by the Subsidiaries at any time since January 1, 1996 infringes or violates, or constitutes a misappropriation of, any Proprietary Rights of any other person or entity, except for such infringements, violations or misappropriation which would not, in the aggregate, have a Material Adverse Effect. Except as set forth in Schedule 3.12.3, to the Sellers' Knowledge neither Modcomp nor any Subsidiary has received any complaint, claim or notice alleging any such infringement, violation or misappropriation. 3.12.4 The Selling Entities have supplied to, or made available for inspection by, Buyer correct and complete copies of all licenses, sublicenses or other agreements (as amended to date) pursuant to which Modcomp or any Subsidiary uses the Intellectual Property, all of which are listed on Schedule 3.12(iv). Except as set forth in Schedule 3.12.4, with respect to 13 19 each such item of Intellectual Property: (i) the license, sublicense or other agreement covering such item is legal, valid and binding with respect to one of the Subsidiaries and, to the Sellers' Knowledge, with respect to every other party thereto; and (ii) neither Modcomp nor any Subsidiary nor, to the Sellers' Knowledge, any other party is in material breach or default under any such license, sublicense or other agreement, and no event has occurred which, with notice and/or lapse of time, would constitute such a material breach or default or permit termination, modification or acceleration thereunder, except such breaches, defaults, terminations, modifications or accelerations which would not, in the aggregate, have a Material Adverse Effect. 3.13 Insurance Policies. 3.13.1 Schedule 3.13 sets forth a list of all material policies of fire, theft, casualty, liability, burglary, fidelity, workers compensation, business interruption, environmental, product liability, automobile and other forms of insurance which are in effect with respect to the Business as of the date hereof. Except as set forth in Schedule 3.13, no Selling Entity or Subsidiary has received any notice from the insurer under any such policy disclaiming coverage, reserving material rights with respect to a particular claim or such policy in general, or canceling or materially amending any such policy. 3.13.2 All premiums due and payable for such insurance policies have been duly paid, and such policies or extensions or renewals thereof in such amounts will be outstanding and duly in full force without interruption until the Closing Date. 3.14 Contracts. To the Sellers' Knowledge, Schedule 3.14 contains a complete and accurate list of the following contracts, commitments and agreements to which Modcomp or a Subsidiary is a party (the "Contracts"): 3.14.1 all contracts, leases, or commitments, whether entered into in the ordinary course of business or not involving an obligation to purchase, lease or deliver goods or services of an amount or value in excess of $100,000 each; 3.14.2 all forms of employment contracts with employees and each employment contract, and each other contract, agreement or commitment to or with individual employees, agents, representatives or consultants other than contracts which may be terminated without notice or penalty; 3.14.3 any arrangement under which any Subsidiary has created, incurred, assumed or guaranteed indebtedness (including capitalized lease obligations) which will be in effect as of the Closing involving more than $100,000; 3.14.4 each sales representative, distributorship or other agreement providing for the distribution or marketing of products under which revenue to any Subsidiary during 1996 exceeded $100,000; and 14 20 3.14.5 any other arrangement under which the consequences of a default or termination would have a Material Adverse Effect, or which gives or could give any other party thereto the right to cause the transactions contemplated by this Agreement to be rescinded following consummation, or which involves more than $100,000. The Selling Entities have delivered to Buyer a correct and complete copy of each Contract to which Modcomp is a party. Buyer acknowledges that the Selling Entities have made available to Buyer a correct and complete copy of each Contract to which one or more of the Subsidiaries is a party. The parties agree and acknowledge that the Limited Partnership Agreement of Modcomp/Cerplex, L.P., effective December 1, 1994, as amended to date, shall not be deemed a Contract hereunder and Buyer shall not have any liability relating to any obligations arising thereunder. With respect to each Contract: (i) the Contract is legal, valid, binding and enforceable in accordance with its terms and in full force and effect with respect to the Subsidiary which is a party thereto; (ii) except as set forth on Schedule 3.14, each Contract to which Modcomp is a party is assignable to Buyer without the consent or approval of or any payment to any party except such written arrangements in respect of which such consents or approvals have been obtained; and (iii) to the Sellers' Knowledge, neither Modcomp nor any Subsidiary is in breach or default, and no event has occurred which, with notice and/or lapse of time, would constitute such a breach or default by Modcomp or a Subsidiary or permit termination, modification or acceleration, under any Contract by the other party thereto, except such breaches, defaults, terminations modifications or accelerations which would not, in the aggregate, have a Material Adverse Effect. 3.15 Litigation. Schedule 3.15 describes all suits, actions, proceedings, investigations, claims, complaints and accusations pending (and which notice thereof has been served) or, to the Sellers' Knowledge, threatened or pending (and which notice thereof has not been served) against Modcomp or any of the Subsidiaries, their properties or assets, the Shares, or the officers or directors of any of the Subsidiaries, and to which any Subsidiary is or would be a party in any court or before any industrial tribunal or arbitration panel of any kind or before or by any federal, provincial, state, local, foreign, regulatory or other government, governmental agency, department, commission, board, bureau, instrumentality, authority or body ("Governmental Body"). There is no outstanding order, writ, injunction, decree, judgment or award by any court, arbitration panel, industrial tribunal or Governmental Body against Modcomp or any of the Subsidiaries. 3.16 Compliance with Law. To the Sellers' Knowledge, except as set forth in Schedule 3.16: 3.16.1 Modcomp and each Subsidiary have, in all material respects, complied and are in compliance, in all material respects, with all U.S. and foreign laws, rules, decrees, regulations, ordinances and orders ("Laws and Regulations") which affect or relate to this Agreement, the transactions contemplated hereby or the conduct of the Business or the Assets; 3.16.2 Modcomp and each Subsidiary have filed with the proper authorities all material statements and reports required to be filed by all applicable Laws and Regulations relating to the Business or Assets; and 15 21 3.16.3 Neither Modcomp nor any Subsidiary has received written notice alleging any violation of any material Laws and Regulations relating to the Business or the Assets. 3.17 No Material Adverse Change. Except as set forth in Schedule 3.17 and except as otherwise contemplated by this Agreement, since the Closing Balance Sheet Date there has not been any change in the business, assets, properties, financial condition or results of operations of each of the Subsidiaries which would have a Material Adverse Effect. 3.18 Labor Matters. 3.18.1 Except as set forth in Schedule 3.18, (i) no Subsidiary is a party to any collective bargaining agreement or national labor union agreement, (ii) no Subsidiary has experienced any strikes, material grievances, material claims of unfair labor practices or other material collective bargaining disputes, with respect to the Business in 1996; and (iii) there is no organizational effort presently being made or threatened by or on behalf of any labor union with respect to any employees of any Subsidiary. 3.18.2 With respect to the Business, there are not in existence and there are not threatened any: (i) work stoppages or strikes involving the employees of each of the Subsidiaries; (ii) material grievance, arbitration proceedings or proceedings before any governmental industrial tribunal arising out of collective bargaining agreements or national labor union agreements; or (iii) material unfair labor practice complaints filed against any of the Subsidiaries. 3.18.3 To the Sellers' Knowledge, neither Modcomp nor any Subsidiary has received written or oral notification alleging violation of any federal, state, foreign and municipal laws respecting employment and employment practices, terms and conditions of employment, or wages and hours related to the Business. 3.19 U.S. Employee Benefit Plans. 3.19.1 Schedule 3.19 lists all employee benefit plans and all material written plans, agreements or arrangements relating to the Business and involving direct compensation, including without limitation insurance coverage, disability benefits, bonus, deferred compensation, incentive compensation, severance or termination pay, post-retirement compensation, change in control compensation, death benefit, stock purchase, phantom stock, stock appreciation and stock option plans or arrangements maintained or contributed to by or on behalf of the Subsidiaries or any of their respective affiliates applicable to the employees of the Subsidiaries employed in the U.S. (the "Plans"). Each of the Plans that is an "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA (collectively, the "Retirement Plans") and any corresponding trust intended to qualify under Sections 401(a) and 301(a) of the Code do so qualify. Each of the Plans has been administered, in all material respects, in compliance with its terms and the requirements of all applicable Laws and Regulations, including without limitation ERISA and the Code, and all material required contributions to each Plan have been made. 16 22 3.19.2 To the Sellers' Knowledge, neither any Subsidiary, any ERISA Affiliate nor any trustee or administrator of any Plan, has engaged in a "prohibited transaction," as defined in Section 4975 of the Code, or a transaction prohibited by Section 406 of ERISA, that would give rise to any material tax or penalty under such Section 4975 to any Subsidiary. 3.19.3 To the Sellers' Knowledge, neither any Subsidiary nor any ERISA Affiliate of any Subsidiary has ever maintained an employee benefit plan subject to Section 412 of the Code or Title IV of ERISA that would subject any Subsidiary to any material liability resulting from an accumulated funding deficiency (as defined for purposes of Section 412 of the Code) or termination respecting such employee benefit plan. 3.19.4 To the Sellers' Knowledge, neither any Subsidiary nor any ERISA Affiliate contributes to or has an obligation to contribute to a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA on behalf of Employees. No complete withdrawal or partial withdrawal (as defined for purposes of Sections 4203 and 4203 of ERISA, respectively) has occurred with respect to a multiemployer plan that would subject any Subsidiary to liability from such complete withdrawal or partial withdrawal. 3.19.5 Except as set forth in Schedule 3.19, to the Sellers' Knowledge there are no material unfunded obligations under any Plan providing benefits after termination of employment to any employee or former employee of any Subsidiary (or to any beneficiary of any such employee or former employee), including but not limited to retiree health coverage and deferred compensation, but excluding continuation of health coverage required to be continued under Section 4980B of the Code and insurance conversion privileges under state law. 3.19.6 Except as set forth in Schedule 3.19, to the Sellers' Knowledge no act or omission has occurred and no condition exists with respect to any employee benefit plan or program that would reasonably be expected to subject any Subsidiary to any material fine, penalty, tax or liability of any kind. 3.20 Foreign Employee Benefit Plans. Schedule 3.20 lists: 3.20.1 each material non-governmental retirement plan maintained or contributed to by or on behalf of the Subsidiaries (or any of their respective affiliates) applicable to employees of the Business located outside of the U.S. (a "Foreign Retirement Plan") and 3.20.2 each non-governmental, non-industry welfare benefit plan maintained or contributed to by or on behalf of the Subsidiaries (or any of their respective affiliates) applicable to employees of the Business located outside of the U.S. and which, in the case of this clause 3.20.2, obligates or may reasonably be expected to obligate the Business to pay more than $100,000 annually (a "Foreign Welfare Plan"). Except as set forth in Schedule 3.20, each such Foreign Retirement Plan and Foreign Welfare Plan (collectively, the "Foreign Plans") has been administered, in all material respects, in compliance with its terms and the requirements of all applicable Laws and Regulations, and all required contributions to each Foreign Plan have been made. Except as set forth in Schedule 3.20, to the Sellers' Knowledge, there are no inquiries or investigations by any foreign Governmental Body, and no termination proceedings against any 17 23 Foreign Plan (or any Subsidiary, with respect thereto) or the assets thereof that would have a Material Adverse Effect. Except as set forth in Schedule 3.20, there are no actions, suits or claims (other than claims for benefits) pending (and which notice thereof has been served) or, to the Sellers' Knowledge, threatened or pending (and which notice thereof has not been served), against any Foreign Plan (or any Subsidiary, with respect thereto) or the assets thereof that would have a Material Adverse Effect. Except as set forth in Schedule 3.20, to the Sellers' Knowledge there are no material unfunded obligations under any Foreign Plan providing benefits after termination of employment to any employee or former employee of the Business. 3.21 Indebtedness and Guaranties. Schedule 3.21 sets forth a true and complete list, including the names of the parties thereto, of all material debt instruments, loan agreements, indentures, guaranties or other written obligations to which one or more of the Subsidiaries is a party and will remain a party following the Closing and which relates to the Business or Assets and involves: (i) indebtedness for borrowed money; (ii) money loaned to others; or (iii) the performance of any obligation relating to the Business. 3.22 Environmental Matters. 3.22.1 Except as set forth in Schedule 3.22, to the Sellers' Knowledge each Subsidiary has complied in all material respects with all Environmental Laws relating to the Business. Except as set forth in Schedule 3.15, to the Sellers' Knowledge there is no pending or threatened civil or criminal litigation, written notice of violation, formal administrative proceeding or investigation, inquiry or information request by any Governmental Body relating to any Environmental Law involving or relating to the respective businesses of the Subsidiaries. For purposes of this Agreement, "Environmental Law" means any applicable federal, state, foreign or local law, statute, rule or regulation or the common law relating to the environment, including without limitation any statute, regulation or order pertaining to (i) treatment, storage, disposal, generation or transportation of hazardous substances or solid, or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the environment of hazardous substances, or solid or hazardous waste, including without limitation emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wildlife, marine sanctuaries and wetlands, including without limitation all endangered and threatened species; (vi) above ground or underground storage tanks, vessels and containers; (vii) abandoned, disposed or discarded barrels, tanks, vessels, containers and other closed receptacles; and (viii) manufacture, processing, use, distribution, treatment, storage, disposal, transportation or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or oil or petroleum products or solid or hazardous waste. As used herein, the terms "release" and "environment" shall have the meaning set forth in the U.S. federal Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"). 3.22.2 Except as set forth in Schedule 3.22, to the Sellers' Knowledge there have been no releases of any Materials of Environmental Concern in a quantity reportable under Environmental Laws into the environment at any parcel of real property or any facility currently owned or operated by any Subsidiary. With respect to any such releases in a reportable quantity of Materials of Environmental Concern, to the Sellers' Knowledge each Subsidiary has given 18 24 all required notices to Governmental Bodies. Except as set forth in Schedule 3.22, to the Sellers' Knowledge there have been no releases of Materials of Environmental Concern at parcels of real property or facilities owned, operated or controlled by any Subsidiary that would reasonably be expected to have a Material Adverse Effect. For purposes of this Agreement, "Materials of Environmental Concern" means any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the U.S. Federal Resources Conservation and Recovery Act), radioactive materials, toxic materials, oil or petroleum and petroleum products. 3.23 Permits. Schedule 3.23 sets forth a list of all material Permits (including without limitation Permits issued or required under Environmental Laws and Permits relating to the occupancy or use of owned or leased real property) issued to or held by any Subsidiary relating to the Business. Each such listed Permit is in full force and effect and no suspension or cancellation of such listed Permit is threatened. 3.24 Certain Business Relationships. Except as disclosed in Schedule 3.24, neither Cerplex nor any affiliate of Cerplex (i) owns any property or right, tangible or intangible, which is used in the Business; (ii) has any claim or cause of action against any Subsidiary or the assets of Modcomp or any Subsidiary; or (iii) except in the ordinary course of business in conjunction with product sales, owes any money to any Subsidiary. Schedule 3.24 describes all contracts, commitments and agreements among or between Cerplex, any affiliate of Cerplex, and/or any Subsidiary relating to the Business which will be in effect following the Closing. 3.25 Books and Records. The books, records, accounts, ledgers and files with respect to each Subsidiary are accurate and complete in all material respects and have been maintained in accordance with good business and bookkeeping practices in all material respects. The books and records of each Subsidiary, including without limitation its books of account, stock certificate books, stock ledgers and/or share registers, are complete and correct in all material respects. 3.26 Bank Accounts. Schedule 3.26 sets forth a complete list of all bank accounts or other accounts with depository institutions, brokerage firms or other financial service companies maintained by each of the Subsidiaries and includes a description or listing of the cash or assets contained in such account and the names of each person authorized to effect withdrawals therefrom or direct the transfer or investment of any such cash or assets. 3.27 Personal Property. Except as set forth in Schedule 3.9, each material item of tangible personal property included in the Assets or owned by the Subsidiaries is in good operating condition and repair in light of its age, ordinary wear and tear excepted, and is suitable for the purpose for which it is being used in the Business as currently operated. 3.28 Officers and Directors. Schedule 3.28 sets forth all of the executive officers and directors of the Subsidiaries. 3.29 Disclosure. To the Selling Entities' knowledge, no representation or warranty made by the Selling Entities in this Agreement, or any Schedule or Exhibit hereto, or made in 19 25 any certificate furnished by the Selling Entities to Buyer pursuant hereto, contains any misstatement of a material fact or omits to state any material fact necessary to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. 3.30 Value. The Purchase Price is at least reasonably equivalent to the value of the Assets transferred to the Buyer hereunder. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Selling Entities that the statements contained in this Section 4 are true and correct. 4.1 Due Incorporation. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization. Buyer has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect on Buyer. 4.2 Authority. 4.2.1 Buyer has all requisite corporate right, power, capacity and authority to enter into, deliver and perform this Agreement and any other agreement or document necessary to perform this Agreement. Buyer has all requisite corporate right, power, capacity and authority to consummate the transactions contemplated hereby, and this Agreement has been duly and validly executed and delivered pursuant to all necessary corporate action on the part of Buyer. 4.2.2 Assuming due authorization, execution and delivery by each of the Selling Entities, this Agreement is legal, valid and binding upon and enforceable against Buyer in accordance with its terms. 4.3 No Conflict; No Consents or Approvals. 4.3.1 Neither the execution and delivery by Buyer of this Agreement or any agreement, instrument or document contemplated hereby, nor the consummation of the transactions contemplated herein or therein by Buyer nor compliance by Buyer with any of the provisions hereof will conflict with, result in a violation or breach of, or constitute a default under (or would result in a violation, breach or default with the giving of notice or the passage of time or both) (i) the certificate of incorporation or bylaws of Buyer, (ii) any material contract, agreement, indenture, note, license or other instrument or obligation of Buyer or (iii) any law, statute, ordinance, writ, injunction, decree, rule, regulation or court or administrative order by which Buyer (or any of the properties or assets of Buyer) is subject or bound. 4.3.2 Buyer is not required to submit any notice, report or other filing with or to any Governmental Body in connection with the execution, delivery or performance of this Agreement or any agreement, instrument or document contemplated hereby to be executed and 20 26 delivered by Buyer and the consummation of the transactions contemplated hereby or thereby by Buyer. 4.3.3 No litigation, claim, administrative proceeding or other proceeding or governmental investigation is pending or, to Buyer's knowledge, threatened which would prevent or delay the execution, delivery or performance of this Agreement or any agreement, instrument or document contemplated hereby to be executed and delivered by Buyer or the consummation by Buyer of the transactions contemplated hereby. 5. COVENANTS OF THE SELLING ENTITIES 5.1 Conduct of Business. Prior to the Closing Date, each Subsidiary shall carry on its Business diligently and substantially in the same manner as heretofore, including compliance with all governmental rules and regulations and maintenance and renewal of all material governmental licenses and permits, and shall not make or institute any unusual or new methods of purchase, sale, shipment or delivery, lease management, accounting or operation, except as agreed to in writing by Buyer. All of the property of each Subsidiary shall be used, operated, repaired and maintained in a normal business manner consistent with past practice. 5.2 Absence of Material Changes. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, except as expressly contemplated by this Agreement, the Selling Entities shall not allow, cause or permit Modcomp or any of its Subsidiaries to do, cause or permit any of the following, without the prior written consent of Buyer. 5.2.1 Material Contracts. Enter into any contract or commitment, or violate, amend or otherwise modify or waive any of the terms of any of its Contracts, other than in the ordinary course of business consistent with past practice and in no event shall such contract, commitment, amendment, modification or waiver be in excess of $25,000; 5.2.2 Issuance of Securities. Issue, deliver or sell or authorize the issuance, delivery or sale of, or purchase any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities. 5.2.3 Intellectual Property. Transfer to any person or entity any rights to its Intellectual Property other than in the ordinary course of business consistent with past practice; 5.2.4 Exclusive Rights. Enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology; 5.2.5 Dispositions. Sell, lease, license or otherwise dispose of or encumber any of its properties or assets except in the ordinary course of business consistent with past practice; 21 27 5.2.6 Indebtedness. Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others except for any such indebtedness of a Subsidiary to another Subsidiary; 5.2.7 Leases. Enter into any operating lease; 5.2.8 Payment of Obligations. Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) (i) arising other than in the ordinary course of business, (ii) other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the Financial Statements or (iii) except in connection with the consummation of the transactions contemplated herein; 5.2.9 Capital Expenditures. Make any capital expenditures, capital additions or capital improvements except in the ordinary course of business and consistent with past practice; 5.2.10 Insurance. Materially reduce the amount of any material insurance coverage provided by existing insurance policies; 5.2.11 Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any employee benefit or stock purchase or option plan, or hire any new employee (except that it may hire a replacement for any current employee if it first provides Buyer advance notice regarding such hiring decision), pay any special bonus or special remuneration to any employee or director, or increase the salaries or wage rates of its employees; 5.2.12 Severance Arrangements. Grant any severance or termination pay (i) to any director or officer or (ii) to any other employee except (A) payments made pursuant to standard written agreements outstanding on the date hereof and included in the Disclosure Schedules or (B) grants which are made in the ordinary course of business in accordance with its standard past practice; 5.2.13 Lawsuits. Commence a lawsuit other than (i) for the routine collection of bills, (ii) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Buyer prior to the filing of such a suit, or (iii) for a breach of this Agreement; 5.2.14 Acquisitions. Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to its business or acquire or agree to acquire any equity securities of any corporation, partnership, association or business organization, or enter into any negotiations or discussions regarding any of the foregoing; 5.2.15 Distributions. Pay any dividend or make any distribution to any of the Selling Entities other than Modcomp. 22 28 5.2.16 Other. Take or agree in writing or otherwise to take, any of the actions described in Sections 5.2.1 through 5.2.15 above, or any action which would make any of the Selling Entities' representations or warranties contained in this Agreement untrue or incorrect or prevent any of the Selling Entities from performing or cause any of the Selling Entities not to perform their respective covenants hereunder. 5.3 Taxes. From and after the date hereof and until the Closing Date, each Selling Entity and Subsidiary shall, on a timely basis, file all Tax Returns and pay any and all Taxes which shall become due or shall have accrued on account of the operation of the Business on or prior to the Closing Date. 5.4 Compliance with Laws. From and after the date hereof and until the Closing Date, each Selling Entity and Subsidiary shall comply in all material respects with all Laws and Regulations which are applicable to it or to the conduct of the Business and will perform and comply in all material respects with the Contracts. 5.5 Continued Truth of Representations and Warranties of Selling Entities. No Selling Entity or Subsidiary will take any action which would result in any of the representations, warranties, covenants and agreements set forth in this Agreement becoming untrue, incorrect or unsatisfied in any material respect until the Closing Date. At the Closing, the Selling Entities shall update and deliver to Buyer the Disclosure Schedule (updated from the execution date through the Closing Date) set forth herein to be delivered by such party; provided, however, no such update shall affect the liability of the Selling Entities with respect to the representations and warranties given in Section 3. 5.6 Continuing Obligation to Inform. From time to time prior to Closing, the Selling Entities shall promptly deliver or cause to be delivered to Buyer supplemental information concerning events subsequent to the date hereof which would render any statement, representation or warranty in this Agreement or any information contained in any Schedule hereto inaccurate or incomplete in any material respect at any time after the date hereof until the Closing Date. 5.7 Exclusive Dealing. From and after the date hereof and until the Closing Date, no Selling Entity will, directly or indirectly, through any officer, director, stockholder, employee, agent, subsidiary or otherwise (a) solicit, initiate or encourage submission of proposals or offers from any person relating to any acquisition or purchase of all or a material portion of the assets of any of the Subsidiaries, or any equity interest in a Subsidiary or any equity investment, merger, consolidation or business combination with a Subsidiary, or (b) participate, or authorize, directly or indirectly, any other person to participate, in any negotiations with third parties regarding any of the foregoing. 5.8 Consents and Best Efforts. From and after the date hereof, the Selling Entities will take and complete all reasonable actions required hereunder, and the Selling Entities will cooperate with Buyer as is necessary, to obtain all applicable consents, approvals and agreements of, and to give all notices and make all filings with, any third parties as may be necessary to authorize, approve or permit the full and complete sale, conveyance, assignment or transfer of 23 29 the Assets. In addition, subject to the terms and conditions herein provided, the Selling Entities covenant and agree to use their reasonable best efforts to take or cause to be taken all things necessary, proper or advisable under applicable Laws and Regulations to consummate and make effective the transactions contemplated hereby. 5.9 Access to Financial, Operating and Other Information. From and after the date hereof and until the Closing Date, the Selling Entities will give Buyer, its counsel, financial advisors, auditors and other authorized representatives reasonable access during normal business hours to the offices, properties, books and records of the Subsidiaries and Modcomp. To the extent not previously provided, the Selling Entities will furnish to Buyer, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and all other information related to the Business as such persons may reasonably request and will instruct the Selling Entities' employees, counsel and financial advisors to cooperate with Buyer in its investigation of the Business; provided that no investigation pursuant to this section shall affect any representation or warranty given by the Selling Entities. 5.10 Relinquishment of Intellectual Property. From and after the Closing Date, the Selling Entities shall cease all use, dissemination and exploitation of the Intellectual Property. Within one month after the Closing Date, Modcomp will either dissolve or change its name so that it no longer includes the word "Modcomp". 6. COVENANTS OF BUYER 6.1 Continued Truth of Representations and Warranties of Buyer. Buyer will not take any action which would result in any of the representations, warranties, covenants and agreements set forth in this Agreement to be untrue or incorrect in any material respect at any time. 6.2 Continuing Obligation to Inform. From time to time prior to Closing, Buyer shall promptly deliver or cause to be delivered to Cerplex supplemental information concerning events subsequent to the date hereof which would render any statement, representation or warranty in this Agreement inaccurate or incomplete in any material respect at any time after the date hereof until the Closing Date. 6.3 Consents and Best Efforts. As soon as practicable, Buyer will take and complete all reasonable action required hereunder, and Buyer will cooperate with the Selling Entities as is necessary, to obtain all applicable consents, approvals and agreements of, and to give all notices and make all filings with, any third parties as may be necessary to authorize, approve or permit the full and complete sale, conveyance, assignment or transfer of the Shares. In addition, subject to the terms and conditions herein provided, Buyer covenants and agrees to use its reasonable best efforts to take or cause to be taken all things necessary, proper or advisable under applicable Laws and Regulations to consummate and make effective the transactions contemplated hereby. 6.4 Taxes and Other Obligations. Buyer agrees to be responsible for, and to timely pay, any and all stamp, duty, transfer and other taxes arising out of this Agreement or the 24 30 transactions contemplated hereby. Buyer agrees that, from and after the time of the Closing, Buyer and the Subsidiaries shall be responsible for, and shall discharge as they become due, any and all Assumed Liabilities, whether occurring on, prior to, or subsequent to the Closing. 6.5 Employees. At the Closing, the Buyer shall make an offer of employment to all Modcomp employees who are listed on Schedule 3.14.2 (as such Schedule exists as of Effective Date) under the heading, "Commitments to U.S.A. Individual Employees" and any additional employees hired pursuant to Section 5.2.11. The terms of said offers of Buyer to each such employee shall include the payment of compensation and benefits which are substantially equivalent in the aggregate to the compensation and benefits being provided to such employee immediately prior to the Closing Date. 6.6 Assignment Fees. Buyer shall pay all fees, costs and expenses (including attorney fees) incurred in connection with the transfer and assignment of any trademarks from Modcomp to Buyer as contemplated by this Asset Purchase Agreement. 7. CLOSING CONDITIONS AND DOCUMENTS 7.1 Conditions to Obligations of Buyer. The obligations of Buyer under this Agreement are subject to the conditions that, on or before the Closing Date: 7.1.1 All of the terms, covenants and conditions of this Agreement to be complied with and performed by the Selling Entities on or before the Closing Date shall have been duly complied with and performed in all material respects and the covenants of the Selling Entities set forth in Sections 5.2.11 and 5.2.15 have been duly complied with and performed in all respects; 7.1.2 All of the representations and warranties of the Selling Entities contained in Section 3 hereof shall be true and correct in all material respects as though given on the Closing Date; 7.1.3 Cerplex shall have delivered to Buyer a certificate executed by an executive officer of Cerplex, dated as of the Closing Date, to the effect that the conditions set forth in subsections 7.1.1 and 7.1.2 have been satisfied; 7.1.4 Modcomp shall have delivered to Buyer certificates for the Shares which shall constitute all of the issued and outstanding capital stock owned by Modcomp with respect to the Subsidiaries; 7.1.5 Modcomp shall have delivered to Buyer a Bill of Sale in the form attached hereto as Exhibit C and such other instruments as Buyer may reasonably request to effect the assignment and transfer of the Assets (including the Shares) to Buyer; 25 31 7.1.6 Modcomp shall have delivered to Buyer an Assignment and Assumption Agreement in the form attached hereto as Exhibit D and such other instruments as Buyer may reasonably request to effect the assignment of Modcomp's contract rights to Buyer; 7.1.7 Cerplex shall have delivered to Buyer an opinion of counsel dated as of the Closing Date in form and substance reasonably acceptable to Buyer; 7.1.8 Cerplex shall have delivered to Buyer opinions of foreign counsel dated as of the Closing Date in form and substance reasonably acceptable to Buyer; 7.1.9 Cerplex shall have delivered a certificate of the Secretary of each of the Selling Entities certifying as to the incumbency of officers and corporate resolutions to effect the transactions contemplated herein; 7.1.10 Buyer shall have received evidence reasonably satisfactory to it, of the termination of all loan agreements and security agreements relating to the Assets of Modcomp (including the Shares), of the termination and release of all liens and security interests in the Assets (including the Shares) and of the termination of any UCC financing statements with respect to the Assets (including the Shares) sufficient to permit Buyer to acquire the Assets (including the Shares) free and clear of any and all Encumbrances other than Permitted Encumbrances; 7.1.11 Modcomp shall have received the consent of Penn Florida Realty, L.P. regarding the assignment and assumption by the Buyer of those certain Leases for approximately 35,314 (Building 1) square feet of space at 1650 W. McNab Road, Fort Lauderdale, Florida and approximately 42,169 (Building 1A) square feet of space at 1650 W. McNab Road, Fort Lauderdale, Florida; and 7.1.12 All of the agreements and documents necessary to effect and perfect the Selling Entities' ownership of, or license to, all of their right, title, and interest in and to the Intellectual Property, including without limitation the Intellectual Property listed in Schedule 3.12, and to transfer such rights therein to Buyer, shall be duly and legally executed and either recorded in all relevant jurisdictions (if applicable) or delivered to Buyer, unless Buyer agrees in writing, to receive any such documents or agreements after the Closing Date. 7.1.13 All consents, approvals, notices or waivers required to transfer and assign the Contracts, the leases set forth in Schedule 3.9 and the licenses set forth in Schedule 3.12(iv) to Buyer shall be obtained unless Buyer agrees to waive the Selling Entities' obligations under this Section 7.1.13. 7.2 Conditions to Obligations of the Selling Entities. The obligations of the Selling Entities under this Agreement are subject to the conditions that, on or before the Closing Date: 7.2.1 All of the terms, covenants and conditions of this Agreement to be complied with and performed by Buyer on or before the Closing Date shall have been duly complied with and performed in all material respects; 26 32 7.2.2 Buyer shall have delivered to Cerplex a certificate executed by an executive officer of Buyer, dated as of the Closing Date, to the effect that the conditions set forth in Section 7.2.1 have been satisfied; 7.2.3 Buyer shall have delivered to Cerplex an opinion of counsel, dated as of the Closing Date, in form and substance reasonably acceptable to the Selling Entities; 7.2.4 Buyer shall have delivered the Purchase Price to Cerplex pursuant to the provisions of Section 2.2.2 hereof and the Escrow Agent shall have delivered the undisputed portion of the Deposit pursuant to the provisions of Section 2.2 hereof; 7.2.5 Buyer shall have delivered a certificate of the Secretary of Buyer certifying as to the incumbency of officers and corporate resolutions to effect the transactions contemplated herein; 7.2.6 If required, the filing of the notice required by, and expiration of the applicable waiting period under, the HSR Act shall have occurred, and the parties shall not have received any notice from the FTC or any other Governmental Body, of an intent to contest consummation of any of the transactions of intent contemplated herein; and 7.2.7 Buyer shall have executed and delivered to Cerplex an Assignment and Assumption Agreement in the form attached hereto as Exhibit D and such other instruments as the Selling Entities may reasonably request to effect the assumption by Buyer of the Assumed Liabilities. 8. INDEMNIFICATION 8.1 Indemnification of Buyer. The Selling Entities, jointly and severally, shall indemnify, and hold Buyer harmless against, any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), monetary damages, fines, fees, penalties, interest obligations, deficiencies, losses and expenses (including without limitation amounts paid in settlement, interest, court costs, reasonable fees and expenses of attorneys, accountants, financial advisors and other experts, and other expenses of litigation) ("Losses") incurred or suffered by Buyer or the Subsidiaries resulting from, relating to or constituting any misrepresentation or breach of warranty or breach of any covenant or agreement of any of the Selling Entities contained in this Agreement. 8.2 Limitations on Indemnification. 8.2.1 The obligation of the Selling Entities to indemnify Buyer for Losses arising under Section 8.1 shall be limited as to amount, as follows: (a) Cerplex shall not be required to indemnify Buyer for any claim hereunder which is not an Indemnifiable Claim. An "Indemnifiable Claim" with respect to 27 33 either Buyer or the Selling Entities shall mean any Loss arising from any single circumstance which exceeds $5,000; (b) To the extent that the aggregate amount of Losses from Indemnifiable Claims exceeds $250,000, Cerplex shall indemnify Buyer for such Losses in excess of such $250,000. It is understood that such indemnity will include the first $5,000 (or portion thereof) of an Indemnifiable Claim if such $5,000 (or portion thereof) is not required to meet such $250,000 deductible. 8.2.2 Notwithstanding any other provision to the contrary, Cerplex shall not be liable for total aggregate Losses in excess of $2,000,000. 8.2.3 The Selling Entities shall not be required to indemnify Buyer for any indemnifiable liability or reimbursement under this Section 8 to the extent Buyer has actually been reimbursed by a third-party insurer in respect of the underlying loss; provided, however, that the limitation set forth in this subsection 8.2.3 shall in no way affect any claim, by way of subrogation or otherwise, that any such third-party insurer may have against the Selling Entities. In any case in which Buyer has a reasonable claim under third-party insurance for all or a portion of an indemnifiable liability or reimbursement from the Selling Entities hereunder, Buyer agrees to file a claim for recovery of such liability or reimbursement (or portion thereof) and to take any and all other reasonable actions with respect thereto. To the extent that such claim (or any portion thereof) is not paid by such third-party insurer within 60 days of the date of filing of such claim, then, with respect to such claim (or portion thereof), the obligation of the Selling Entities to indemnify Buyer shall be the same as if Buyer had no such insurance; provided, however, that if Buyer is ultimately paid for such claim and the Selling Entities previously reimbursed Buyer for such indemnifiable liability or reimbursement, then Buyer shall immediately remit to the Selling Entities the amount of insurance proceeds received pursuant to such claim to the extent Buyer was reimbursed by the Selling Entities therefor. 8.2.4 Buyer shall not be entitled to make any claim for indemnification arising under Section 8.1 after the date which is twelve (12) months after the Closing Date (the "Cut-off Date") and the representations and warranties of Cerplex contained herein or in any certificates, schedules or other documents delivered prior to or at the Closing shall expire with, and be terminated and extinguished on, the Cut-off Date; provided, however, that indemnification claims may be made with respect to (a) any breach of a representation or warranty contained in Section 3.22 or 3.24 at any time prior to the third anniversary of the Closing, (b) any breach of a representation or warranty contained in Section 3.8 at any time prior to the expiration of the applicable statute of limitations (as the same may be extended from time to time), and (c) any breach of a representation contained in Section 3.2 at any time, and each such representation and warranty shall survive the Closing until such time as indemnification claims can no longer be validly made with respect thereto. If a claim for indemnification is asserted in good faith prior to the Cut-off Date (or such later date as provided in this Section 8.2.3), then (notwithstanding the expiration of such time period) such claim and, if such claim is based on the alleged breach of a representation or warranty, such representation or warranty shall survive until the resolution of such claim. 28 34 8.3 Third-Party Claims. 8.3.1 In the event that any legal proceedings shall be instituted or any claim or demand shall be asserted by any Person in respect of which indemnification may be sought by Buyer from the Selling Entities under the provisions of this Section 8 (a "Third-Party Claim") Buyer shall cause written notice of the assertion of any Third-Party Claim of which it has knowledge that is covered by this indemnity to be forwarded promptly to Cerplex; provided that the failure of Buyer to give timely notice shall not affect rights to indemnification hereunder except to the extent that the Selling Entities have been damaged by such failure. Cerplex shall have the right, at its option and at its own expense, to be represented by counsel of its choice and to participate in the defense, negotiation and/or settlement of any Third-Party Claim. 8.3.2 In connection with any Third-Party Claim, Cerplex, at the sole cost and expense of Cerplex, may, upon written notice to Buyer, assume the defense of any such Third-Party Claim if (i) Cerplex acknowledges in writing the obligation of Cerplex to indemnify in accordance with the terms of this Agreement Buyer with respect to such Third-Party Claim, (ii) the Third-Party Claim seeks monetary damages solely and (iii) an adverse resolution of the Third-Party Claim would not have a Material Adverse Effect on the goodwill or reputation of the Business, on the future conduct of the Business by Buyer (or on Buyer) or on the Tax or accounting policies or positions of Buyer or the Subsidiaries; provided, however, that Buyer may participate in any such proceeding with counsel of its choice and at its own expenses; and provided further, however, that if Cerplex assumes control of such defense and Buyer reasonably concludes that Cerplex and Buyer have conflicting interests or different defenses available with respect to such action, suit or proceeding, the reasonable fees and expenses of counsel to Buyer shall be considered "Losses" for purposes of this Agreement. The party controlling the defense shall keep the other party advised of the status of such action, suit or proceeding and the defense thereof and shall consider in good faith recommendations made by the other party with respect thereto. If Cerplex assumes control of any Third Party Claim as provided herein, Buyer shall make available to Cerplex all records and other materials in its possession pertaining to the defense of such Third Party Claim. 8.3.3 Buyer shall not agree to any settlement of such action, suit or proceeding without the prior written consent of Cerplex, which shall not be unreasonably withheld, unless Buyer waives any right to indemnity therefor by Cerplex. 8.3.4 The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any Third-Party Claim. 8.3.5 After final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or Buyer and Cerplex shall have arrived at a mutually binding agreement with respect to each separate matter indemnified by Cerplex, Buyer shall forward to Cerplex notice of any sums due and owing by Cerplex with respect to such matter and Cerplex shall pay all of the sums so owing to Buyer by check within 10 days after the date of such notice. 29 35 8.4 Indemnification of Selling Entities. The Buyer shall indemnify and hold the Selling Entities harmless against any and all Losses incurred or suffered by the Selling Entities resulting from any misrepresentation or breach of any covenant or agreement by Buyer or failure by Buyer to pay or otherwise discharge any Assumed Liability or to cause the payment by the Subsidiaries of their respective liabilities which are expressly assumed by the Buyer pursuant to this Agreement. 8.5 Exclusive Remedy. The sole and exclusive remedy of any party with respect to any monetary Loss suffered or incurred by such party shall be to seek indemnity pursuant to the provisions of this Section 8. 9. TERMINATION AND CERTAIN WAIVERS AND DAMAGE 9.1 If the Closing fails to occur on or by August 29, 1997 (the "Deadline") due to the breach or default of Buyer, then the Deposit shall be deemed liquidated damages to Cerplex, the Escrow Agent shall deliver the Deposit (and any income thereon) to Cerplex (subject to the terms and conditions of the Escrow Agreement) and neither party shall have any further rights or obligations hereunder. If the Closing fails to occur on or prior to the Deadline due to the breach or default of the Selling Entities, then Buyer, in its sole discretion, may terminate this Agreement and all of each party's respective obligations and duties hereunder at any time during the ten (10) days following the Deadline by delivering written notice thereof to the Selling Entities and, upon such termination, the Escrow Agent shall refund the Deposit (and any income thereon) to Buyer (subject to the terms and conditions of the Escrow Agreement); provided, however, such termination by Buyer shall in no event affect any other rights Buyer may have to seek monetary damages for breach of contract. If the Closing under this Agreement fails to occur on or before the Deadline due to no breach or default of Buyer or the Selling Entities under this Agreement, then any party hereto may terminate this Agreement and all of each parties' respective obligations and duties hereunder by delivering written notice thereof to the other parties, and upon such termination, the Escrow Agent shall refund the Deposit (including any income thereon) to Buyer (subject to the terms and conditions of the Escrow Agreement). The parties agree that the liquidated damages provision set forth above is reasonable, considering all of the circumstances existing as of the date of this Agreement and the anticipation that proof of actual damages would be extremely difficult and costly. 9.2 Notwithstanding anything to the contrary in this Agreement, if prior to the Closing, any one or more of the Selling Entities or Subsidiaries makes an assignment for the benefit of creditors or files a petition for bankruptcy or reorganization under any federal or state law, or is the subject of such a petition filed by a third party, and whether such filing is voluntary or involuntary (any such event being referred to as a "Bankruptcy Event"), then this Agreement shall automatically terminate, and the Deposit (and any income thereon) shall be delivered to Buyer upon notice by Buyer to the Escrow Agent. The Selling Entities acknowledge and agree that in case of a Bankruptcy Event, the Deposit (and any income thereon) is and shall be the property of the Buyer and shall not constitute any part of the estate of any Selling Entity. 10. GENERAL PROVISIONS 30 36 10.1 Survival of Representations, Etc. All representations and warranties contained herein or in any certificate or instrument delivered pursuant to this Agreement or the transactions contemplated hereby shall survive for a period of twelve (12) months following the Closing, except that (i) representations and warranties in Sections 3.22 and 3.24 shall survive for three (3) years from the Closing, (ii) representations and warranties in Section 3.8 shall survive until the execution of the applicable statute of limitations (as the same may be extended from time to time) and (iii) representations and warranties in Section 3.2 shall survive without any time limitation. All statements contained in the Schedules hereto or in any certificate delivered pursuant to the transactions contemplated hereby shall be deemed to be representations and warranties of the Selling Entities or Buyer contained herein. 10.2 Benefit of Counsel. Each of the parties hereto has obtained the advice of legal counsel prior to entering into this Agreement. Each of the parties hereto executes this Agreement with full knowledge of its significance and with the express intention of effecting its legal consequences. 10.3 Further Assurances. At the request of any of the parties hereto, and without further consideration, the other parties agree to execute such documents and instruments and to do such further acts as may be necessary or desirable to effectuate the transactions contemplated hereby. 10.4 Construction of Agreement. This Agreement is the product of negotiation and preparation by and among each party and their respective attorneys. Therefore, the parties acknowledge and agree that this Agreement shall not be deemed prepared or drafted by one party or another and should be construed accordingly. 10.5 Each Party to Bear Own Costs. Buyer and the Selling Entities shall each pay all of their own respective costs and expenses incurred or to be incurred in negotiating and preparing this Agreement and in carrying out the transactions contemplated by this Agreement. 10.6 Brokers and Finders. Each of the parties hereto shall pay, and shall hold the other party harmless from, any and all fees, costs and expenses incurred, or to be incurred, by such party with respect to such party's use of or dealings with a broker or finder (including, without limitation, any commissions or finder's fees) in connection with the transactions contemplated by this Agreement. 10.7 Headings. The subject headings of the Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. 10.8 Entire Agreement; Waivers. This Agreement and the Exhibits and Schedules hereto, which are incorporated herein by reference, constitute the entire agreement between the parties pertaining to the contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor 31 37 shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 10.9 Third Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over against any party to this Agreement. 10.10 Successors and Assigns. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors, and assigns, although the parties' obligations to pay or receive funds hereunder are not assignable. Subject to the above sentence, Buyer shall be entitled to assign its rights, but not its obligations, hereunder to any wholly- owned subsidiary of Buyer. 10.11 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows: To Buyer: CSP, Inc. 40 Linnell Circle Billerica, MA 01821 Attn: President With a copy to: Foley, Hoag & Eliot LLP One Post Office Square Boston, MA 02109 Attn: Dean Hanley, Esq. To the Selling Entities at: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, CA 92780 Attn: Chief Financial Officer With a copy to: Brobeck, Phleger & Harrison LLP 4675 MacArthur Court Suite 1000 Newport Beach, CA 92660 Attn: Frederic A. Randall, Jr. Any party may change its address for purposes of this paragraph by giving notice of the new address to each of the other parties in the manner set forth above. 32 38 10.12 Attorneys' Fees. If any party to this Agreement shall bring any action (whether in a court of law or through any alternate dispute resolution), counterclaim or appeal for any relief against the other, declaratory or otherwise, to enforce the terms hereof or to declare rights hereunder (including any dispute arising over the Escrow Agreement), the Prevailing Party shall be entitled to recover its reasonable attorneys' fees and costs, including any fees and costs incurred in bringing and prosecuting such an action, counterclaim or appeal and/or enforcing any order, judgment, ruling or award granted as part of such action. The "Prevailing Party" shall be determined by the court, arbitrator or other person deciding such action, counterclaim or appeal, and such court, arbitrator or other person shall either designate one or none of the parties as the Prevailing Party. For purposes of this Section 10.12, the Selling Entities shall be collectively referred to as a "party". If neither party is deemed the Prevailing Party hereunder, then each party shall bear its own costs and expenses in connection with such action, counterclaim or appeal. 10.13 Governing Law. The terms of this Agreement shall be governed by the laws of the State of California without reference to the choice of law principles thereof. 10.14 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 10.15 Severability. All provisions contained herein are severable and in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties' expressed intent; and in every case the remainder of this Agreement shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 10.16 Publicity. Except for any public disclosure which Cerplex or Buyer in good faith believes is required by law or applicable stock exchange rules, no party shall issue any press release or make any public statement regarding the transactions contemplated hereby, without the prior written approval of the other party, which shall not be unreasonably withheld; provided, however that if public disclosure is required by such law or applicable stock exchange rule, the party subject to such law or rule shall use its best efforts to inform the other party or parties prior to the issuance of any such press release or public statement. The parties hereto shall issue a mutually acceptable press release as soon as practicable after the execution of this Agreement and as soon as practicable after the Closing. 10.17 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties hereto and their respective successors and permitted assigns. [Signature Page to Follow] 33 39 SIGNATURE PAGE FOR ASSET PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase Agreement as of the date first above written. CSP INC. By: /s/ --------------------------------------------- Its: -------------------------------------------- THE CERPLEX GROUP, INC. By: /s/ --------------------------------------------- Its: Chief Executive Officer CERPLEX SUBSIDIARY, INC. By: /s/ --------------------------------------------- Its: Chief Financial Officer MODCOMP JOINT VENTURE, INC. By: /s/ --------------------------------------------- Its: President MODCOMP/CERPLEX, L.P. By: /s/ --------------------------------------------- Its: President of Modcomp Joint Venture, Inc., as general partner of Modcomp/Cerplex, L.P. By: /s/ --------------------------------------------- Chief Financial Officer of Cerplex Subsidiary, Inc., as general partner of Modcomp/Cerplex, L.P. 34 EX-3.3 3 CERTIFICATE OF AMENDMENT FILED JUNE 16, 1997 1 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE CERPLEX GROUP, INC. It is hereby certified that: 1. That the name of the corporation is The Cerplex Group, Inc. 2. The Certificate of Incorporation of the corporation is hereby amended by deleting Paragraph A of Article IV and by substituting in lieu of said paragraph the following new paragraph: "ARTICLE IV A. Classes of Stock. The corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Sixty Five Million (65,000,000) shares. Sixty Million (60,000,000) shares shall be Common Stock, par value $.001 per share, and Five Million (5,000,000) shares shall be Preferred Stock, par value $.001 per share." 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. Signed and attested to on June 12, 1997. THE CERPLEX GROUP, INC. By: /s/ ---------------------------------------- William A. Klein, Chairman, President and Chief Executive Officer Attest: /s/ - ---------------------------------------- Frederic A. Randall, Secretary EX-4.27 4 FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.27 FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT THIS FIFTH AMENDMENT TO REGISTRATION RIGHTS 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"), the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor" and collectively as the "Investors," the security holders of the Company listed on Schedule B hereto, each of which is herein referred to as a "Stockholder" and collectively as the "Stockholders," the banks listed on Schedule C hereto, each of which is herein referred to as a "Bank Holder" and collectively as the "Bank Holders," and the parties listed on Schedule D hereto, each of which is herein referred to as a "Series B Preferred Holder" and collectively as the "Series B Preferred Holders." A. The Company, the Investors, the Stockholders, the Bank Holders, the Series B Preferred Holders and certain other investors and stockholders are parties to a Registration Rights Agreement dated November 19, 1993 (as in effect prior to the effectiveness of this Amendment, the "Existing Registration Rights Agreement"). B. Pursuant to a First Amendment to Credit Agreement and Limited Waiver (the "Bank Amendment and Waiver Agreement") dated as of April 15, 1996 among the Company, Wells Fargo Bank, National Association, as administrative agent, and the Bank Holders and a Warrant Agreement (the "Bank Warrant Agreement") dated as of April 15, 1996 among the Company and the Bank Holders, the Company issued one hundred twenty-five thousand (125,000) warrants (the "Original Bank Warrants") to purchase Common Stock (as such term is defined in the Existing Registration Rights Agreement) to the Bank Holders; the number of such Original Bank Warrants is subject to reduction, as more particularly provided for in the Bank Warrant Agreement. C. Pursuant to a Third Amendment to Credit Agreement (the "Bank Third Amendment") dated as of April 9, 1997 among the Company, Wells Fargo Bank, National Association, as administrative agent, and the Bank Holders and the Amended and Restated Warrant Agreement (the "Amended Bank Warrant Agreement") dated as of April 9, 1997 among the Company and the Bank Holders, the Company is issuing seven hundred fifty thousand (750,000) warrants (the "Additional Bank Warrants," and, together with the Original Bank Warrants, the "Bank Warrants") to purchase Common Stock to the Bank Holders; the number of such Additional Bank Warrants is subject to reduction, as more particularly provided for in the Amended Bank Warrant Agreement. D. The Company has requested that the Existing Registration Rights Agreement be amended to include the Additional Bank Warrants, as more particularly provided herein. 2 E. The Company, the Investors, the Stockholders, the Bank Holders and the Series B Preferred Holders agreed to amend the Existing Registration Rights 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: "Additional Bank Warrants" -- Recital C. "Amended Bank Warrant Agreement" -- Recital C. "Amendment, this" -- the introductory sentence. "Bank Amendment and Waiver Agreement" -- Recital B. "Bank Holders" -- the introductory sentence. "Bank Third Amendment" -- Recital C. "Bank Warrant Agreement" -- Recital B. "Bank Warrants" -- Recital C. "Company" -- the introductory sentence. "Existing Registration Rights Agreement" -- Recital A. "Investors" -- the introductory sentence. "Original Bank Warrants" -- Recital B. "Stockholders" -- the introductory sentence. SECTION 2. AMENDMENTS. 2.1 Amendments to Section 1.1 of the Existing Registration Rights Agreement 2 3 (a) Section 1.1 of the Existing Registration Rights Agreement is hereby amended by amending and restating the following definitions, in their entirety, as set forth below: The term "Bank Holders" means (a) each of the banks set forth on Schedule C hereto for so long as they hold any Bank Warrants issued on April 15, 1996 (the "Original Bank Warrants") or on April 9, 1997 (the "Additional Bank Warrants") or any Common Stock issued pursuant to the exercise of such Bank Warrants and (b) any successors thereto or direct or successive transferees thereof; it being the intention of the parties hereto that any successive holder of a Bank Warrant, or the Common Stock issued upon the exercise of such Bank Warrant, which Bank Warrant derived from an Original Bank Warrant or an Additional Bank Warrant, shall be included in this definition, provided that any holder of shares of Common Stock issued upon the exercise of any Original Bank Warrant, any Additional Bank Warrant or any Bank Warrant that derived from such Original Bank Warrant or Additional Bank Warrant which shares have been, or derive from shares that have been, publicly sold pursuant to a registration statement filed under the Act or pursuant to Rule 144 shall, to the extent of its holdings of such shares, be excluded from this definition. Any decisions to be made by the Bank Holders shall be made upon a vote or a majority in interest of holders of the aforesaid Bank Warrants and the aforesaid Common Stock on the basis of the number of shares of Common Stock issuable pursuant to such Bank Warrants and the number of shares of such Common Stock then held. Rights of successors, assigns and transferees of Bank Holders are subject to compliance with the requirements of Section 1.13. The term "Bank Warrants" means those certain warrants issued by the Company to each of the banks set forth on Schedule C hereto on April 15, 1996 pursuant to that certain Warrant Agreement dated as of April 15, 1996 and those certain warrants issued by the Company to each of the banks set forth on Schedule C hereto on April 9, 1997 pursuant to that certain Amended and Restated Warrant Agreement dated as of April 9, 1997 and all warrants exchanged therefor or otherwise subsequently issued in respect thereof under said Amended and Restated Warrant Agreement. 2.2 Addition of Schedule C to Existing Registration Rights Agreement Schedule C to the Existing Registration Rights Agreement is hereby deleted and Schedule C hereto replaced therefor. SECTION 3. MISCELLANEOUS. 3.1 Additional Bank Holder to Become Party Citibank, N.A. by executing this Amendment shall become a party to, and shall be obligated and bound by the provisions of, the Existing Registration Rights Agreement, as 3 4 amended by this Amendment. For purposes of the avoidance of doubt, such Bank Holder acknowledges that (a) the Bank Warrants are separate and distinct from the "Warrants" (as such term is defined in the Existing Registration Rights Agreement) and the 1996 Warrants; and (b) the Bank Holders are not "Investors" (as such term is defined in the Existing Registration Rights Agreement) and are not entitled to any of the rights of the Investors under the Existing Registration Rights Agreement, as amended hereby, and are not "Warrant Group Holders" (as such term is defined in the Existing Registration Rights Agreement) and are not entitled to any of the rights of Warrant Group Holders under the existing Registration Rights Agreement, as amended hereby. 3.2 Governing Law This Amendment shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York. 3.3 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. 3.4 Effect of this Amendment Except as specifically provided in this Amendment, no terms or provisions of the Existing Registration Rights Agreement have been modified or changed by this Amendment and the terms and provisions of the Existing Registration Rights 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 upon the execution and delivery hereof by (i) each of the Investors, (ii) sixty-seven percent in interest of the Stockholders, (iii) each of the Bank Holders, (iv) sixty-seven percent in interest of the Series B Preferred Holders and (v) the Company. 3.5 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. 4 5 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 /s/ ------------------------------------------- Name: Title: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By /s/ ------------------------------------------- Name: Title: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By /s/ ------------------------------------------- Name: Title: NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC By /s/ ------------------------------------------- Name: Title: [Signature page to the FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 5 6 Each of the undersigned Bank Holders agrees to be bound by the terms and conditions of the Existing Registration Rights Agreement, as amended by this Fifth Amendment to Registration Rights Agreement WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ --------------------------------------- Name: Title: BHF - BANK AKTIENGESELLSCHAFT By: /s/ --------------------------------------- Name: Title: By: /s/ --------------------------------------- Name: Title: CITIBANK, N.A. By: /s/ --------------------------------------- Name: Title: [Signature page to FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 6 7 Each of the undersigned Stockholders agrees to be bound by the terms and conditions of the Existing Registration Rights Agreement, as amended by this Fifth Amendment to Registration Rights Agreement /s/ - -------------------------------------- Name: William A. Klein Address: 1382 Bell Avenue Tustin, California 92680 /s/ - -------------------------------------- Name: Richard C. Davis Address: 1382 Bell Avenue Tustin, California 92680 /s/ - -------------------------------------- Name: Myron Kunin Address: Regis Corporation 7201 Metro Boulevard Minneapolis, MN 55439 /s/ - -------------------------------------- Name: Theodore J. Wisniewski Address: 1382 Bell Avenue Tustin, California 92680 [Signature page to FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 7 8 Each of the undersigned Investors agrees to be bound by the terms and conditions of the Existing Registration Rights Agreement, as amended by this Fifth Amendment to Registration Rights Agreement SPROUT GROWTH II, L.P. By: DLJ Capital Corporation, Managing General Partner By: /s/ -------------------------------------- Robert Finzi, Attorney-in-Fact DLJ CAPITAL CORPORATION By: /s/ -------------------------------------- Robert Finzi, Attorney-in-Fact BESSEMER VENTURE PARTNERS III L.P. By: Deer III & Co., General Partner By: /s/ -------------------------------------- Robert H. Buescher, General Partner By: /s/ -------------------------------------- Robert H. Buescher, Attorney-in-Fact [Signature page to FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 7 9 Each of the undersigned Series B Preferred Holders agrees to be bound by the terms and conditions of the Existing Registration Rights Agreement, as amended by this Fifth Amendment to Registration Rights Agreement SCORPION OFFSHORE INVESTMENT FUND By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as Investment Advisor to Scorpion Offshore Investment Fund THE & TRUST By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as Investment Advisor to The & Trust CHESTNUT PACIFIC LTD. PARTNERS By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as Investment Advisor to Chestnut Pacific Ltd. Partners STANDARD GLOBAL EQUITY PARTNERS L.P. By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as General Partner of Standard Global Equity Partners L.P. [Signature page to FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 8 10 STANDARD PACIFIC CAPITAL OFFSHORE FUND LTD. By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as Investment Advisor to Standard Pacific Capital Offshore Fund Ltd. COMMON FUND EQUITY FUND By: /s/ -------------------------------------- Name: Ralph J. Long, Jr. Title: Chief Financial Officer, Standard Pacific Capital LLC, as Investment Advisor to Common Fund Equity Fund WHITMAN PARTNERS, L.P. By: /s/ -------------------------------------- Name: Douglas F. Whitman Title: General Partner [Signature page to FIFTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Bank Holders, Investors, Stockholders and Series B Preferred Holders listed therein.] 10 11 SCHEDULE A Schedule of Investors Warrant Investors 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 1.0. Hambro & Co., Ltd. 30 Queen Anne's Gate London, England SWIH9AL Independent Equity Group Sprout Growth II, L,P. DLJ Capital Corp. Deepak Kamra Bessemer Venture Partners II L.P. Neill H. Brownstein Robert H. Buescher C. Samantha Chen Rodney A. Cohen Richard R. Davis Adam P. Godfrey Barbara M. Heragan Robert D. Lindsay Bradford Mills Thomas F. Ruhm Ward W. Woods, Jr. Leo & Nicole Arnaboldi, JTWROS Perry H. Braun Norman H. Brown, Jr. John G. Danhakl Hoyt L. Davidson Thompson Dean Peter K. Deeks Ralph L. DeGroff, Jr. Anthony M. DeLuise Schedule A-1 12 David L. Dennis Thomas S. DePre Robert E. Diemar Robert Finzi Daniel K. Flatley Mark K, Gormley Joyce I. Greenberg Thomas G. Greig, III James D. Hann & Bonnie J. Hann, JTWROS Douglas M. Hayes Stephen J. Ketchum Richard E. Kroon Frederick C. Lane Mark Lanigan Steven E. Lebow Brian McLoughlin Kenneth David Moelis & Julie Lynn Moelis, Trustees Under The Moelis Family Trust Joseph Navin, III Michael R. Nicolais Peter J. Nolan Steven G. Puccinelli Larry E. Reeder Elan Adiel Schultz James T. Sington Jon R. Stone Steven F. Strandberg Kenneth A. Tucker R. Scott Turricchi Warren Woo Kirk B. Wortman Schedule A-2 13 SCHEDULE B Schedule of Stockholders Catherine Bartholomew Frank Cameron Tom Cherry Roberta Claborn David O. Creasman Raymond Cruz Richard C. Davis Randle Dewees Edward Diaz Susan Eaton Harry Edmiston Dennis Fandrich Jon Gill Jacqueline Gillett Gary Graff Nelson Guillory Peggy Hams Jerome Jacobson James Jones Roberta Kean Jennifer Klein Melissa Klein William A. Klein Myron Kunin Pollianna Lewis Van Nguyen Richard Ollech Thomas D. Pipkin Juanita Pitts Keith Rathbone Richard Richardson Vincent E. Simpson Grover Smith Joyce Valdez Earnest Vernon Alan Weaver Theodore J. Wisniewski Schedule B-1 14 SCHEDULE C Schedule of Bank Holders Wells Fargo Bank, National Association BHF - Bank Aktiengesellschaft Citibank, N.A. Schedule C-1 15 SCHEDULE D Schedule of Series B Preferred Holders Sprout Growth II, L.P. DLJ Capital Corporation Scorpion Offshore Investment Fund The & Trust Chestnut Pacific Ltd. Partners Standard Global Equity Partners L.P. Standard Pacific Capital Offshore Fund Ltd. Common Fund Equity Fund Malcolm and Emily Fairbairn Andrea Martin Nitin T. Mehta Peak Investment Limited Partnership Pleiades Investment Partners Whitman Partners, L.P. Schedule D-1 EX-4.28 5 WAIVER AGREEMENT DATED AS OF JUNE 30. 1997 1 EXHIBIT 4.28 WAIVER AGREEMENT WAIVER AGREEMENT (this "Agreement"), dated as of June 30, 1997, 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 Amended and Restated Note Purchase Agreements, each dated as of April 9, 1997 (collectively, the "Note Purchase Agreement"), with each of the Noteholders, pursuant to which the Company and the Noteholders agreed to, among other things, the amendment and restatement of an aggregate principal amount of $17,250,000 of the Company's Senior Subordinated Notes Due November 19, 2001 (as amended and restated, the "Notes"). B. The Noteholders are the current holders of 100% of the Notes outstanding as of the Effective Date. C. The Company has notified the Noteholders of certain actual and potential Defaults and Events of Default under Section 6.18, Section 6.19, Section 6.20 and Section 6.21 of the Note Purchase Agreement (the "Noticed Events of Default") and has requested that the Noteholders waive the Noticed Events of Default. D. The Noteholders are agreeable, subject to the terms and conditions set forth below, to granting the aforesaid waivers as set forth herein. E. 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: 1 2 SECTION 1. WAIVER. Subject to the satisfaction of the conditions set forth in Section 3, the Noteholders hereby waive, on the Effective Date, each of the Noticed Events of Default and agree that the effectiveness of each of Section 6.18, Section 6.19, Section 6.20 and Section 6.21 of the Note Purchase Agreement shall be temporarily suspended from and including the Effective Date to and including the earlier to occur of (i) 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 (ii) July 10, 1997 (the "Reinstatement Date"). On and after the Reinstatement Date, each of Section 6.18, Section 6.19, Section 6.20 and Section 6.21 of the Note Purchase Agreement 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. 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: 2.1 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 authorization 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 3 2.2 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. 2.3 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 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 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. 2.4 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 3 4 been waived and no Senior Nonpayment Default Notice has been issued by any holder of Senior Debt. 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. (b) 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. 2.5 NO OTHER PAYMENTS. Other than the restructure fee due to the holders of Senior Debt on June 30, 1997 pursuant to Subsection 2.3C of the Wells Fargo Credit Agreement, the Company has made no payment, or given any other consideration, to any Noteholder or to any holder of Senior Debt to induce any of such Persons to enter into this Agreement or the Credit Agreement Waiver contemplated by Section 3.2. SECTION 3. CONDITIONS. The waiver by the Noteholders set forth in Section 1 shall become effective upon the satisfaction of the following conditions (the "Effective Date"): 3.1 EXECUTION AND DELIVERY OF THIS AGREEMENT. The Company and the Required Holders shall have executed and delivered counterparts of this Agreement. 3.2 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 (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 Fifth Amendment to Credit Agreement and Limited Waiver (the "Credit Agreement Waiver") entered into among the Company and the holders of Senior Debt, in the form of the execution draft of the Credit Agreement 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 Credit Agreement Waiver cures or waives all defaults and all events of default which exist under the Senior Credit Documents. 4 5 3.3 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 2 hereof shall be true and correct on the Effective Date. 3.4 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). 3.5 WAIVER BY HOLDERS OF SENIOR DEBT. The waiver by the Noteholders set forth in Section 1 shall be of no force or effect, and the Effective Date shall be deemed not to have occurred, if the Company shall pay or cause to be paid, directly or indirectly, any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any creditor (including, without limitation, any holder of Senior Debt, other than the restructure fee due to the holders of Senior Debt on June 30, 1997 pursuant to Subsection 2.3C of the Wells Fargo Credit Agreement) as consideration for, or as an inducement to, such creditor entering into any forbearance, waiver, amendment or similar agreement, unless such renumeration is concurrently paid, on the same terms, ratably to each Noteholder. 3.6 PROCEEDING 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 4. MISCELLANEOUS. 4.1 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW. 4.2 DUPLICATE ORIGINALS. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall by 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 5 6 hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 4.3 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. This Agreement and the waivers contained herein shall have and be in effect on and after the Effective Date. 4.4 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. 4.5 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. 4.6 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 4.6 shall survive the payment or prepayment of the Notes and the termination of the Note Purchase Agreement. 4.7 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: 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: [Signature page to the Waiver Agreement among The Cerplex Group, Inc. and the Noteholders listed therein] 7 EX-4.29 6 SIDE LETTER DATED JULY 10, 1997 1 EXHIBIT 4.29 THE CERPLEX GROUP, INC. July 10, 1997 VIA FACSIMILE TRANSMISSION To the Persons on the Distribution List Attached Hereto Ladies and Gentlemen: We refer to that certain Waiver Agreement (the "Waiver Agreement"), dated as of June 30, 1997, among The Cerplex Group, Inc., The Northwestern Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company and North Atlantic Smaller Companies Investment Trust plc. Capitalized terms are used herein with the meanings assigned thereto in the Waiver Agreement. We hereby request that you amend the Waiver Agreement by deleting the date "July 10, 1997" set forth in clause (ii) of the first sentence of Section 1 of the Waiver Agreement and substituting "August 8, 1997" therefor. We hereby represent to each of you that (after giving effect to the Waiver Agreement, as amended hereby) no Default or Event of Default under the Note Purchase Agreement exists as of the date hereof and that the warranties and representations set forth in Section 2 of the Waiver Agreement are true and correct as of the date hereof. The aforesaid amendment shall become effective upon the execution of a counterpart of this letter by each of you and upon the Limited Waiver, dated as of July 10, 1997, among the Company and the holders of Senior Debt becoming effective. Except as specifically provided in this letter, no terms or provisions of the Waiver Agreement have been modified or changed by this letter. 8 2 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: AGREED and CONSENTED TO: 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: EX-4.30 7 SIDE LETTER DATED AUGUST 6, 1997 1 EXHIBIT 4.30 THE CERPLEX GROUP, INC. August 6, 1997 VIA FACSIMILE TRANSMISSION To the Persons on the Distribution List Attached Hereto Ladies and Gentlemen: We refer to that certain Waiver Agreement (the "Waiver Agreement"), dated as of June 30, 1997, among The Cerplex Group, Inc. (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"), as modified by that certain letter agreement (the "Letter Agreement" and together with the Waiver Agreement, the "Amended Waiver Agreement"), dated July 10, 1997, among the Company and the Noteholders. Capitalized terms are used herein with the meanings assigned thereto in the Amended Waiver Agreement. The Company hereby requests that you amend the Amended Waiver Agreement by deleting the date "August 8, 1997" set forth in clause (ii) of the first sentence of Section 1 of the Amended Waiver Agreement and substituting "August 14, 1997" therefor. The Company hereby represents to each of you that (after giving effect to the Amended Waiver Agreement, as further amended hereby) no Default or Event of Default under the Note Purchase Agreement exists as of the date hereof and that the warranties and representations set forth in Section 2 of the Waiver Agreement are true and correct as of the date hereof. The aforesaid amendment shall become effective upon the execution of a counterpart of this letter by each of you and upon the Sixth Amendment to Credit Agreement and Consent (the "Bank Amendment"), dated as of August 6, 1997, among the Company and the holders of Senior Debt becoming effective. Except as specifically provided in this letter, no terms or provisions of the Amended Waiver Agreement have been modified or changed by this letter. In addition to the foregoing request, the Company also hereby requests that you consent to the sale of the assets of Modcomp/Cerplex L.P., a Delaware limited 2 partnership ("Modcomp"), including, without limitation, the sale of the capital stock of the Subsidiaries (as such term is defined in Schedule A hereto) of Modcomp (collectively, the "Asset Sale") to CSP, Inc., a Massachusetts corporation ("Buyer"), and the application of the proceeds of the Asset Sale in accordance with the terms set forth in Schedule A to this letter. Your execution of a copy of this letter shall evidence your (i) release of any interest in or encumbrance on the assets being sold pursuant to the Asset Sale and (ii) agreement that the foregoing consent shall be effective as of August 6, 1997 and may be relied upon by the Company and the Buyer (to whom the Company will deliver an executed copy of this letter) and their respective agents and attorneys in consummating such sale. 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: 3 AGREED and CONSENTED TO: 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 SCHEDULE A The Asset Sale will be consummated pursuant to the terms of an Asset Purchase Agreement dated as of August 6, 1997, by and among the Company, Modcomp, the Buyer, Cerplex Subsidiary, Inc., a Delaware corporation, and Modcomp Joint Venture, Inc., a Delaware corporation. The assets will include all of the assets currently used in Modcomp's business, including the shares of capital stock owned by Modcomp in the following subsidiaries of Modcomp (collectively, the "Subsidiaries"): Modcomp Canada Ltd., a Canadian corporation Modular Computer Systems GmbH, a German corporation Modcomp France, S.A., a French corporation Modcomp C.A., a Venezuela corporation Modular Computer Services, Inc., a Florida corporation The purchase price will be approximately $8,300,000. The proceeds from the Asset Sale will be distributed as follows: (i) to the prepayment, in the aggregate amount of $6,000,000, of Term Loans under and as defined in the Wells Fargo Credit Agreement, (ii) to the prepayment, in the amount of $2,000,000, of Revolving Loans under and as defined in the Wells Fargo Credit Agreement, and (iii) any remaining net proceeds in excess of $8,000,000, 50% to the prepayment of Term Loans under and as defined in the Wells Fargo Credit Agreement and 50% to the Company. The $2,000,000 prepayment described in the foregoing clause (ii) may be reborrowed by the Company on and prior to September 1, 1997, as set forth in the Bank Amendment. The closing of the Asset Sale is tentatively scheduled for August 22, 1997. EX-10.35 8 FIFTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.35 EXECUTION COPY THE CERPLEX GROUP, INC. FIFTH AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER This FIFTH AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this "AMENDMENT") is dated as of June 30, 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 5 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, 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, that certain Second Amendment to Credit Agreement and Limited Waiver dated as of November 30, 1996, that certain Third Amendment to Credit Agreement dated as of April 9, 1997 (the "THIRD AMENDMENT") and that certain Fourth Amendment to Credit Agreement and Limited Waiver dated as of May 30, 1997 (as so amended, 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 has notified Lenders that it is in default of certain provisions of the Credit Agreement; and WHEREAS, Lenders have agreed to amend certain provisions of the Credit Agreement and to waive certain provisions of the Credit Agreement until July 10, 1997; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 2 SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT SECTION 1.1 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS. A. Subsection 2.4A(iii)(d) of the Credit Agreement is hereby amended to read in its entirety as follows: "(d) [INTENTIONALLY OMITTED]" B. Subsection 2.4A(iii)(i) of the Credit Agreement is hereby amended by deleting the phrase "subsections 2.4A(iii)(a)-(f)" contained therein and substituting the phrase "subsections 2.4A(iii)(a)-(c), (e) and (f)" therefor. C. Subsection 2.4A(iv)(b) of the Credit Agreement is hereby amended by deleting the phrase "subsections 2.4A(iii)(a)-(d)" contained therein and substituting the phrase "subsections 2.4A(iii)(a)-(c)" therefor. SECTION 1.2 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS. A. Subsection 6.16 of the Credit Agreement is hereby amended to read in its entirety as follows: "6.16 NEW LEADERSHIP; FINANCIAL ADVISOR. Company shall hire a new chief executive officer no later than July 3, 1997 and shall continue to retain the services of such chief executive officer through the Commitment Termination Date. In addition, Company shall continue to retain the services of a financial advisor, satisfactory to Lenders, through the Commitment Termination Date." SECTION 2. WAIVER Subject to the terms and conditions set forth herein and in reliance on the representations of Company herein contained, Lenders hereby waive compliance with the provisions of (i) subsection 4.2B(i) of the Credit Agreement to the extent necessary to exclude the representations in subsection 5.14 of the Credit Agreement for the purpose of permitting Company to borrow an amount equal to $386,984.14 on June 30, 1997; provided that such amount shall be applied directly by Administrative Agent to pay interest due and payable to Lenders on that date and the second installment of the Third Amendment restructure fee due on that date without being first credited to an account of Company; (ii) subsection 7.6 of the Credit Agreement for the period commencing June 30, 1997 and ending July 10, 1997; and (iii) subsection 8.14 of the Credit Agreement to the extent necessary to permit Company to consummate the sale of the Pen Interconnect stock held by Company on or prior to July 10, 1997. 3 Company hereby agrees that it shall have no right to borrow under the Credit Agreement prior to July 11, 1997, other than as provided in the preceding paragraph. The waiver set forth herein shall be of no further force and effect in the event that (i) Company submits a Notice of Borrowing under the Credit Agreement prior to July 11, 1997, other than in connection with the borrowing permitted under the preceding paragraph, or (ii) Company makes any payment on or sets apart any sum for any payment on any Subordinated Indebtedness. SECTION 3. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "FIFTH AMENDMENT EFFECTIVE DATE"): A. On or before the Fifth Amendment Effective Date, Administrative Agent shall have received for each Lender counterparts hereof duly executed on behalf of Company, Administrative Agent, Lenders and each Guarantor. B. Administrative Agent shall have received: 1. A certificate from the corporate secretary or an assistant secretary of Company certifying that there have been no amendments to the Certificate of Incorporation or Bylaws of Company since _____, 199_; 2. Resolutions of Company's Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the Fifth Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; and 3. Signature and incumbency certificates of the officers of Company and of the Subsidiaries of Company executing this Amendment. C. 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 Fifth Amendment Effective Date. D. On or before the Fifth 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 4 originals or certified copies of such documents as Administrative Agent may reasonably request. E. Company shall deliver to Administrative Agent a waiver, in form and substance satisfactory to Lenders, of the Note Purchase Agreement duly executed by the parties to the Note Purchase Agreement required to execute such waiver. 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. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and 5 binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement, other than representations contained in subsection 5.14 of the Credit Agreement, are and will be true, correct and complete in all material respects on and as of the Fifth 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. As of the date hereof, Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in the Note Purchase Agreement and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default. 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 Fifth 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 Fifth 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 6 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 Fifth Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 6. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. 1. On and after the Fifth Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. 2. Without limiting the generality of the provisions of subsection 10.6 of the Credit Agreement, the waiver set forth shall be limited precisely as written and relates solely to the noncompliance by Company with the provisions of subsections 4.2B(i), 7.6 and 8.14 of the Credit Agreement in the manner and to the extent described above. Nothing in this Amendment shall be deemed to: (a) constitute a waiver of compliance by Company with respect to (i) subsection 4.2B(i), 7.6 or 8.14 of the Credit Agreement in any 7 other instance or (ii) any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or (b) prejudice any right or remedy that Administrative Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Amendment) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein. 3. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 8 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: /s/ ---------------------------------------- Title: ------------------------------------- CERTECH TECHNOLOGY, INC. (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- CERPLEX MASS., INC. (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- CERPLEX LIMITED (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- APEX COMPUTER COMPANY (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- S-1 9 CERPLEX SUBSIDIARY, INC. (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- MODCOMP/CERPLEX L.P. (for purposes of Section 5 only) as a Credit Support Party By: Cerplex Subsidiary, Inc., as general partner By: /s/ ---------------------------------------- Title: ------------------------------------- MODCOMP JOINT VENTURE, INC. (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- MODULAR COMPUTER SERVICES, INC. (for purposes of Section 5 only) as a Credit Party By: /s/ ---------------------------------------- Title: ------------------------------------- MODULAR COMPUTER SYSTEMS GMBH (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- S-2 10 MODCOMP FRANCE S.A. (for purposes of Section 5 only) as a Credit Support Party By: /s/ ---------------------------------------- Title: ------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By: /s/ ---------------------------------------- Title: ------------------------------------- BHF-BANK AKTIENGESELLSCHAFT, AS A LENDER By: /s/ ---------------------------------------- Title: ------------------------------------- By: /s/ ---------------------------------------- Title: ------------------------------------- CITIBANK, N.A., AS A LENDER By: /s/ ---------------------------------------- Title: ------------------------------------- S-3 EX-10.36 9 SIXTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.36 E X E C U T I O N C O P Y THE CERPLEX GROUP, INC. SIXTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT This SIXTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this "AMENDMENT") is dated as of August 6, 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 6 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, 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, that certain Second Amendment to Credit Agreement and Limited Waiver dated as of November 30, 1996, that certain Third Amendment to Credit Agreement dated as of April 9, 1997, that certain Fourth Amendment to Credit Agreement and Limited Waiver dated as of May 30, 1997 and that certain Fifth Amendment to Credit Agreement and Limited Waiver dated as of June 30, 1997 (as so amended, 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 had agreed to amend certain provisions of the Credit Agreement; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 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," "ELIGIBLE ACCOUNTS RECEIVABLE" and "FOREIGN ACQUISITIONS" contained therein. B. Subsection 1.1 of the Credit Agreement is hereby further amended by deleting the definition of "PRIME RATE" contained therein and substituting the following therefor: "'PRIME RATE' means the rate that Citibank, N.A. announces at its principal office in New York from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Citibank, N.A. or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate." C. Subsection 1.1 of the Credit Agreement is hereby further amended by adding the following definitions in the appropriate alphabetical order: "'COMMON STOCK' means the common stock, $0.01 par value per share, of Company." "'CONSOLIDATED NET CASH FLOW FROM NORTH AMERICAN OPERATIONS' means, for any period, the gross receipts for such period minus all disbursements (excluding Consolidated Interest Expense for such period) for such period, all as determined on a consolidated basis for Company and its Domestic Subsidiaries (excluding Modcomp Joint Venture, Inc. and its Subsidiaries)." "'SIXTH AMENDMENT EFFECTIVE DATE' means August 6, 1997." 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 agreed to convert Loans outstanding on the Third Amendment Effective Date and the 3 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 as of the Sixth Amendment Effective Date is $31,371,520; provided that the Term Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Term Loan Commitments pursuant to subsection 10.1B. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. All Term Loans and all other amounts owed hereunder with respect to the Term Loans and the Term Loan Commitments shall be paid in full no later than the Commitment Termination Date. (ii) Revolving Loans. Each Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time to but excluding the Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan 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 were deemed to be Revolving Loans. As of the Sixth Amendment Effective Date, the Revolving Loan Commitments shall be reduced to $4,886,984. The amount of each Lender's Revolving Loan Commitment as of the Sixth Amendment Effective Date is set forth opposite its name on Schedule 2.1 annexed hereto; provided that the Revolving Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; and provided, further that the amount of the Revolving Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4A. Each Lender's Revolving Loan Commitment shall expire on the Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(ii) may be repaid and reborrowed up 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) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in 4 effect, (ii) in no event shall the Total Utilization of Revolving Loan Commitments (a) at any time during the period commencing on the date of any prepayment pursuant to subsection 2.4(iii)(d) and ending August 10, 1997 exceed the sum of $4,886,984 minus the Net Asset Sale Proceeds that are applied on such date to the prepayment of Revolving Loans plus the lesser of (1) 50% of the Net Asset Sale Proceeds from any Asset Sale relating to Modcomp or its Subsidiaries that are applied to the prepayment of Revolving Loans and (2) $1,000,000, (b) at any time during the period commencing August 11, 1997 and ending August 31, 1997 exceed the sum of the amount set forth in clause (a) plus the lesser of (1) 25% of the Net Asset Sale Proceeds from any Asset Sale relating to Modcomp or its Subsidiaries that are applied to the prepayment of Revolving Loans and (2) $500,000, and (c) at any time on and after September 1, 1997 exceed the sum of the amounts set forth in clauses (a) and (b) plus the lesser of (1) 25% of the Net Asset Sale Proceeds from any Asset Sale relating to Modcomp or its Subsidiaries that are applied to the prepayment of Revolving Loans and (2) $500,000 and (iii) in no event may the Total Utilization of Revolving Loan Commitments exceed $4,886,984 minus the Net Asset Sale Proceeds that are applied on the date of any prepayment of Revolving Loans pursuant to subsection 2.4(iii)(d) until Company shall have (a) issued the New Warrants, (b) entered into a Sixth Amendment to Registration Rights Agreement, (c) filed a Post-Effective Amendment to its Registration Statement on Form S-2 with respect to the shares of Common Stock underlying the New Warrants and (d) complied with subsection 6.22." B. Subsection 2.1B of the Credit Agreement is hereby amended by adding the following as the final paragraph thereof: "In the event that Company fails to comply with subsection 6.20 within 10 days after a request by Administrative Agent, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Loans on the 11th day following such request in an amount equal to the amount necessary to bring Company into compliance with subsection 6.20." C. 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 2.2B, 2.6 and 2.7, (i) each Revolving Loan made on or after the Sixth Amendment Effective Date shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the rate of 15% per annum, (ii) each Revolving Loan outstanding on the Sixth Amendment Effective Date 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 2.00% per annum and (iii) each Term Loan shall bear interest on the unpaid principal amount thereof from the 5 date made through maturity (whether by acceleration or otherwise) at the sum of the Base Rate plus 3.125% per annum." D. Subsection 2.2B of the Credit Agreement is hereby amended to read in its entirety as follows: "B. ADDITIONAL INTEREST. In the event that Company fails to prepay in full all outstanding Obligations on or prior to September 30, 1997, each Loan shall bear interest on the unpaid principal amount thereof from September 1, 1997, or if such Loan is made after September 1, 1997 the date made, through maturity (whether by acceleration or otherwise) at the interest rate otherwise payable under this Agreement with respect to such Loan plus an additional 1% per annum up to a maximum of 4% for each month following the month ended August 31, 1997 that all outstanding Obligations are not prepaid in full." E. 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; provided, however, that the payment in respect of July 31, 1997 shall be due and payable on August 10, 1997, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity)." F. Subsections 2.4A(iii)(b), (d), (f) and (g) of the Credit Agreement are hereby amended to read in their entirety as follows: "(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 Sixth Amendment Effective Date, Company shall prepay the Loans, and/or the Revolving Loan Commitments shall be permanently reduced, in an aggregate amount equal to the greater of (i) 20% of such Net Securities Proceeds or (ii) $1,500,000; provided, however, that in the event the Net Securities Proceeds of any such issuance are less than $1,500,000, 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 Securities Proceeds." "(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 (1) prepay the Term Loans in an aggregate amount equal to $6,000,000, (2) prepay the Revolving Loans in an aggregate amount equal to the lesser of (A) $2,000,000 6 and (B) the remaining portion of such Net Asset Sale Proceeds and (3) prepay the Term Loans in an aggregate amount equal to 50% of any remaining portion of such Net Asset Sale Proceeds in excess of $8,000,000." "(f) Prepayments 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 the amount by which the sum of (i) such Net Asset Sale Proceeds plus (ii) the royalty payments received by Company from Cerplex SAS in respect of October 31, 1997 exceed $600,000." "(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 (i) the amount by which the sum of (A) the royalty payments received by Company from Cerplex SAS in respect of October 31, 1997 plus (B) the Net Asset Sale Proceeds from the sale of the stock of Pen Interconnect exceed $600,000, (ii) 100% of all other royalty payments received by Company from Cerplex SAS and (iii) 100% of all dividend payments paid to Company by Cerplex SAS." G. Subsection 2.4A(iv)(b) of the Credit Agreement is hereby amended by adding the following as the final sentence thereof: "Any Applied Amount required to be applied as a mandatory prepayment of the Loans pursuant to subsection 2.4(iii)(d) shall be applied as set forth in subsection 2.4(iii)(d)." SECTION 1.3 AMENDMENTS TO SECTION 5: COMPANY'S REPRESENTATIONS AND WARRANTIES. Subsection 5.14 of the Credit Agreement is hereby amended to read in its entirety as follows: "[Intentionally omitted]" SECTION 1.4 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS. A. Clause (xxii) of subsection 6.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "(xxii) Cash Flow Forecast: (a) on the last day of each fiscal month, commencing September 30, 1997, (a) the North American Operations Consolidated Quarterly Cash Forecast (Base Forecast) for the immediately succeeding thirteen week period showing estimated Consolidated Net Cash Flow From North American Operations on a weekly basis during such period, prepared on a basis consistent with the North American Operations Consolidated Quarterly Cash Forecast (Base 7 Forecast) delivered on July 9, 1997 and attached hereto as Annex 1, certified by the chief financial officer of Company, and (b) on August 8, 1997, on August 28, 1997 and 5 Business Days after the last day of each fiscal month thereafter, commencing September 30, 1997, a statement of actual Consolidated Net Cash Flow From North American Operations for the period commencing July 3, 1997 and ending August 3, 1997, for the period commencing August 4, 1997 and ending August 24, 1997 and the four-week or five-week (as applicable) period then ended, respectively, all in reasonable detail and certified by the chief financial officer of Company." B. Section 6 of the Credit Agreement is hereby amended by adding the following as new subsections 6.19, 6.20, 6.21 and 6.22 thereof: "6.19 POST-SIXTH AMENDMENT EFFECTIVE DATE DELIVERIES. On or before August 14, 1997, A. Company shall have issued to Lenders warrants to purchase 1,235,313 shares of Common Stock (the "NEW WARRANTS"), representing, together with all other warrants held by Lenders, warrants to purchase 5.1% of the Common Stock on a fully diluted basis as of the Sixth Amendment Effective Date, with an exercise price equal to $0.59 per share and Company shall have entered into a warrant agreement providing for the issuance of the New Warrants. Except for the exercise price, the terms and conditions of the New Warrants and the warrant agreement shall, in all material respects, be identical to the terms and conditions of the Original Warrants (as defined in the Restated Warrant Agreement referred to below), the Additional Warrants (as defined in the Restated Warrant Agreement referred to below) and the Amended and Restated Warrant Agreement dated as of April 9, 1997 (the "RESTATED WARRANT AGREEMENT"), including, without limitation, the antidilution provisions set forth in Section 4 of the Restated Warrant Agreement. The New Warrants, together with the Original Warrants, the Additional Warrants, the Option Warrants and the Conversion Warrants shall hereinafter collectively be referred to as the "WARRANTS" and individually as a "WARRANT". Company and Lenders agree that, notwithstanding any language to the contrary contained in the Original Warrants or the Additional Warrants, no additional warrants shall be issuable thereunder as a result of the issuance of the New Warrants on the Sixth Amendment Effective Date. The Warrant Agreement shall also contain covenants substantially similar to the following: (i) If during any calendar quarter while a Warrant is outstanding, (a) options or other rights to acquire shares of Common Stock ("EMPLOYEE OPTION SHARES") are issued to any employees, officers or directors of Company or any of its Subsidiaries (including shares issued to Stephen Hopkins as consideration for his services as President and Chief Executive Officer of Company) and the aggregate number of such Employee Option Shares plus all other Employee Option Shares subject to options or other rights issued on or prior to such date exceeds 7,302,121 shares, which number represents 15% of the Common Stock on a fully diluted basis 8 as of the Sixth Amendment Effective Date (as such number may be adjusted from time to time to reflect any subdivision or combination of shares of Common Stock, the "EMPLOYEE OPTION THRESHOLD"), or (b) options or other rights to acquire shares of Common Stock ("DIRECTOR OPTION SHARES") are issued to any directors of Company who were members of Company's Board of Directors as of the Sixth Amendment Effective Date and the aggregate number of such Director Option Shares plus all other Director Option Shares subject to options or other rights issued on or prior to such date exceeds 1,460,424 shares, which number represents 3% of the Common Stock on a fully diluted basis as of the Sixth Amendment Effective Date (as such number may be adjusted from time to time to reflect any subdivision or combination of shares of Common Stock, the "DIRECTOR OPTION THRESHOLD"), Company shall, as of the first day of the next succeeding calendar quarter, issue additional warrants (the "OPTION WARRANTS") to the holders of the Warrants on a pro rata basis covering that number of shares equal to the product of 5.1% (the "DILUTION PERCENTAGE") multiplied by the number of the Employee Option Shares or Director Option Shares, as the case may be, issued during such period (or, with respect to the first calendar quarter that the number of Employee Option Shares or Director Option Shares exceeds the Employee Option Threshold or the Director Option Threshold, as the case may be, the amount of such excess). To the extent that the Director Option Threshold is exceeded and Option Warrants are issued in accordance with the formula set forth above, the Employee Option Threshold shall be increased by the amount of such excess. The Option Warrants shall, in all material respects, be identical to the New Warrants, except that the exercise price of the Option Warrants shall be the average closing bid price of a share of Common Stock during the calendar quarter in respect of which the adjustment is being made. In the event that any of the Warrants are exercised after the Sixth Amendment Effective Date, the Dilution Percentage shall be reduced proportionately. In the event that any option or right with respect to which an adjustment was made pursuant to this paragraph terminates or expires unexercised during any calendar quarter, the number of Option Warrants shall be reduced proportionately as of the end of such calendar quarter. In addition, in the event of any consolidation, merger, sale or conveyance of Company as an entirety or reclassification of the Common Stock, Company shall make the adjustments provided for in this paragraph in respect of any issuances that occurred during the period from the date of the last determination to the date of such event. For purposes of this paragraph, rights purchased from Company to acquire shares of Common Stock and rights purchased from Persons other than Company to acquire shares of Common Stock, in each case in a bona fide arm's-length transaction for consideration at least equal to the Reference Price (as defined in the Original Warrants), and any shares of the Series B Preferred Stock held by any employees, officers or directors of Company or any of its Subsidiaries on the Sixth Amendment Effective Date shall not constitute Employee Option Shares or Director Option Shares. (ii) If, at any time on or after the Sixth Amendment Effective Date and while a Warrant is outstanding, all or any portion of the principal amount of the Subordinated Notes is converted into shares of Common Stock and the Market Price (as defined below) of a share of Common Stock following such conversion is less than 9 the Measurement Price (as defined below) of a share of Common Stock prior to such conversion, Company shall issue additional warrants (the "CONVERSION WARRANTS") to the holders of the Warrants on a pro rata basis covering that number of shares equal to the product of the difference between the Market Price and the Measurement Price multiplied by the total number of shares issuable upon exercise of the Warrants held by such holders divided by the Market Price. For the purpose of this paragraph (ii), "MARKET PRICE" shall mean the average closing bid price for a share of Common Stock for the five trading days after the filing of a Current Report Form 8-K with respect to such conversion and (ii) "MEASUREMENT PRICE" shall mean the average closing bid price of a share of Common Stock for the five trading days prior to the public announcement of such conversion. The date on which the Current Report on Form 8-K is filed or of the public announcement shall not be considered a trading day. The Conversion Warrants shall, in all material respects, be identical to the New Warrants, except that the exercise price of the Conversion Warrants shall be the Market Price per share. (iii) In the event that any shares of the 657 shares of the Series B Preferred Stock of Company outstanding on the Sixth Amendment Effective Date are converted into shares of Common Stock during any calendar quarter at a conversion ratio that is greater than or less than 2500 shares of Common Stock for each share of Series B Preferred Stock, then the number of shares of Common Stock issuable upon the exercise of the New Warrants shall be increased or decreased, as the case may be, effective upon the first day of the next succeeding calendar quarter, by the difference between the number of shares of Common Stock into which such shares of Series B Preferred Stock of Company were converted and the number of shares of Common Stock into which such shares of Series B Preferred Stock were projected to be converted for purposes of calculating the number of New Warrants originally issued. In addition, in the event of any consolidation, merger, sale or conveyance of Company as an entirety or reclassification of the Common Stock, Company shall make the adjustments provided for in this paragraph in respect of any conversion that occurred during the period from the date of the last determination to the date of such event. B. Company shall have entered into a Sixth Amendment to Registration Rights Agreement in form and substance satisfactory to Lenders. C. Company shall have filed a Post-Effective Amendment to its Registration Statement on Form S-2 with respect to the shares of the Common Stock underlying the New Warrants issued to Lenders on the Sixth Amendment Effective Date, and shall use its best efforts to cause such Post-Effective Amendment to become effective as soon as possible thereafter. 10 "6.20 LEGAL FEES Company shall, at all times, on and after the sale of Modcomp and its Subsidiaries maintain on deposit with counsel for Administrative Agent a $50,000 retainer fee. "6.21 AMENDMENT FEE Company shall pay to Administrative Agent for distribution to each Lender, in proportion to that Lender's Pro Rata Share, an amendment fee in an amount equal to $200,000, payable on the earlier of the Commitment Termination Date and the date on which all outstanding Obligations are prepaid in full." "6.22 AGREEMENT WITH SUBORDINATED DEBT On or prior to August 14, 1997, Company shall deliver to Administrative Agent an agreement duly executed by the parties to the Note Purchase Agreement, in form and substance satisfactory to Lenders, (i) that the August 19, 1997 interest payment on the Subordinated Notes will accrue but not be payable in cash or other property and shall instead be added to the principal amount of the Subordinated Notes, (ii) amending clause (a) of the definition of `Senior Debt' in the Note Purchase Agreement to provide that only prepayments accompanied by permanent reductions in the Loans or Commitments shall reduce the principal amount of the Wells Fargo Credit Agreement Debt (as defined in the Note Purchase Agreement) that constitutes "Senior Debt" for purposes of the Note Purchase Agreement" and (iii) amending the financial covenants contained in the Note Purchase Agreement to correspond to the changes made herein to subsection 7.6 of the Credit Agreement. SECTION 1.5 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS. A. Subsection 7.6 of the Credit Agreement is hereby amended to read in its entirety as follows: "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 June 30, 1997 0.57:1.00 Fiscal quarter ended September 30, 1997 0.52:1.00 Fiscal quarter ended December 31, 1997 0.54:1.00 Fiscal quarter ended March 31, 1998 and thereafter 0.55:1.00
"B. 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 11 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 June 30, 1997 (7.27):1.00 Fiscal quarter ended September 30, 1997 (6.48):1.00 Fiscal quarter ended December 31, 1997 (6.78):1.00 Fiscal quarter ended March 31, 1998 and thereafter (7.07):1.00
"C. 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 ------ --------- June 30, 1997 through September 29, 1997 $ (15,464,000) September 30, 1997 through December 30, 1997 (15,115,000) December 31, 1997 through March 30, 1998 (14,392,000) March 31, 1998 and thereafter (13,592,000)
"D. 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 June 30, 1997 $(16,359,000) Fiscal quarter ended September 30, 1997 (1,208,000) Fiscal quarter ended December 31, 1997 (588,000) Fiscal quarter ended March 31, 1998 (141,000)
"E. 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:
PERIOD MINIMUM PROFITABILITY ------ --------------------- Fiscal quarter ended June 30, 1997 $ (15,521,000) Fiscal quarter ended September 30, 1997 (1,873,000) Fiscal quarter ended December 31, 1997 (1,387,000) Fiscal quarter ended March 31, 1998 (1,367,000)
12 "F. MINIMUM CONSOLIDATED CASH FLOW. Company shall not permit Consolidated Net Cash Flow From North American Operations for the period commencing July 3, 1997 and ending August 3, 1997, the period commencing August 4, 1997 and ending August 24, 1997 or any four-week or five-week (as applicable) period ending on the last day of any fiscal month thereafter to be less than (i) Consolidated Net Cash Flow From North American Operations for the same period as reflected on the North American Operations Consolidated Quarterly Cash Forecast (Base Forecast) most recently delivered by Company pursuant to subsection 6.1(xxii) minus (ii) $250,000." SECTION 1.6 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT. A. Subsection 8.3 of the Credit Agreement is hereby amended by adding the phrase ", 6.19 or 6.22" after the phrase "6.17" contained therein. B. Subsection 8.14 of the Credit Agreement is hereby amended by deleting the phrase "or Company shall fail to consummate the sale of the Pen Interconnect stock held by Company on or prior to June 30, 1997;" contained therein. SECTION 1.7 AMENDMENTS TO EXHIBITS AND SCHEDULES. A. Exhibit V of the Credit Agreement is hereby deleted and Exhibit V hereto substituted therefor. B. Exhibit XVII of the Credit Agreement is hereby deleted. C. Schedule 2.1 of the Credit Agreement is hereby deleted and Schedule 2.1 hereto substituted therefor. SECTION 2. CONSENT Pursuant to subsection 7.7 of the Credit Agreement, Lenders hereby consent to the sale to CSP Inc., a Massachusetts corporation, of all or substantially all of the assets of Modcomp, including all of the capital stock of all Subsidiaries of Modcomp, pursuant to the terms of that certain Asset Purchase Agreement dated as of August 6, 1997 (the "PURCHASE AGREEMENT") in the form provided to Lenders with such changes thereto as shall not individually or in the aggregate be material and adverse to Company; provided that (i) such sale occurs on or prior to September 1, 1997, (ii) the Purchase Price (as defined in the Purchase Agreement) is not less than $8,200,000, (iii) the Net Asset Sale Proceeds from such sale are at least $7,500,000 and (iv) the Net Asset Sale Proceeds, including amounts held in escrow, are wired at the closing of such sale to an account designated by Administrative Agent for application to the Loans as provided pursuant to subsection 2.4A(iii)(d). Effective upon consummation of the sale pursuant to the Purchase Agreement, and payment to the account designated by Administrative Agent of $7,500,000, Lenders agree that all security interests and Liens in the capital stock and assets of Modcomp and its 13 Subsidiaries shall terminate and be released and all obligations under the guaranties of such entities shall be irrevocably terminated and hereby authorize Administrative Agent to take all necessary and appropriate action on behalf of Lenders to effect such release and termination. Pursuant to subsection 7.7 of the Credit Agreement, Lenders also hereby consent to the sale of the stock of Pen Interconnect; provided that the Net Asset Sale Proceeds from such Asset Sale are at least $350,000 and such sale occurs on or prior to December 31, 1997. SECTION 3. ACKNOWLEDGMENT RE LIMITED WAIVER Lenders hereby acknowledge that pursuant to the Limited Waiver dated as of July 10, 1997 (the "LIMITED WAIVER"), Lenders waived compliance with the provisions of (i) subsection 2.2C of the Credit Agreement to the extent necessary to permit the payment of interest due and payable on July 31, 1997 to be made on or prior to August 8, 1997; (ii) subsection 7.6 of the Credit Agreement for the period commencing July 10, 1997 and ending August 8, 1997; and (iii) subsection 8.14 of the Credit Agreement to the extent necessary to permit Company to consummate the sale of the Pen Interconnect stock held by Company on or prior to August 8, 1997. Company hereby acknowledges that pursuant to the Limited Waiver it shall have no right to borrow under the Credit Agreement prior to August 9, 1997 and that the Limited Waiver is of no further force and effect in the event that (a) Company submits a Notice of Borrowing under the Credit Agreement prior to August 9, 1997 or (b) Company makes any payment on or sets apart any payment on any Subordinated Indebtedness. 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 "SIXTH AMENDMENT EFFECTIVE DATE"): A. On or before the Sixth Amendment Effective Date, Administrative Agent shall have received for each Lender counterparts hereof duly executed on behalf of Company, Administrative Agent, each Lender and each Guarantor. B. Administrative Agent shall have received: 1. Resolutions of Company's Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment and the Warrant Agreement, certified as of the Sixth Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; and 14 2. Signature and incumbency certificates of the officers of Company executing this Amendment and the Warrant Agreement. C. On or before the Sixth Amendment Effective Date, 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. D. On or before the Sixth Amendment Effective Date, Lenders and their respective counsel shall have received duly executed copies of a waiver of the provisions of the Note Purchase Agreement through August 14, 1997, in form and substance satisfactory to Lenders. SECTION 5. 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. 15 D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement, other than subsection 5.14, are and will be true, correct and complete in all material respects on and as of the Sixth 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. SECTION 6. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Collateral Documents, in each case as amended through the Sixth 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 16 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 Sixth Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 7. GENERAL RELEASE A. Except with respect to the matters, rights and obligations specified in Section 7B hereof, each Loan Party for itself and on behalf of its parent, subsidiary and affiliate corporations, past or present, and each of them, as well as each of their respective directors, officers, agents, employees, servants, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and each of them (collectively, the "RELEASORS") hereby releases and forever discharges each Lender and each of its parents, subsidiaries and affiliates, past or present, and each of them, as well as each of their respective directors, officers, agents, employees, servants, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and all other persons, firms or corporations with whom any of the former have been, are now, or may hereafter be affiliated, and each of them (collectively, the "RELEASEES"), from and against any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action in law or equity, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities of whatever kind or nature in 17 law, equity or otherwise, whether known or unknown, fixed or contingent, suspected or unsuspected by the Releasors, and whether concealed or hidden, which Releasors now own or hold or have at any time heretofore owned or held, which are based upon or arise out of or in connection with any matter, cause or thing existing at any time prior to the date hereof or anything done, omitted or suffered to be done or omitted at any time prior to the date hereof (collectively the "RELEASED MATTERS"). B. Notwithstanding anything hereunder to the contrary, this Release shall not release or alter any obligation arising subsequent to the date hereof to comply with the terms and conditions of the Credit Agreement and the other Loan Documents. It is expressly understood and agreed that it is the intent of the Loan Parties to forever release certain claims against Lenders, including, but not limited to, any claims related to the actions and omissions of Releasees prior to the date hereof, but that nothing herein shall affect the obligations of the Releasees arising subsequent to the date hereof, including, but not by way of limitation, compliance subsequent to the date hereof with all terms and conditions of the Credit Agreement and the other Loan Documents. C. Without limiting the generality of the foregoing, each Loan Party for itself and on behalf of the other Releasors expressly releases any and all past, present and future claims in connection with the Released Matters, about which the Releasors do not know or suspect to exist in their favor, whether through ignorance, oversight, error, negligence or otherwise, and which, if known, would materially affect such Loan Party's decision to enter into this Release, and to this end each Loan Party for itself and on behalf of each of the other Releasors waives all rights under Section 1542 of the Civil Code of California, which states in full as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." Each Loan Party knowingly and willingly waives the provisions of Section 1542 and acknowledges and agrees that this waiver is an essential and material term of this Release. Each Loan Party has reviewed this Release with such Loan Party's legal counsel, and such Loan Party understands and acknowledges the significance and consequence of this Release and of the specific waiver of Section 1542 of the Civil Code of California. D. Each Loan Party represents, warrants and agrees that in executing and entering into this Release, such Loan Party is not relying and has not relied upon any representation, promise or statement made by anyone which is not recited, contained or embodied in the Credit Agreement or the other Loan Documents. Each Loan Party understands and expressly assumes the risk that any fact not recited, contained or embodied therein may turn out hereafter to be other than, different from, or contrary to the facts now known to such Loan Party or believed by such 18 Loan Party to be true. Nevertheless, each Loan Party intends by this Release to release fully, finally and forever all Released Matters and agrees that this Release shall be effective in all respects notwithstanding any such difference in facts, and shall not be subject to termination, modification or rescission by reason of any such difference in facts. E. Each Loan Party hereby represents and warrants that it has not heretofore assigned or transferred or purported to assign or transfer to any person or entity all or any part of or any interest in any Released Matter. Each Loan Party agrees to indemnify and hold harmless the Releasees against any claim, contention, demand, cause of action, obligation and liability of any nature, character or description whatsoever, including the payment of attorney's fees and costs actually incurred, whether or not litigation is commenced, which may be based upon or which may arise out of or in connection with any such assignment or transfer or purported assignment or transfer of any Released Matter against any Releasee. F. This Release constitutes and is intended to constitute the entire agreement between each Loan Party and each Lender concerning the subject matter hereof. No covenants, agreements, representations or warranties of any kind whatsoever concerning the subject matter hereof have been made by any Loan Party or any Lender except as set forth herein. All prior discussions and negotiations with respect to the subject matter hereof are superseded by this Release. G. If any provision of this Release is determined by a court of competent jurisdiction to be invalid or unenforceable, in whole or in part, the remaining provisions, and any partially invalid or unenforceable provisions, to the extent valid and enforceable, shall nevertheless be binding and valid and enforceable. H. This Release shall inure to the benefit of the Releasees and be binding upon the Releasors and, in each case, their respective partners, officers, directors, shareholders, employees, agents, independent contractors and their successors, assigns, heirs, executors, administrators and representatives of each of the foregoing. I. This Release is not to be construed and does not constitute an admission of any liability by any person or entity for any purpose. SECTION 8. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. 1. On and after the Sixth 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", 19 "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. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 20 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 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- CERPLEX MASS., INC. (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- CERPLEX LIMITED (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- APEX COMPUTER COMPANY (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- S-1 21 CERPLEX SUBSIDIARY, INC. (for purposes of 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- MODCOMP/CERPLEX L.P. (for purposes of Section 6 only) as a Credit Support Party By: Cerplex Subsidiary, Inc., as general partner By: ----------------------------------------- Title: -------------------------------------- MODCOMP JOINT VENTURE, INC. (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- MODULAR COMPUTER SERVICES, INC. (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- MODULAR COMPUTER SYSTEMS GMBH (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- S-2 22 MODCOMP FRANCE S.A. (for purposes of Section 6 only) as a Credit Support Party By: ----------------------------------------- Title: -------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By: ----------------------------------------- Title: -------------------------------------- CITIBANK, N.A., AS A LENDER By: ----------------------------------------- Title: -------------------------------------- S-3 23 EXHIBIT V [FORM OF COMPLIANCE CERTIFICATE] COMPLIANCE CERTIFICATE THE UNDERSIGNED HEREBY CERTIFY THAT: (1) I am the duly elected [Title] of THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"); (2) I have reviewed the terms of that certain Credit Agreement dated as of October 12, 1994, as amended, supplemented, amended and restated or otherwise modified to the date hereof (said Credit Agreement, as so amended, supplemented, amended and restated or otherwise modified, being the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined in this Certificate (including Attachment No. 1 annexed hereto and made a part hereof) being used in this Certificate as therein defined), by and among Company, the financial institutions listed therein as Lenders and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, and the terms of the other Loan Documents, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by the attached financial statements; and (3) The examination described in paragraph (2) above did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Event of Default or Potential Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate[, except as set forth below]. [Set forth [below] [in a separate attachment to this Certificate] are all exceptions to paragraph (3) above listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Company has taken, is taking, or proposes to take with respect to each such condition or event: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ _______________________________________________________________________________] The foregoing certifications, together with the computations set forth in Attachment No. 1 annexed hereto and made a part hereof and the financial statements delivered with this Certificate in support hereof, are made and delivered this V-1 24 __________ day of _____________, 199_ pursuant to subsection 6.1(iii) of the Credit Agreement. The undersigned officer is executing this Compliance Certificate in his or her capacity as a corporate officer and absent knowing and intentional misrepresentation shall have no personal liability should any statement or representation made herein prove to be inaccurate. THE CERPLEX GROUP, INC. By: ----------------------------------------- Title: -------------------------------------- V-2 25 ATTACHMENT NO. 1 TO COMPLIANCE CERTIFICATE This Attachment No. 1 is attached to and made a part of a Compliance Certificate dated as of ____________, 199_ and pertains to the period from ____________, 199_ to ____________, 199_. Subsection references herein relate to subsections of the Credit Agreement. A. INDEBTEDNESS 1. Indebtedness permitted under subsection 7.1(vii): $___________ 2. Maximum permitted under subsection 7.1(vii): $___________ B. CONTINGENT OBLIGATIONS 1. Notional amount of Interest Rate Agreements permitted under subsection 7.4(iii): $___________ 2. Maximum permitted under subsection 7.4(iii): $___________ 3. Notional amount of Interest Rate Agreements permitted under subsection 7.4(v): $___________ 4. Maximum permitted under subsection 7.4(v): $___________ C. LIQUIDITY RATIO 1. Consolidated Current Assets: $___________ 2. Consolidated Current Liabilities: $___________ 3. Ratio of (1) to (2): ____:1.00 4. Minimum ratio required under subsection 7.6A: ____:1.00 D. MAXIMUM LEVERAGE RATIO 1. Consolidated Total Liabilities: $___________ 2. Consolidated Tangible Net Worth: $___________ 3. Ratio of (1) to (2): ____:____ 4. Maximum ratio required under subsection 7.6B: ____:1.00 V-3 26 E. MINIMUM CONSOLIDATED TANGIBLE NET WORTH 1. Consolidated Tangible Net Worth: $___________ 2. Minimum required under subsection 7.6C: $___________ F. MINIMUM PROFITABILITY 1. Consolidated Net Income (excluding PCS): $___________ 2. Minimum Consolidated Net Income required under subsection 7.6D: $___________ G. MINIMUM PROFITABILITY FROM NORTH AMERICAN AND CORPORATE OPERATIONS 1. Consolidated Net Income From North American and Corporate Operations: $___________ 2. Minimum Consolidated Net Income From North American and Corporate Operations required under subsection 7.6E: $___________ H. MINIMUM CONSOLIDATED CASH FLOW 1. Consolidated Net Cash Flow From North American Operations: $___________ 2. Base Forecast: $___________ 3. $250,000 $___________ 4. Minimum Consolidated Cash Flow required under subsection 7.6F: $___________ I. CONSOLIDATED CAPITAL EXPENDITURES 1. Consolidated Capital Expenditures for Fiscal Year-to-date: $___________ 2. Maximum amount of Consolidated Capital Expenditures permitted under subsection 7.8: $___________ J. DEPOSIT ACCOUNTS Deposit Account No. Balance V-4 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 21,788 0 17,023 0 8,987 52,914 23,836 0 78,117 83,923 0 0 657 34 (30,825) 78,117 85,606 85,606 76,076 100,504 (5,609) 0 3,956 (13,245) 1,115 (14,360) 0 0 0 (14,360) (.60) 0
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