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ORIGINAL
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June 30, 1997
VIA FACSIMILE
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▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
The Cerplex Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇:
This Engagement Letter summarizes the proposed terms and
conditions for engagement Nightingale & Associates, LLC ("N&A") by The Cerplex
Group, Inc.("Cerplex" or the "Company"), a publicly held corporation
headquartered in Tustin, California.
I. DISCUSSION
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Cerplex has reported significant operating losses for its U.S.
operations in recent quarters and is in default on its bank covenants. The
Company has sold assets to raise cash for working capital and to reduce bank
debts and is in the process of negotiating additional such sales.
To provide a basis for improving U.S. operating profits, the turnaround
firm of Hammer Associates was retained. Hammer has developed a turnaround plan
which includes major consolidations of the Company's repair sites and
significant reductions in corporate overhead expenses. Implementation of the
plan has been started by announcing certain of the site consolidations and
recently reducing the Company's workforce by approximately 150 employees.
II. OBJECTIVES OF THE WORK ASSIGNMENT
---------------------------------
Based on our discussions with Cerplex Group management on June 26th at
the Company's headquarters, we perceive the key objectives of this project for
Cerplex to be as follows:
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A. Immediately Assume Interim Management Of Cerplex For Purposes
Of Implementing the Turnaround Plan Developed by Management
and Hammer Associates.
B. Assist With Negotiation Of Necessary And Appropriate Waivers
And Standstill Agreements With Secured Creditors.
C. Begin Implementation of the "Hammer Plan" In Either Its
Present Form, Or As Modified After Detailed Implementation
Actions Are Developed With Management Charged With Taking
Required Actions.
D. Manage The Process Of Notifying Employees, Vendors And Other
Interested Parties Of The Company's Plans Relating To
Turnaround Of The Business.
E. After Implementing The Turnaround Actions Required To Achieve
Profitability, Restructure The Company's Financing In Order To
Pay Off The Current Bank Group.
F. Take Other Actions Appropriate For The Chief Executive Officer
Of The Company.
G. Provide Such Other Counsel, Assistance And Services As The
Board Of Directors Of Cerplex May From Time To Time Require.
III. REPORTING
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N&A will report to the Board of Directors of Cerplex. A reporting
program summarizing key problems, projects, priorities, timetables and progress
will be established in connection with implementation of the Hammer Plan. Status
report meetings will be held regularly by telephone or in person, as
appropriate. N&A agrees that it will not make any fundamental decisions relating
to or affecting Cerplex out of the ordinary course of business, without first
obtaining the prior consent of the Board of Directors of Cerplex.
IV. RESPONSIBILITY AND STAFFING FOR THE WORK
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ will be the Officer-in-Charge of the Cerplex
assignment with overall responsibility for the N&A work on the engagement and
will be named Chief Executive Officer of Cerplex. ▇▇. ▇▇▇▇▇▇▇ will be assisted
by ▇▇. ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇▇ for certain special projects as may be required
and appropriate.
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V. ESTIMATE OF TIME AND COST
-------------------------
In a situation such as the Cerplex assignment, it is impossible to
provide a definitive estimate of future professional time and costs to complete
the project. However, assuming that N&A staff members devote the time ranges
shown below, we estimate that N&A Professional Time Fees will result in normal
charges approximately as shown below.
Expenses would typically add 15% to 20% to this cost.
"Guesstimated" Monthly Professional Time Fee Costs
Expected Monthly
Monthly Time Cost Range
------------------------------ ---------------- ----------------------------------- ------------------------------------
Hourly Rate % Days Low High
------------------------------ ---------------- ------------------ ---------------- ---------------- ------------------
▇.▇. ▇▇▇▇▇▇▇ $350 80 - 100% 16-18 $56,000 $63,000
▇.▇. ▇'▇▇▇▇▇▇▇▇▇ 300 10 - 20% 2-4 6,000 12,000
------ ------
62,000 75,000
------ ------
Senior Associate 225 60 - 80% 12-16 27,000 36,000
------ ------
Exhibit I, attached, provides a summary of N&A Professional Time
billing rates, the basis for charging expenses, and terms and conditions for
engagement of our firm and is an integral part of this Engagement Letter.
N&A fully understands that Cerplex desires to keep costs to a minimum,
commensurate with achieving the objectives of the assignment and given a
reasonable degree of comfort relative to the judgments, conclusions, and actions
involved. In recognition of (1) a need to restrict initial cash costs of the
project and (2) expectation of future payment of performance fees as outlined
below, N&A has agreed to a $300 per hour billing rate for ▇▇. ▇▇▇▇▇▇▇ and
maximum cap of $50,000 per month for Professional Time Fees of ▇▇. ▇▇▇▇▇▇▇ and
▇▇. ▇'▇▇▇▇▇▇▇▇▇. In addition, it has been agreed that Professional Time Fees of
a Senior Associate expected to be used is Month One of the project will be
capped at $25,000. If circumstances dictate that additional N&A staff is
required, or that more time than estimated above is required, we will advise you
as far in advance as possible in order to reach joint agreement on any
additional staffing requirements.
VI. PERFORMANCE FEE
---------------
N&A charges a Performance Fee, in addition to Professional Time Fees
and expenses, for certain types of assignments, including interim management
projects. Based on past practices and policies of our firm, N&A proposes a
Performance Fee equal to:
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A. $150,000 cash payment when implementation of the Hammer
operating plan, or agreed upon equivalent, is completed.
B. Options to purchase at least 1% of the common stock of
Cerplex, at current market values, when bank debt is
refinanced and permanent management is in place.
VII. ADVANCE PAYMENT RETAINER
------------------------
N&A requires an Advance Payment Retainer for all assignments of the
type described herein. Related to this project, N&A will require an Advance
Payment Retainer of $75,000.
VIII. CONFIDENTIALITY OF CLIENT INFORMATION
-------------------------------------
N&A recognizes and acknowledges that the firm and its Principals and
staff have access to proprietary and confidential information in all client
assignments.
N&A assures Cerplex management that all such non-public information
received by the firm, its Principals and staff from Cerplex or its other
professionals, will be held and treated in strict confidence, and will not
knowingly be disclosed by N&A, its Principals, or staff to third parties, except
(1) in connection with data provided to Lenders under confidentiality agreements
or (2) as might be required in the event of future court proceedings.
IX. RELEASE AND INDEMNIFICATION
---------------------------
Given the nature of this assignment, in addition to coverage for ▇▇.
▇▇▇▇▇▇▇ under the Company's directors and officers policy, N&A will require a
release in the form of a "Release and Indemnification" agreement from Cerplex
prior to undertaking the project. A copy of the "Release and Indemnification"
agreement required is attached as Exhibit II.
The rationale for this requirement is that to the extent that any
adversarial issues or proceedings occur between the parties at interest in the
situation, N&A, by its very presence, could be caught in the "cross fire."
For information, N&A requires and has received release and
indemnification agreements from a variety of parties when undertaking troubled
company turnaround assignments.
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X. CAVEAT
------
Given the nature of assignments such as that contemplated for Cerplex
where (1) there is potential for loss of major customers due to the Company's
financial situation, (2) results are based on implementation of a turnaround
plan developed by a third party, and (3) efforts and actions of current Company
employees and management are a key to success, there can be no assurance that
unforeseen problems may not be encountered. In addition, it is likely that
difficult and complex judgments and conclusions will have to be made on a rapid
basis without full and complete information and analysis readily available.
Accordingly, N&A undertakes assignments such as this on a "Best Efforts" basis
only, and makes no representations, warranties or guarantees relative to
outcome, performance or results.
Our firm will be working on other client assignments during the period
we will be working for Cerplex. However, we fully understand the urgency and
importance of the Cerplex situation and will arrange schedules so that work on
the assignment will proceed at a mutually satisfactory pace.
As agreed, we plan to commence work tomorrow, Tuesday, July 1st on this
project and will continue on the engagement subject to promptly receiving a
signed copy of this Engagement Letter and Indemnity and the required Advance
Retainer.
If this Engagement Letter conforms with your understanding of the terms
and conditions of our retention, will you please signify your agreement to same
by signing and returning the executed copy enclosed with this letter.
We look forward to working with you and your colleagues at Cerplex on
this challenging project.
Sincerely.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
SJH/crc
Enclosure
cc: ▇.▇. ▇'▇▇▇▇▇▇▇▇▇
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READ UNDERSTOOD AND AGREED TO BY:
The Cerplex Group, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
Name
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
Title Chairman of Board
-----------------------------------
Date June 30, 1997
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EXHIBIT I
NIGHTINGALE & ASSOCIATES, LLC
COMPENSATION AND FEE ARRANGEMENTS
INTERIM MANAGEMENT
I. PROFESSIONAL TIME FEES AND EXPENSES
-----------------------------------
Nightingale & Associates, LLC ("N&A") charges professional time fees on
an hourly basis for all assignments. Professional time fees on an hourly basis
for Principals and the firm's Senior Advisors are as shown below:
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ $350 ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ $350
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇ $300 ▇▇. ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇▇ $300
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ $300 Mr. Tor ▇. ▇▇▇▇▇▇▇▇ $300
Mr. S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $275 ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $275
Hourly time fees for Associates range from $150 to $300 per hour.
Hours are capped at a maximum of ten hours per day regardless of the
number of hours worked over that amount. This is generally to the client's
advantage because both Principals and Associates tend to work well over ten
hours per day on most assignments. Out-of-pocket expenses are billed at cost,
and generally range from 10% to 20% of professional time fees, depending on the
amount of travel involved. Out-of-pocket expenses consist primarily of
transportation costs, meals, lodging, telephone, specifically assignable office
assistance and report production and, in the case of divestiture related
assignments, advertising and mailing costs. Out-of-pocket expenses also apply to
N&A staff members who reside out of the area when working out of N&A's office in
Stamford on a client project. For assignments undertaken for clients domiciled
in the State of Connecticut, an 8% professional services tax on professional
time fees and Performance Fees also applies.
Invoices are submitted weekly or biweekly and are due and payable upon
presentation. Prompt payment of invoices is a prerequisite for N&A's continued
work on an assignment.
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II. PERFORMANCE FEE
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For certain types of assignments, including Interim Management, N&A
charges a Performance Fee in addition to professional time fees. For
information, Performance Fees are also applicable to acquisition, divestiture,
joint venture/licensing, refinancing, and asset recovery management assignments.
The rationale for the Performance Fee is that given the firm's unique
Interim Management capabilities and experience, N&A can usually materially
improve the potential and performance of client operations, and/or achieve other
challenging objectives that might apply. In addition, Interim Management
engagements usually involve time and staffing commitments which typically
preclude one or more of the firm's principals from managing assignments with
other clients for an extended period of time.
The Interim Management Performance Fee is based upon the circumstances,
complexity, and size of the particular situation, and is established and agreed
to by mutual consent between the client and N&A prior to formal engagement.
Interim Management Performance Fees are due and payable in installments
as the assignment progresses, on a basis to be mutually agreed to by the client
and N&A. In any case, the final installment is due no more than thirty days
after completion of the assignment.
The term of an Interim Management engagement varies depending on
circumstances and client needs.
III. TERMINATION ARRANGEMENTS
------------------------
The services of N&A can be terminated by the client at any time during
the course of an engagement by verbal notice, followed by written confirmation
but, regardless of the timing and circumstances of any such termination, N&A
will be entitled to:
A. All Professional Time Fees and out-of-pocket expenses incurred
and due up until the day after notice of termination has
become effective, payable within ten days of termination.
B. Any applicable Interim Management Performance Fees earned and
due during the term of active N&A involvement.
C. A minimum Interim Management Performance Fee or a Termination
Fee in lieu thereof; payable within ten days of termination,
the amount to be established when the assignment commences,
and which varies depending upon the size and circumstances of
the assignment.
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For information, no client has ever terminated the services of N&A during the
course off Performance Fee engagement.
IV. CAVEAT
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Given the nature of Interim Management assignments, there can be no
guarantee that N&A will achieve results that meet either N&A or client standards
and objectives. Accordingly, N&A undertakes such assignments only on a "Best
Efforts" basis, and makes no representations, warranties, or guarantees that
satisfactory results will be achieved.
It is also understood and agreed that, to the extent an Interim
Management assignment also involves sale of a business or business assets, N&A
is not expected to engage in any activities which would require the firm to be
licensed as a broker/dealer under applicable state and federal laws.
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EXHIBIT II
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RELEASE AND INDEMNIFICATION
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The undersigned ("Cerplex" or the "Company"), acknowledging that
Nightingale & Associates LLC ("N&A") has been engaged to render services to
Cerplex relating to the Company, for and on behalf of its subsidiaries, and the
successors and assigns of the Company and its subsidiaries, hereby waives and
releases any and all claims or causes of action that it may now have or which
may arise in the future against any "Consultant Party" (which shall consist of,
collectively, N&A and each of its contractors and subcontractors, and all of the
employees, officers, directors, shareholders and principals of N&A and all its
contractors and subcontractors), arising out of or relating in any way to
"Covered Services" (which shall consist of services rendered by any Consultant
Party pursuant to the attached agreement relating to the Company or any aspect
of its business or assets (whether such services consist of consulting services,
management services, or any other type of services), including, without
limitation, any loss or claim thereof arising or allegedly incurred as a result
of actions taken or omitted to be taken by the Company, its shareholders, or any
other party, based in any way upon any recommendations or suggestions by any
Consultant Party relating to the Company or any aspect of its business or
assets); but excluding from the foregoing waiver and release any claim or cause
of action arising out of any act of gross negligence, willful misconduct, breach
of the attached agreement or fraud of any Consultant Party. The Company further
hereby agrees to indemnify and hold harmless each of the Consultant Parties from
and against any liabilities, obligations, losses, damages, claims, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever which may be imposed upon, incurred by or asserted against any
of the Consultant Parties arising out of or relating in any way to Covered
Services pursuant to the attached agreement including, (without limitation, any
loss or claim thereof arising or allegedly incurred as a result of actions taken
or omitted to be taken by the Company, its shareholders, or any other party,
based in any way upon any recommendations or suggestions by any Consultant Party
relating to the Company or any aspect of its business or assets); but excluding
from the foregoing indemnification obligation any matter arising out of any act
of gross negligence, willful misconduct, breach of the attached agreement or
fraud of any Consultant Party.
Dated: June 30, 1997 The Cerplex Group, Inc.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
By
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name
------------------------------
Chairman of the Board
Title
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▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
The Cerplex Group, Inc.
August 18, 1997
Page 1
August 18, 1997
Via Facsimile
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▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
The Cerplex Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇▇▇:
An Engagement Letter dated June 30, 1997 summarized terms and
conditions for engagement of Nightingale & Associates, LLC ("N&A") by The
Cerplex Group, Inc. ("Cerplex" or the "Company") to provide management director
of Cerplex's financial and operational restructuring.
This letter supplements the Engagement Letter of June 30th relating to
billing for use of additional N&A resources on the Cerplex project. That letter
established a billing cap of $50,000 per month for my Professional Time services
and, to the extent utilized, those of ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇▇. In addition, it
was agreed that charges of up to $25,000 for Professional Time could be billed
in the first month of the project for a Senior Associate who I anticipated would
be required. Additional future work of N&A Associates required specific future
agreement.
Ms. ▇▇▇▇▇▇▇ Low was assigned to the project effective July 10th and
Cerplex was billed $25,000 for the four week period ended August 2nd.
As we have discussed, in connection with a re-organization of the
finance function, my plan is to name ▇▇▇▇▇▇▇ as Interim Controller - North
American Operations. I anticipate this will be a 60 to 90 day project while a
search is conducted for a permanent Controller.
Although Cathryn's per diem billing rate (10 hour basis) is $2,000, and
I anticipate that she will be involved in the project on an essentially
full-time basis, I have agreed to a total Professional time billing cap for
services of ▇▇▇▇▇▇▇ and myself on the project of $70,000 per month through the
end of October. Even if a full-time North American Controller is not yet in
place, I commit to a reduction of the monthly Professional Time billing cap for
work for a combination of ▇▇▇▇▇▇▇ Low and myself to $60,000 at that time.
All other terms and conditions of the June 30th Engagement Letter
continue in effect.
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▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
The Cerplex Group, Inc.
August 18, 1997
Page 2
If this amendment to the June 30th Engagement Letter conforms with our
understanding, please signify your agreement in the space provided below.
Sincerely,
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
SJH/crc
cc: ▇.▇. ▇'▇▇▇▇▇▇▇▇▇
READ, UNDERSTOOD AND AGREED TO BY:
The Cerplex Group, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
August 27, 1997