1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1996
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.
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(Exact name of registrant as specified in its charter)
Delaware 33-0411354
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1382 Bell Avenue, Tustin, CA 92780
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(Address of principal executive offices)
(Zip Code)
(714) 258-5600
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(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 August 8,
1996 was 13,405,384.
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THE CERPLEX GROUP, INC.
TABLE OF CONTENTS
Page
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PART 1 - FINANCIAL INFORMATION
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . 8
Management's Discussion and Analysis . . . . . . . . . . . 11
PART II - OTHER INFORMATION
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 17
Changes in Securities . . . . . . . . . . . . . . . . . . . 17
Defaults Upon Senior Securities . . . . . . . . . . . . . . 17
Submission of Matters to a Vote of Security Holders . . . . 17
Other Information . . . . . . . . . . . . . . . . . . . . . 18
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 22
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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3
PART I
FINANCIAL INFORMATION
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4
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
June 30 December 31
1996 1995
-------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 27,206 $ 3,807
Accounts receivable, net 28,252 30,102
Inventories 28,819 27,789
Net assets of discontinued operations 1,347 2,597
Prepaid expenses and other 4,924 2,267
-------- --------
Total current assets 90,548 66,562
Property, plant and equipment, net 28,919 17,988
Investment in joint venture 7,723
Goodwill 5,817 6,647
Other long-term assets 4,452 2,973
-------- --------
Total assets $129,736 $101,893
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 22,716 $ 17,024
Accrued liabilities 25,246 13,622
Short-term borrowings 45,446
Current portion of long-term debt 247 536
Income taxes payable 1,599 2,161
-------- ---------
Total current liabilities 95,254 33,343
-------- ---------
Long-term debt, less current portion 17,946 68,382
Other long-term liabilities 6,214
Stockholders' Equity:
Preferred Stock, par value $.001; 3,066,340 shares
authorized; 8,000 shares designated Series B Preferred
Stock, all of which are issued and outstanding,
aggregate liquidation preference of $16,000 7,911
Common Stock, par value $.001;
30,000,000 shares authorized; 13,402,467
and 13,127,680 issued and outstanding in
1996 and 1995, respectively 13 13
Additional paid-in capital 50,611 47,528
Notes receivable from stockholders (229) (226)
Unearned compensation (108) (143)
Accumulated deficit (47,897) (47,026)
Cumulative translation adjustment 21 22
-------- --------
Total stockholders' equity 10,322 168
-------- --------
Total liabilities and stockholders' equity $129,736 $101,893
======== ========
See accompanying notes to consolidated financial statements
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5
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
------------ ------------ ----------- -----------
Net sales $51,339 $32,488 $92,185 $66,489
Cost of sales 40,370 26,479 74,285 54,438
------- ------- ------- -------
Gross profit 10,969 6,009 17,900 12,051
Selling, general & administrative expenses 8,582 5,235 15,639 9,312
------- ------- ------- -------
Operating income 2,387 774 2,261 2,739
Equity in earnings from joint venture 644 357 1,159
Gain on sale of InCirT Division 450 450
Interest expense, net 1,658 1,221 3,169 2,445
------- ------- ------- -------
Income (loss) from continuing operations
before taxes 1,179 197 (101) 1,453
Income taxes 477 27 770 494
------- ------- ------- -------
Income (loss) from continuing operations 702 170 (871) 959
------- ------- ------- -------
Discontinued operations, net of income taxes:
Income from operations 112 153
Estimated loss from liquidation of
discontinued operations
------- ------- ------- -------
Income from discontinued operations 112 153
------- ------- ------- -------
Net income (loss) $ 702 $ 282 $ (871) $ 1,112
======= ======= ======= =======
Income (loss) per share:
Continuing operations $ .05 $ .01 $ (.07) $ .07
Discontinued operations .01 .01
------- ------- ------- -------
Net income (loss) per share $ .05 $ .02 $ (.07) $ .08
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 14,846 14,414 13,286 14,412
======= ======= ======= =======
See accompanying notes to consolidated financial statements
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Additional Total
Preferred Stock Common Stock Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Other Deficit Equity
------ ------ ---------- ------ ---------- ----- ----------- -------------
Balance at December 31, 1995 13,127,680 $ 13 $47,528 $(347) $(47,026) $ 168
Stock options and warrants exercised 151,930 18 18
Notes receivable from stockholders (3) (3)
Net loss (1,573) (1,573)
Amortization of unearned compensation 18 18
Translation adjustment (129) (129)
----- ------ ---------- ---- ------- ----- -------- -------
Balance at March 31, 1996 13,279,610 13 47,546 (461) (48,599) (1,501)
Issuance of Series B Convertible
Preferred Stock 8,000 $7,911 7,911
Issuance of warrants 3,037 3,037
Stock options and warrants exercised 122,857 28 28
Net income 702 702
Amortization of unearned compensation 17 17
Translation adjustment 128 128
----- ------ ---------- ---- ------- ----- -------- -------
Balance at June 30, 1996 8,000 $7,911 13,402,467 $ 13 $50,611 $(316) $(47,897) $10,322
===== ====== ========== ==== ======= ===== ======= =======
See accompanying notes to consolidated financial statements
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months Ended June 30
-------------------------
1996 1995
---------- --------
Cash flows from operating activities:
Net income (loss) $ (871) $ 1,112
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,878 4,263
Amortization of contract rights 389
Amortization of unearned compensation 35 35
Foreign currency transaction (gain) loss 28 (117)
Equity in earnings of joint venture (357) (1,159)
Distribution of earnings of joint venture 3,090
Gain on sale of InCirT Division (450)
Decrease (increase) in:
Accounts receivable 4,153 1,006
Inventories (854) (6,118)
Prepaid expenses and other 6,335 103
Investment in other long-term assets (1,364) (672)
Net assets of discontinued operations 1,250
(Decrease) increase in:
Accounts and notes payable 1,854 (728)
Accrued liabilities (8,605) 592
Income taxes payable (549) 275
------- -------
Net cash provided by (used in) operating activities 7,573 (1,019)
------- -------
Cash flows from investing activities:
Purchase of plant and equipment (450) (2,358)
Acquisition of businesses, net of cash acquired* 5,147 (4,500)
Proceeds from sale of InCirT Division 5,500
------- -------
Net cash used in investing activities 10,197 (6,858)
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Cash flows from financing activities:
Proceeds from long-term debt, net 8,009
Proceeds from issuance of preferred stock 7,911
Proceeds from issuance of stock, net 47 21
Decrease in notes receivable from stockholders (3) (7)
Principal payments of long-term debt (304) (1,347)
Principal payments of short term borrowings (2,000)
------- -------
Net cash provided by (used in) financing activities 5,651 6,676
------- -------
Effect of exchange rate changes on cash (22) 72
------- -------
Net increase (decrease) in cash and cash equivalents 23,399 (1,129)
Cash and cash equivalents at beginning of period 3,807 9,442
------- -------
Cash and cash equivalents at end of period $27,206 $ 8,313
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,319 $ 1,930
======= =======
Income taxes $ 25 $ 326
======= =======
*Acquisition of Businesses
Amount paid $(8,977) $(4,500)
Cash Acquired 14,124
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$ 5,147 $(4,500)
======= =======
See accompanying notes to consolidated financial statements
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance
with the instructions to Form 10-Q and therefore does not necessarily include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The Company's fiscal year is the 52 or 53 week period ending on the
Sunday 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.
In the opinion of management, the financial information for the three
and six-month periods ended June 30, 1996 and 1995, and at June 30, 1996
reflects all adjustments (which include only normal, recurring adjustments)
necessary for a fair presentation thereof.
During 1995, the Company discontinued its end-of-life programs, a
segment of the business, through a liquidation of remaining operations. Prior
period financial results have been restated to reflect the discontinuance of
this segment of the Company.
NOTE 2 - INCOME (LOSS) PER SHARE
Net income (loss) per share has been computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each period presented. Common equivalent shares consist of convertible
preferred stock, stock options and warrants, which were computed using the
treasury stock method.
NOTE 3 - INVENTORIES
Inventories consist of the following:
June 30, December 31,
1996 1995
------- ------------
(000's)
Spare and repair parts $17,685 $18,001
Work-in-process 5,763 6,402
Finished goods 5,371 3,386
------- -------
$28,819 $27,789
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ISSUANCE OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
In June 1996, the Company issued 8,000 shares of Series B Preferred
Stock ("Series B Stock") at $1,000 per share in a private placement. The
Series B Stock is convertible into Common Stock of the Company at the lower of
$5.07 per share or 80% of the average equivalent closing bid price over a
ten-day period ending three days prior to the date of conversion. The Series B
Stock will automatically convert into Common Stock on the earlier of five-years
from the date of issuance or such date as the Company's Common Stock has traded
above $19.13 per share for a specified period of time. The Series B Stock has
certain rights, privileges and preferences, including a $2,000 per share
preference in the event of a sale of the company. The Board of Directors may
not pay dividends to the holders of the Company's Common Stock unless and until
the Board has paid an equivalent dividend to the holders of Series B Stock
based upon the number of shares of Common Stock into which each share of Series
B Stock is convertible. In addition, in the event the Company fails to effect
the registration of the Common Stock issuable upon conversion of the Series B
Stock by November 8, 1996, the holders of Series B Stock shall be entitled to
receive a dividend at the rate of $0.83 1/3 per share per day for each day
after such deadline until the shares are so registered, up to $500 per share.
In April 1996, the Company issued 1,000,000 detachable warrants in
connection with amendments to the Note Purchase Agreements related to its
Senior Subordinated Notes and issued 125,000 detachable warrants in connection
with an amendment to the Credit Agreement. The warrants provide the holders
the right to purchase 1,125,000 shares of common stock at $6 per share. As a
result of the issuance of the warrants, the Company discounted the book value
of the debt outstanding and increased paid-in capital by the fair market value
of the warrants ($3.0 million). The discount is being amortized as additional
interest expense over the period of the related debt on the interest method.
NOTE 5 - 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). Accordingly,
the cash of Cerplex SAS ($19.6 million at June 30, 1996) is generally not
available to Cerplex for financing operations outside of Cerplex SAS. In
addition, Cerplex SAS entered into a four-year Supply and Services Agreement
with RXL to provide repair and refurbishment services with guaranteed levels of
production hours (at standard
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rates) that decline over the period of the contract. Revenues and income
before taxes of Cerplex SAS during the five week period ended June 30, 1996
were $5.3 million and $1.0 million, respectively.
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 as negative goodwill ($500,000) which is being amortized into income
over a five year period. Revenues and income before taxes of Modcomp/Cerplex
during the three months ended June 30, 1996 were $10.2 million and $1.2
million, respectively.
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:
Pro Forma
--------
In Thousands
Net Sales $126,653
Income from continuing operations 323
Net income per share from continuing operations .02
NOTE 6 - SALE OF INCIRT DIVISION
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 the InCirT Division was $450,000.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains 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 and
logistics services worldwide. 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. Net sales
of end-of life programs contributed 26% and 71% of consolidated net sales
during 1994 and 1993, respectively. 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 Company's continuing operations are focused on
depot repair, logistics services, technical help desk, training,
remanufacturing and remarketing, and spare parts services.
The liquidation of end-of-life programs has been accounted for as
discontinued operations and prior period financial statements have been
restated to reflect the discontinuance of this segment of the business.
RESULTS OF OPERATIONS
Results of Continuing Operations
The following table sets forth items from the Company's Consolidated
Statement of Operations as a percentage of net sales.
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Costs of sales 78.6 81.5 80.6 81.9
Gross margin 21.4 18.5 19.4 18.1
Selling, general and administrative 16.7 16.1 17.0 14.0
Operating income (loss) 4.7 2.4 2.4 4.1
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Net sales for the three and six month periods ended June 30, 1996
increased $18.9 million and $25.7 million, respectively, to $51.3 million and
$92.2 million, respectively, over the net sales for the corresponding periods
of 1995. The increase in net sales of 58.0% and 38.6% in the three and six
month periods of 1996 compared to the corresponding periods of the prior year
is primarily attributed to the acquisitions of the remaining 51% interest in
Modcomp/Cerplex and Cerplex SAS in April and May 1996, and Peripheral Computer
Support, Inc. ("PCS") in May 1995. The increase in sales from acquisitions
was partially offset from sale of the InCirT Division, effective April 1, 1996,
and lower sales of repair services from British Telecommunications plc and
Wang.
Gross profit as a percentage of net sales for the three and six month
periods ended June 30, 1996 were 21.4% and 19.4%, respectively, compared to
18.5% and 18.1% during the corresponding periods of the prior year. The gross
profit ratio during the three and six month periods ended June 30, 1996
increased as a result of the higher gross margin ratios of Modcomp/Cerplex and
Cerplex SAS since the acquisition dates of these operations. The increase in
the gross profit as a percentage of sales was partially offset by lower gross
profit from the performance on certain contracts which the Company is currently
winding down and the impact of facility consolidations in California which was
substantially completed at June 30, 1996. See further discussion below
regarding North American Operations.
Selling, general and administrative expenses as a percentage of net
sales for the three and six month periods ended June 30, 1996 increased to
16.7% and 17.0%, respectively, from 16.1% and 14.0% 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 increased corporate
overhead related to the Company's expanded corporate staff and increased
selling, general and administrative expenses related to PCS and
Modcomp/Cerplex.
Income (Loss) from Continuing Operations
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
------- ------- ------- -------
In Thousands
Operating income (loss) $ 2,387 $ 774 $ 2,261 $ 2,739
Equity in earnings of joint venture 644 357 1,159
Gain on sale of InCirT Division 450 450
Interest expense, net (1,658) (1,221) (3,169) (2,445)
------- ------- ------- -------
Income (loss) from continuing
operations $ 1,179 $ 197 $ (101) $ 1,453
======= ======= ======= =======
During the quarter ended June 30, 1996, the Company recorded an
operating profit primarily as a result of the acquisition of Modcomp/Cerplex
and Cerplex SAS. The Company's North American Operations have been adversely
impacted by the performance on certain contracts which the Company is currently
winding down and the impact of facility consolidations in California. As of
June 30, 1996, the Company's North American operations have reduced facility
space by 75,000 square feet, primarily in California, and reduced 160
positions. These reductions were made as part of the Company's efforts to
consolidate locations as a result of changing volume of work.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
In June 1996, the Company announced its plan to close its Texas
operations at the end of August 1996. The Company's principal customer in
Texas, SpectraVision, has been operating under Chapter 11 of the U.S.
Bankruptcy Code since June 1995. During the second quarter ended June 30,
1996, SpectraVision filed its proposed plan of reorganization which, among
other things, would result in the Company receiving stock for its pre-petition
bankruptcy claims in a new company to be formed with On Command Video, a unit
of Ascent Entertainment Group. As a result of the changing requirements of
SpectraVision, the Company was informed that no additional orders of new
products would be made thereby resulting in a substantial decline in
anticipated sales from the Company's Texas operations during the three months
ending September 30, 1996. Furthermore, based on discussions with
SpectraVision, the Company's contract will likely be terminated as part of the
bankruptcy proceedings. As a result of the foregoing, the Company expects to
record operating losses related to these operations during the three months
ending September 30, 1996, and incur a restructuring charge resulting from the
closure of these operations. Such losses cannot be determined at this time due
to uncertainty over the estimated proceeds from the sale of assets (including
inventory and property and equipment), recovery of pre-petition claims and
resolution of obligations under lease commitments.
Equity in earnings of joint venture relates to the Company's ownership
interest in Modcomp/Cerplex. As discussed in Note 5 - Acquisitions, the
Company acquired the remaining 51% in 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.
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.
Interest expense for the three and six month periods ended June 30,
1996 increased $437,000 and $724,000 as a result of increased average
borrowings under the Company's credit facilities and a higher weighted average
interest rate. Average borrowings outstanding were $65.5 million during the
six month period ended June 30, 1996 compared to $57.3 million during the six
month period ended June 30, 1995. The effective interest rate on credit
facilities increased to 9.68% during the six month period ended June 30, 1996
from 8.53% during the six months ended June 30, 1995.
Income Taxes
Income tax expense for the six months ended June 30, 1996 is primarily
related to income taxes on earnings of the Company's operations in Europe at an
effective tax rate of 38%. 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. The Company's effective tax
rate for the six month period ended June 30, 1995 was 32.5%.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Discontinued Operations
During 1995, the Company discontinued its end-of-life programs, a
segment of the business, through a liquidation of remaining operations. During
the six month period ended June 30, 1996, net sales of discontinued operations
were $6.7 million. No gain or loss on discontinued operations was recorded
during the six month period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On October 12, 1994, the Company obtained a $60 million revolving line
of credit ("Credit Facility") from a group of banks led by Wells Fargo Bank.
The Credit Facility replaced the Company's $10 million credit line with
CoastFed Business Credit Corp. ("CoastFed"). The Company used $6.1 million to
retire the CoastFed line and $11.0 million to retire an outstanding note
payable to IBM. The Credit Facility matures in October 1997 and generally
provides for borrowings based on the Company continuing to meet certain
financial covenants for leverage, cash flow, tangible net worth and liquidity
ratio as defined in the Credit Agreement. The interest rate on the Credit
Facility as of December 31, 1995 was 8.81% based upon a blend of LIBOR and
prime lending rates. Borrowings under the Credit Facility are secured by all
of the Company's assets, including the assets and stock of the Company's
subsidiaries. At December 31, 1995, the Company was not in compliance with the
contractual obligations and financial covenants of the Credit Agreement. The
financial covenants which the Company was not in compliance were liquidity
ratio, minimum cash flow coverage, maximum leverage ratio, minimum net worth,
and minimum past due accounts receivable.
In April 1996, the Company entered into an amended Credit Agreement
that reduces the maximum amount available under the line of credit from $60
million to $48 million and requires reductions in commitments to $47 million at
September 30, 1996, $45 million at December 31, 1996, and $43 million at March
15, 1997. The interest rate on the Credit Facility has been increased to prime
plus 2.25% and maturity date has been accelerated from October 1997 to March
31, 1997. In consideration for the amendment to the Credit Agreement, the
Company was required to provide the lenders warrants to purchase 125,000 shares
of common stock at $6 per share and pay certain commitment fees and
out-of-pocket expenses. The amended Credit Agreement includes revised
covenants for liquidity, leverage, net worth, profitability and collateral, and
requires additional reductions in outstanding borrowings (generally determined
on the basis of percentage of proceeds) in the event of the sale of assets and
issuance of additional equity or certain excess cash flow as such terms are
defined in the amended Credit Agreement. Due to the impact of the Company's
Texas operations, Lucent Note and other factors, there can be no assurance the
Company will continue to be in compliance with the provisions of the Credit
Agreement.
In November 1993, the Company sold $17.3 million in principal amount
of its Series A 9.0% (changed to 9.5% in October 1994) Senior Subordinated
Notes and $5.7 million in principal amount of its Series B 9.0% Senior
Subordinated Notes with 920,000 detachable warrants to purchase common stock.
The detachable warrants were issued at the option price of $.01 per share
resulting in an original issue discount of $3.6 million on the Series B 9.0%
Senior Subordinated Notes. The Series A Senior Subordinated Notes accrued
interest at the rate of 9.5% per annum, payable quarterly, with principal
amount thereof payable in three equal installments on November 9, in the years
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 as defined in the Note Purchase
Agreements pursuant to which
14
15
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
the Senior Subordinated Notes were sold to the Company. At December 31, 1995,
the Company was not in compliance with the contractual obligations and
financial covenants of the Note Purchase Agreements. The financial covenants
which the Company was not in compliance were maximum leverage ratio, minimum
net worth and minimum fixed charge ratio.
In April 1996, the Company entered into an amendment to the Note
Purchase Agreements that 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 Note Holders
warrants to purchase 1,000,000 shares of common stock at $6 per share. As a
result of the issuance of the warrants, the Company discounted the book value
of the debt outstanding and increased paid-in capital by the fair market value
of the warrants ($3.0 million). The discount is being amortized as additional
interest expense over the period of the related debt on the interest method
The Company's primary sources for liquidity is cash flow from
operations and its ability to reduce working capital requirements. The Company
does not have available capacity under its Credit Agreements and is required to
reduce borrowings during 1996 and repay the remaining borrowings at March 1997.
Accordingly, additional funds will be needed to finance the Company's
operations from the sale of assets, reduction in working capital, and/or
obtaining additional equity or long-term debt. There can be no assurance that
additional funds will be available when needed or, if available, that the terms
of such transactions will not adversely affect the Company's results of
operations.
Effective April 1, 1996, the Company sold its contract manufacturing
operations in Tustin, California for $3.5 million cash and approximately $2.0
million in restricted Common Stock. The Company was required to use $2.0
million of the proceeds from the sale of the 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% interest 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. 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. 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 ($19.6 million
at June 30, 1996) is generally not available to Cerplex for financing
operations outside of Cerplex SAS. In addition, Cerplex SAS entered into a
four-year Supply and Services Agreement with RXL to provide repair and
refurbishment services with guaranteed levels of production hours (at standard
rates) that decline over the period of the contract. The Company financed the
acquisition of Cerplex SAS through a portion of the proceeds from the sale of
InCirT and issuance of convertible Series B Stock.
In June 1996, the Company issued 8,000 shares of Series B Stock at
$1,000 per share in a private placement. The Series B Stock is convertible
into Common Stock of the Company at the lower of $5.07 per share or 80% of the
average equivalent closing bid price over a ten-day period ending three days
prior to the date of conversion. The Series B Stock will automatically convert
into Common Stock on
15
16
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
the earlier of five-years from the date of issuance or such date as the
Company's Common Stock has traded above $19.13 per share for a specified period
of time. The Series B Stock has certain rights, privileges and preferences,
including a $2,000 per share preference in the event of a sale of the company.
The Board of Directors may not pay dividends to the holders of the Company's
Common Stock unless and until the Board has paid an equivalent dividend to the
holders of Series B Stock based upon the number of shares of Common Stock into
which each share of Series B Stock is convertible. In addition, in the event
the Company fails to effect the registration of the Common Stock issuable upon
conversion of the Series B Stock by November 8, 1996, the holders of Series B
Stock shall be entitled to receive a dividend at the rate of $0.83 1/3 per
share per day for each day after such deadline until the shares are so
registered, up to $500 per share.
In June 1996, the Company converted $4.6 million of invoices received
from Lucent Technology ("Lucent") into a note payable ("Lucent Note"). The
Lucent Note accrues interest at 9.75% and is due September 15, 1996. The
Lucent Note relates to the Company's purchase of excess telephones which are
repaired by a subcontractor and re-marketed in certain geographic areas
designated in the purchase agreement. As a result of the condition of the
telephones and lack of availability of spare parts, the costs of repair have
escalated and the re-marketing activities have extended beyond the time
anticipated. At June 30, 1996, the Company had $4.0 million of inventory
related to this program which must be sold at prices above such amount to
generate cash sufficient to pay the note to Lucent. At the present time, cash
flow from the sale of the repaired telephones will not be adequate to repay the
Lucent Note when it becomes due. The Company intends to negotiate a price
reduction, pricing concessions or other products to be performed and/or an
extension of the due date of the Lucent Note, however, there is no assurance
that a favorable outcome to these negotiations will be obtained. Failure of
the Company to pay the Lucent Note when it becomes due would result in an event
of default under the Company's Credit Agreement. Furthermore, there is no
assurance that if such extension is obtained, that parts will be available to
complete production in a timely manner or that the sale prices will be adequate
to generate the cash required to meet the payments due to Lucent.
The Company is committed to pay BT L1.8 million (approximately $2.9
million as of June 30, 1996) in 1999 or earlier if certain sales volumes are
reached and to pay a former shareholder of PCS up to $1.0 million over the next
two years.
16
17
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On June 11, 1996 the Company consummated a private placement of 8,000
shares of Series B Stock, as more fully described in Note 4 to the Consolidated
Financial Statements. Certain of the rights, preferences and privileges of the
Series B Stock which may affect the rights of the holders of Common Stock are
as follows:
(i) Voting. Each holder of Series B Stock shall be entitled to
vote with the holders of Common Stock on an as-converted basis as a single
class on all matters presented for stockholder vote.
(ii) Dividends. Holders of Series B Stock are entitled to receive
dividends as may be declared from time to time by the Board of Directors. The
Board may not pay dividends to the holders of the Company's Common Stock unless
and until the Board has paid an equivalent dividend to the holders of Series B
Stock based upon the number of shares of Common Stock into which each share of
Series B Stock is convertible as of the record date for the payment of the
dividend. In the event the Company should fail to effect a registration
covering the resale of the Common Stock issuable upon conversion of the Series
B Stock by November 8, 1996, the holders of Series B Stock shall be entitled to
receive a dividend at the rate of $0.83 1/3 per share per day for each day
after such deadline until the shares are so registered, up to $500 per share.
(iii) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, the holders of Series B Stock are
entitled to receive, prior and in preference to any distribution of any assets
of the Company to the holders of Common Stock, the amount of $2,000 per share
plus all accrued or declared but unpaid dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During portions of 1995 and the beginning of 1996, the Company was in
default under its senior Credit Agreement. The Company has re- negotiated and
amended such agreement to cure such defaults. See "Liquidity and Capital
Resources" herein for a more detailed discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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18
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
(A) RISK FACTORS
Losses and Accumulated Deficit. For the six month period ended June
30, 1996 and the year ended December 31, 1995, the Company reported a net loss
of $871,000 and $39.4 million, respectively. As of June 30, 1996, the Company
had an accumulated deficit of $47.9 million. In addition, the Company expects
to record operating losses from its Texas operations during the three months
ended September 30, 1996, and incur a restructuring charge resulting from the
closure of these operations which could result in an unprofitable quarter for
the Company. Furthermore, there can be no assurance that the Company will
operate profitably in the future. Continued losses could materially and
adversely affect the Company's business and the value of, and the market for,
the Company's equity securities.
Future Capital Needs; Uncertainty of Additional Financing. The
Company's ability to maintain its current revenue base and to grow its business
is dependent on the availability of adequate capital. Without sufficient
capital, the Company's growth may be limited. During portions of 1995 and the
beginning of 1996, the Company was in default under its senior credit agreement
and subordinated note agreements. While the Company has re-negotiated such
agreements, the terms of the senior credit facility have resulted in a reduced
borrowing base which will be further reduced over the next nine months. Due to
the impact of the Company's Texas operations, Lucent Note and other factors,
there can be no assurance the Company will continue to be in compliance with
the provisions of the Credit Agreement. The Company is required to use a
portion of cash generated from operations, from sales of assets and from sales
of equity securities to further reduce its borrowing base under the senior
credit facility. As a result, the Company currently has limited capital. In
addition, the terms of such agreements restrict the Company's ability to incur
additional indebtedness and could adversely affect the Company's ability to
obtain additional financing. General market conditions and the Company's
future performance (including its ability to generate profits and positive
cash flow) will also impact the Company's financial resources. The failure of
the Company to obtain additional capital when needed could have a material
adverse effect on the Company's business and future prospects. No assurance
can be given that the Company will be able to maintain its current credit
facilities or that additional financing will be available or, if available,
will be on acceptable terms.
Risk of Excess and Unusable Inventory. The Company is required to
maintain inventories to support its customers. At the end of 1995, inventory
constituted approximately 27% of the Company's assets. Any decrease in the
demand for the Company's repair services could result in a substantial portion
of the Company's inventory becoming excess, obsolete or otherwise unusable,
which would have a material adverse effect on the Company's business. During
both 1994 and 1995, the Company wrote down a significant amount of inventory.
There can be no assurance that the Company will not be required to write down
significant amounts of its inventory in the future.
Dependence on Key Customers. During the six months ended June 30,
1996, BT, IBM, SpectraVision and Rank Xerox accounted for approximately 13%,
11%, 6% and 6%, respectively, of continuing operations. During 1995, IBM and
SpectraVision significantly decreased orders for certain programs which
materially and adversely affected the Company and its results of operations.
SpectraVision is currently operating under Chapter 11 of the U.S. Bankruptcy
Code, and a subsidiary of the Company is performing services for SpectraVision
under a contract which, based on discussions
18
19
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
with SpectraVision, will likely be terminated as part of the bankruptcy
proceedings. A significant portion of the Company's net sales attributable to
IBM in 1995 were from discontinued operations, and, as such, the Company
expects net sales attributable to IBM to continue to account for a decreasing
percentage of the Company's net sales. Also, IBM has informed the Company that
it has changed its strategy for spare parts and, as a result, will not renew an
agreement (which accounted for approximately 8% of the Company's 1995 net sales
from continuing operations) with the Company for such services which expires in
September 1996. Although the Company will not provide spare parts under this
agreement, after September 1996, the Company believes it will continue to
provide services to IBM under other programs. There can be no assurance that
major customers of the Company will not terminate any or all of their
arrangements with the Company; significantly change, reduce or delay the amount
of services ordered from the Company; or significantly change the terms upon
which the Company and these customers do business. Any such termination,
change, reduction or delay could have a material adverse effect on the
Company's business.
Dependence on Customers in the Electronics Industry. The Company is
dependent upon the continued growth, viability and financial stability of its
customers and potential customers in the electronics industry, particularly the
computer industry. The computer industry has been characterized by rapid
technological change, compressed product life cycles and pricing and margin
pressures. Improvements in technology and quality of hardware products or
other factors may result in a reduced need for parts and systems repairs in the
future which may adversely affect the Company's business. 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, 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
OEMs and TPMs 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 OEMs
and TPMs. In addition to competing with OEMs and TPMs, the Company also
competes for depot repair business with a small number of independent
organizations similar in size to the Company and a large number of smaller
companies. Many of the companies with which the Company competes have
significantly greater financial resources than the Company. There can be no
assurance that the Company will be able to compete effectively in its target
markets.
Management of Growth. The Company's growth has placed, and will
continue to place, a strain on the Company's managerial, operational and
financial resources. These resources may be further strained by the
geographically dispersed operations of the Company and the future addition of
acquired depots or businesses, if any. The Company's ability to manage growth
effectively will require it to continue to improve its operational, financial
and management information systems; to develop the
19
20
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
management skills of its managers and supervisors; and to train, motivate and
effectively manage its employees. The Company's failure to effectively manage
growth, including acquired operations, could have a material adverse effect on
the Company's business.
Expansion of International Sales. During the six month period ended
June 30, 1996, approximately 21% of the Company's business was in Europe and
the Company intends to continue to expand its European operations. 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 resulted in decreasing net sales as the installed base of the
particular products under such programs decreases over time. An important
component of the Company's strategy to maintain its revenue and to grow its
business has been the acquisition of repair programs and complementary
businesses. Competition for these types of transactions is likely to
intensify. The Company's ability to effect any significant transactions
requiring capital will be limited by the terms of the Company's senior credit
facility. There can be no assurance that the Company will be able to acquire
additional repair programs or complementary businesses or, if acquired, that
such operations will prove to be profitable.
Discontinued Operations; Change in Strategy. In September 1995,
Cerplex adopted a plan to discontinue its end-of-life programs, a line of
business which historically generated a significant percentage of the Company's
total sales, but which in recent years experienced declining sales. Net sales
from end-of-life programs declined from approximately $56 million in 1993 to
$33 million in 1994 to $20 million in 1995. The net loss from discontinued
operations for the year ended December 31, 1995 was $17.4 million. There can
be no assurance that the Company will not incur additional losses from these
operations. 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 focusing on targeted customers in
specific industries. While the Company believes such changes will enhance the
Company's opportunities, 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 June 30, 1996, the officers, directors, principal
stockholders and their affiliates owned approximately 52% 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, to determine the
outcome of most corporate actions requiring stockholder approval and otherwise
to 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
20
21
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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.
Dependence on Key Personnel. The Company's continued success depends,
to a large extent, upon the efforts and abilities of key managerial employees,
particularly the Company's executive officers. Competition for qualified
management 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.
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, and there can be no assurance that an
active trading market will be sustained. 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.
21
22
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT
NUMBER TITLE METHOD OF FILING
- ------ ----- ----------------
2.1 Agreement of Merger dated as of August 30, 1993, by and Incorporated herein by reference to
among Cerplex Incorporated, Diversified Manufacturing Exhibit 2.1 to the Company's
Services, Inc. ("DMS"), EMServe, Inc. ("EMServe"), Registration Statement on Form S-1
InCirT Technology Incorporated ("InCirT") and Testar, (File No. 33-75004) which was declared
Inc. ("Testar"). effective by the Commission on April
8, 1994.
2.2 Agreement and Plan of Merger dated November 12, 1993, Incorporated herein by reference to
between The Cerplex Group Subsidiary, Inc. and Exhibit 2.2 to the Company's
Registrant (conformed copy to original). Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
2.3 Certificate of Ownership and Merger of Registrant with Incorporated herein by reference to
and into The Cerplex Group Subsidiary, Inc. dated as of Exhibit 2.3 to the Company's
November 12, 1993. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
2.4 Asset Purchase Agreement effective December 17, 1993 by Incorporated herein by reference to
and between Certech Technology, Inc., a wholly-owned Exhibit 2.4 to the Company's
subsidiary of the Registrant ("Certech"), and Registration Statement on Form S-1
Spectradyne, Inc. ("Spectradyne"). (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
2.5 Purchase and Sale Agreement dated as of July 29, 1994, Incorporated herein by reference to
by and among The Cerplex Group, Inc., Cerplex Limited, Exhibit 2 to the Form 8-K filed July
BT Repair Services Limited and British 29, 1994.
Telecommunications plc.
2.6 Contract for repair, calibration and warehousing of Incorporated herein by reference to
certain items of BT Equipment dated as of July 29, Exhibit 10 to the Form 8-K filed July
1994, among The Cerplex Group and Cerplex Limited and 29, 1994.
BT.
22
23
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
2.7 Formation and Contribution Agreement effective December Incorporated herein by reference to
1, 1994 by and among Modcomp/Cerplex L.P., Modular Exhibit 2.7 to the Company's Annual
Computer Systems, Inc., Cerplex Subsidiary, Inc. and Report on Form 10-K for the fiscal
The Cerplex Group, Inc. year ended January 1, 1995.
2.8 Contingent Promissory Note dated December 1, 1994 Incorporated herein by reference to
issued by Modcomp/Cerplex L.P. to Modular Computer Exhibit 2.8 to the Company's Annual
Systems, Inc. Report on Form 10-K for the fiscal
year ended January 1, 1995.
2.9 Limited Partnership Agreement of Modcomp/Cerplex L.P. Incorporated herein by reference to
effective December 1, 1994. Exhibit 2.9 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 1, 1995.
2.10 Put/Call Option Agreement effective December 1, 1994 by Incorporated herein by reference to
and among Cerplex Subsidiary, Inc., The Cerplex Group, Exhibit 2.10 to the Company's Annual
Inc., Modular Computer Systems, Inc. and Modcomp Joint Report on Form 10-K for the fiscal
Venture Inc. year ended January 1, 1995.
2.11 Stock Purchase Agreement dated as of June 29, 1995 by Incorporated herein by reference to
and among The Cerplex Group, Inc., Tu Nguyen and Exhibit 2.11 to the Company's Quarterly
Phuc Le. 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 Venture, Exhibit 2.12 to the Company's Annual
Inc., AEG Aktiengesellschaft, the Company, Cerplex Report on Form 10-K for the fiscal
Subsidiary, Inc. and Modcomp/Cerplex L.P. year ended December 31, 1995.
3.1 Restated Certificate of Incorporation of the Incorporated herein by reference to
Registrant. Exhibit 3.1 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
3.2 Bylaws of the Registrant Incorporated herein by reference to
Exhibit 3.2 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
23
24
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
3.3 Certificate of Designation of Preferences of Series B Filed herein.
Preferred Stock of The Cerplex Group, Inc.
4.1 Stock Purchase Agreement dated as of November 19, 1993 Incorporated herein by reference to
by and among the Registrant, the stockholders of the Exhibit 4.1 to the Company's
Registrant identified in Part A of Schedule I thereto Registration Statement on Form S-1
and the purchasers of shares of the Registrant's Series (File No. 33-75004) which was declared
A Preferred Stock identified in Schedule I thereto effective by the Commission on April
(including the Schedules thereto; Exhibits omitted). 8, 1994.
4.2 Registration Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, by and among the Registrant, the investors listed Exhibit 4.2 to the Company's
on Schedule A thereto and the security holders of the Registration Statement on Form S-1
Registrant listed on Schedule B thereto, together with (File No. 33-75004) which was declared
Amendment No.1. effective by the Commission on April
8, 1994.
4.3 Co-Sale Agreement dated as of November 19, 1993, by and Incorporated herein by reference to
among the Registrant, the managers listed on Schedule A Exhibit 4.3 to the Company's
thereto and the investors listed on Schedule B thereto. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.4 Warrant Agreement dated as of November 19, 1993, by and Incorporated herein by reference to
among the Registrant and the purchasers listed in Annex Exhibit 4.4 to the Company's
1 thereto. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.5 Placement Agent Warrant Purchase Agreement dated Incorporated herein by reference to
as of November 19, 1993, between the Registration and Exhibit 4.5 to the Company's Registration
certain stock purchasers. Statement on Form S-1 (File No. 33-75004)
which was declared effective by the
Commission on April 8, 1994.
4.6 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, between the Registrant and certain stock Exhibit 4.6 to the Company's
purchasers. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
24
25
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
4.7 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, between the Registrant and certain note purchasers. Exhibit 4.7 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.
4.8 Note Purchase Agreement dated as of November 19, 1993, Incorporated herein by reference to
by and among the Registrant and The Northwestern Mutual Exhibit 4.8 to the Company's
Life Insurance Company, John Hancock Mutual Life Registration Statement on Form S-1
Insurance, Registrant and Bank of Scotland London (File No. 33-75004) which was declared
Nominees Limited. effective by the Commission on April
8, 1994.
4.9 Amendment No. 2 to Registration Rights Agreement dated Incorporated herein by reference to
as of April 6, 1994, by and among the Registrant and Exhibit 4.9 to the Company's
certain of its Securities holders. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.10 Amendment to Note Purchase Agreement, dated as of Incorporated herein by reference to
October 27, 1994, by and among the Company, Exhibit 4.10 to the Company's Annual
Northwestern Mutual Life Insurance Company, John Report on Form 10-K for the fiscal
Hancock Mutual Life Insurance Company and North year ended December 31, 1995.
Atlantic Smaller Companies Trust P.L.C. (collectively,
the "Noteholders").
4.11 Waiver and Amendment Agreement dated April 15, 1996 by Incorporated herein by reference to
and among Company, The Northwestern Mutual Life Exhibit 4.11 to the Company's Annual
Insurance Company, John Hancock Mutual Life Insurance Report on Form 10-K for the fiscal
Company and North Atlantic Smaller Companies year ended December 31, 1995.
Investment Trust PLC.
4.12 Warrant Agreement dated as of April 15, 1996 by and Incorporated herein by reference to
among Company, The Northwestern Mutual Life Insurance Exhibit 4.12 to the Company's Annual
Company, John Hancock Mutual Life Insurance Company and Report on Form 10-K for the fiscal
North Atlantic Smaller Companies Investment Trust PLC. year ended December 31, 1995.
4.13 First Amendment to Warrant Agreement dated April 15, Incorporated herein by reference to
1996 by and among Company and each of the holders of Exhibit 4.13 to the Company's Annual
warrants listed on Schedule A thereto, with respect to Report on Form 10-K for the fiscal
that certain Warrant Agreement dated November 19, 1993. year ended December 31, 1995.
First Amendment to Observation Rights Agreement dated Incorporated herein by reference to
25
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
4.14 First Amendment to Observation Rights Agreement dated Incorporated herein by reference to
as of April 15, 1996 between Company and certain note Exhibit 4.14 to the Company's Annual
purchasers. Report on Form 10-K for the fiscal
year ended December 31, 1995.
4.15 Third Amendment to Registration Rights Agreement dated Incorporated herein by reference to
as of April 15, 1996 by and among Company, the Exhibit 4.15 to the Company's Annual
investors of Company listed on Schedule A thereto and Report on Form 10-K for the fiscal
the security holders of Company listed on Schedule B year ended December 31, 1995.
thereto.
4.16 Warrant Agreement dated April 15, 1996 by and among Incorporated herein by reference to
Company, Wells Fargo Bank, National Association, Exhibit 4.16 to the Company's Annual
Sumitomo Bank of California, BHF Bank Report on Form 10-K for the fiscal
Aktiengesellschaft and Comerica Bank-California. year ended December 31, 1995.
4.17 Stock Purchase Agreement dated June 10, 1996 by and Filed herein.
among the Company and the investors listed on Schedule
A thereto.
4.18 Fourth Amendment to Registration Rights Agreement dated Filed herein.
June 10, 1996 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 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 filed herein.
10.1 The Registrant's 1990 Stock Option Plan (the "1990 Incorporated herein by reference to
Plan"). Exhibit 10.1 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.2 Form of Stock Option Agreement pertaining to the 1990 Incorporated herein by reference to
Plan. Exhibit 10.2 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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.
10.4 The Registrant's 1993 Stock Option Plan (the "1993 Incorporated herein by reference to
Plan"). Exhibit 10.4 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.5 Form of Stock Option Agreement (grants to employees) Incorporated herein by reference to
pertaining to the 1993 Plan. Exhibit 10.5 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.6 Form of Stock Option Agreement (grants to directors and Incorporated herein by reference to
certain officers) pertaining to the 1993 Plan. Exhibit 10.6 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.7 Form of Stock Purchase Agreement for Installment Incorporated herein by reference to
Options pertaining to the 1993 Plan. Exhibit 10.7 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.8 Form of Stock Purchase Agreement for Immediately Incorporated herein by reference to
Exercisable Options pertaining to the 1993 Plan. Exhibit 10.8 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.9 The Registrant's Restated 1993 Stock Option Plan (the Incorporated herein by reference to
"Restated Plan"). Exhibit 10.9 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.10 Form of Stock Option Agreement, together with Addenda, Incorporated herein by reference to
pertaining to the Restated Plan. Exhibit 10.10 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.11 Master Agreement dated May 6, 1992 by and between IBM Incorporated herein by reference to
and the Company. Exhibit 10.11 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.
10.12 Master Task Agreement dated December 1, 1991, by and Incorporated herein by reference to
between International Business Machines Incorporated Exhibit 10.12 to the Company's
("IBM") and the Registrant, together with Amendment to Registration Statement on Form S-1
Master Agreement and Task Order. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.13 Technology Services Agreement effective March 1, 1993, Incorporated herein by reference to
by and between Novadyne Computer Systems, Inc. Exhibit 10.12 to the Company's
("Novadyne") and Cerplex Incorporated (a California Registration Statement on Form S-1
corporation and a predecessor of the Registrant), (File No. 33-75004) which was declared
together with Amendments Nos. 1 and 2. effective by the Commission on April
8, 1994.
10.14 Technology Services Agreement effective December 17, Incorporated herein by reference to
1993, by and between Spectradyne, Inc. ("Spectradyne") Exhibit 10.13 to the Company's
and the Registrant. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.15 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.
10.16 Lease Agreement dated April 1, 1992 by and between Incorporated herein by reference to
Henry G. Page Jr., and Diversified Manufacturing Exhibit 10.16 to the Company's
Services, Inc. ("DMS"). Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
28
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.17 Sublease dated January 1, 1994 by and between Bull and Incorporated herein by reference to
Cerplex Group, Inc. (a Massachusetts corporation). Exhibit 10.17 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.18 Standard Industrial/Commercial Single-Tenant Lease - Incorporated herein by reference to
Net dated November 29, 1990 by and among Kilroy Exhibit 10.18 to the Company's
Building 73 Partnership, Cerplex Incorporated and Registration Statement on Form S-1
InCirT, together with Amendment No. 1. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.19 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.
10.20 Sublease dated March 1, 1993 by and between Novadyne Incorporated herein by reference to
and the Registrant together with Lease Amendment dated Exhibit 10.20 to the Company's
July 22, 1991 by and between McDonnell Douglas Realty Registration Statement on Form S-1
Company and Novadyne. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.21 Standard Industrial/Commercial Lease - Net dated Incorporated herein by reference to
September 4, 1991 by and between Proficient Food Exhibit 10.21 to the Company's
Company and W.C. Cartwright Corporation ("Cartwright"), Registration Statement on Form S-1
together with Addendum and Sublease dated September 6, (File No. 33-75004) which was declared
1991 by and between Cartwright and the Registrant. effective by the Commission on April
8, 1994.
10.22 Sublease dated July 30, 1992 by and between Cartwright Incorporated herein by reference to
and DMS. Exhibit 10.22 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.23 Repair Services Agreement dated January 1, 1994 by and Incorporated herein by reference to
between Bull HN Information Systems, Inc. and the Exhibit 10.14 to the Company's
Registrant. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.24 Credit Agreement dated as of October 12, 1994 (the Incorporated herein by reference to
"Credit Agreement") among The Cerplex Group, Inc., as Exhibit 10.24 to the Company's Annual
Borrower; the lenders listed therein, as Lenders; and Report on Form 10-K for the fiscal
Wells Fargo Bank, National Association, as year ended January 1, 1995.
Administrative Agent; and those certain exhibits,
schedules and collateral documents to such Credit
Agreement.
10.25 Limited Waiver dated as of November 14, 1995 ("Waiver") Incorporated herein by reference to
by and among The Cerplex Group, Inc. (the "Company"), Exhibit 10.25 to the Company's
the financial institutions listed on the signature Quarterly Report on Form 10-Q for the
pages thereof ("Lenders"), and Wells Fargo Bank, quarter ended October 1, 1995.
National Association, as administrative agent for the
Lenders ("Administrative Agent"), and for certain
limited purposes, Certech Technology, Inc., Cerplex
Mass., Inc., Cerplex Limited, Apex Computer Company,
Cerplex Subsidiary, Inc. and Peripheral Computer
Support, Inc. (the "Subsidiaries"), which Waiver is
made with reference to the Credit Agreement.
10.26 The Cerplex Group, Inc. Restated 1993 Stock Option Incorporated herein by reference to
Plan (Restated and Amended as of January 13, 1995). Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995.
10.27 The Cerplex Group, Inc. Automatic Stock Option Incorporated herein by reference to
Agreement. Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995.
10.28 First Amendment to Credit Agreement dated April 15, Incorporated herein by reference to
1996 by and among Company, the lenders whose signatures Exhibit 10.28 to the Company's Annual
appear on the signature pages thereof, as Lenders; Report on Form 10-K for the fiscal
Wells Fargo Bank, National Association, as year ended December 31, 1995.
Administrative Agent; and the Subsidiaries for certain
limited purposes.
10.29 Promissory Note dated June 21, 1996 payable by the Filed herein.
Company to Lucent Technologies.
11.1 Statement Regarding Computation of Net Income (Loss) Filed herein.
Per Share.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
(B) REPORTS ON FORM 8-K
(1) On April 8, 1996, the Company filed a current report on Form 8-K
regarding acquisition of the remaining fifty-one percent (51%) of
Modcomp/Cerplex L.P., a Delaware limited partnership from AEG
Aktiengesellschaft.
(2) On May 24, 1995, the Company filed a current report on Form 8-K
regarding the acquisition of Cerplex SAS., a French Company ("Cerplex SAS")
from Rank Xerox Limited, an English Company. On August 6, 1996, the Company
filed a current Form 8-K/A related to the financial statements information
required under Item 7 (A) and (B) of Form 8-K regarding this acquisition.
(3) On June 11, 1996, the Company filed a current report on Form 8-K
regarding the completion of an $8 million private placement of Series B
Preferred Stock, bringing the Company back into compliance with the NASD's
requirements for continued listing on the Nasdaq National Market.
31
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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.
THE CERPLEX GROUP, INC.
Date: August 13, 1996 /s/ JAMES R. ECKSTAEDT
------------------------------------
James R. Eckstaedt
Senior Vice President and Chief
Financial Officer
(Principal financial and
chief accounting officer)
32
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
EXHIBIT INDEX
QUARTER ENDED JUNE 30, 1996
Exhibit Sequential
No. Description of Exhibits Page No.
- ------- ----------------------- ----------
3.3 Certificate of Designation of Preferences of
Series B Preferred Stock of The Cerplex Group, Inc.
4.17 Stock Purchase Agreement dated June 10, 1996 by and
among the Company and the investors listed on Schedule
A thereto.
4.18 Fourth Amendment to Registration Rights Agreement
dated June 10, 1996 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 each of the parties listed on
Schedule D thereto.
10.29 Promissory Note dated June 21, 1996 payable by the
Company to Lucent Technologies.
11.1 Computation of Net Income (Loss) Per Share.
27.1 Financial Data Schedule.
33