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 September 29, 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.
(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 92680
(Address of principal executive offices)
(Zip Code)
(714) 258-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock on November 8,
1996 was 13,451,944.
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THE CERPLEX GROUP, INC.
TABLE OF CONTENTS
Page
----
PART 1 - FINANCIAL INFORMATION
Consolidated Balance Sheets....................................... 4
Consolidated Statements of Operations............................. 5
Consolidated Statement of Stockholders' Equity (Deficiency)....... 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................................................. 18
Changes in Securities............................................. 18
Defaults Upon Senior Securities................................... 18
Submission of Matters to a Vote of Security Holders............... 18
Other Information................................................. 19
Exhibits and Reports on Form 8-K.................................. 24
SIGNATURE................................................................. 36
EXHIBIT INDEX............................................................. 37
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3
PART I
FINANCIAL INFORMATION
3
4
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
September 29, December 31,
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 26,521 $ 3,807
Accounts receivable, net 23,301 30,102
Inventories 22,674 27,789
Net assets of discontinued operations 412 2,597
Prepaid expenses and other 7,116 2,267
--------- ---------
Total current assets 80,024 66,562
Property, plant and equipment, net 28,390 17,988
Investment in joint venture 7,723
Goodwill 5,682 6,647
Other long-term assets 3,804 2,973
--------- ---------
Total assets $ 117,900 $ 101,893
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 24,410 $ 17,024
Accrued liabilities 24,990 13,622
Short-term borrowings 45,188
Current portion of long-term debt 241 536
Income taxes payable 1,296 2,161
--------- ---------
Total current liabilities 96,125 33,343
--------- ---------
Long-term debt, less current portion 18,033 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 7,859
Common Stock, par value $.001;
30,000,000 shares authorized; 13,440,011
and 13,127,680 issued and outstanding in
1996 and 1995, respectively 13 13
Additional paid-in capital 50,645 47,528
Notes receivable from stockholders (139) (226)
Unearned compensation (90) (143)
Accumulated deficit (60,837) (47,026)
Cumulative translation adjustment 77 22
--------- ---------
Total stockholders' equity (deficiency) (2,472) 168
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 117,900 $ 101,893
========= =========
See accompanying notes to consolidated financial statements
4
5
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
---------------------------- --------------------------
September 29, October 1, September 29, October 1,
------------- ---------- ------------- ----------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $ 50,636 $ 35,381 $ 142,821 $ 101,870
Cost of sales 46,885 32,450 121,170 86,888
-------- -------- --------- ---------
Gross profit 3,751 2,931 21,651 14,982
Selling, general & administrative expenses 12,233 13,191 27,872 22,502
Restructuring charges 2,084 2,084
-------- -------- --------- ---------
Operating income (loss) (10,566) (10,260) (8,305) (7,520)
Equity in earnings from joint venture 347 357 1,506
Gain on sale of InCirT Division 450
Interest expense, net 1,811 1,295 4,980 3,740
-------- -------- --------- ---------
Income (loss) from continuing operations before
taxes (12,377) (11,208) (12,478) (9,754)
Income taxes (benefit) 563 (1,775) 1,333 (1,281)
-------- -------- --------- ---------
Income (loss) from continuing operations (12,940) (9,433) (13,811) (8,473)
-------- -------- --------- ---------
Discontinued operations, net of income taxes:
Income (loss) from operations (2,118) (1,966)
Estimated loss from liquidation of discontinued
operations (13,446) (13,446)
-------- -------- --------- ---------
Income (loss) from discontinued operations (15,564) (15,412)
-------- -------- --------- ---------
Net income (loss) $(12,940) $(24,997) $ (13,811) $ (23,885)
======== ======== ========= =========
Income (loss) per share:
Continuing operations $ (0.96) $ (0.72) $ (1.04) $ (0.65)
Discontinued operations (1.19) (1.18)
-------- -------- --------- ---------
Net income (loss) per share $ (0.96) $ (1.91) $ (1.04) $ (1.83)
======== ======== ========= =========
Weighted average common and common equivalent
shares outstanding 13,422 13,108 13,332 13,081
======== ======== ========= =========
See accompanying notes to consolidated financial statements
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands, except share data)
(Unaudited)
Total
Preferred Stock Common Stock Additional Stockholders'
--------------- ------------ Paid-In Accumulated Equity
Shares Amount Shares Amount Capital Other Deficit (deficiency)
------ ------ ------ ------ ------- ----- ------- ------------
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
S-3 Registration Costs of Series
B Convertible Preferred Stock (52) (52)
Stock options and warrants
exercised 37,544 34 34
Net loss (12,940) (12,940)
Notes receivable from
stockholders 90 90
Amortization of unearned
compensation 18 18
Translation adjustment 56 56
----- ------ ---------- --- -------- ------ -------- -------
Balance at September 29, 1996 8,000 $7,859 13,440,011 $13 $ 50,645 $ (152) $(60,837) $(2,472)
===== ====== ========== === ======== ====== ======== =======
See accompanying notes to consolidated financial statements
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7
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Nine Months Ended
-----------------
September 29, 1996 October 1, 1995
------------------ ---------------
Cash flows from operating activities:
Net income (loss) $(13,811) $(23,885)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 6,319 6,861
Amortization of unearned compensation 53 53
Foreign currency transaction (gain) loss 35 (100)
Non-cash charges related to End-of-Life Programs 14,639
Equity in earnings of joint venture (356) (1,506)
Distribution of earnings of joint venture 3,090
Gain on sale of InCirT Division (450)
Decrease (increase) in:
Accounts receivable 9,142 30
Inventories 5,108 (7,558)
Prepaid expenses and other 4,166 (1,703)
Investment in other long-term assets (1,391) 1,905
Net assets of discontinued operations 2,185 1,317
(Decrease) increase in:
Accounts and notes payable 3,639 3,910
Accrued liabilities (8,611) 614
Income taxes payable (885) (449)
-------- --------
Net cash provided by (used in) operating activities 8,233 (5,872)
-------- --------
Cash flows from investing activities:
Purchase of plant and equipment (1,181) (4,036)
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 9,466 (8,536)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt, net 8,014
Proceeds from issuance of preferred stock 7,859
Proceeds from issuance of stock, net 80 25
Decrease in notes receivable from stockholders 87 76
Principal payments of long-term debt (410) (1,687)
Principal payments of short term borrowings (2,343)
-------- --------
Net cash provided by (used in) financing activities 5,273 6,428
-------- --------
Effect of exchange rate changes on cash (258) 17
-------- --------
Net increase (decrease) in cash and cash equivalents 22,714 (7,963)
Cash and cash equivalents at beginning of period 3,807 9,442
-------- --------
Cash and cash equivalents at end of period $ 26,521 $ 1,479
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 5,266 $ 3,646
======== ========
Income taxes $ 1,753 $ 1,122
======== ========
*Acquisition of Businesses
Amount paid $ (8,977) $ (4,500)
See accompanying notes to consolidated financial statements
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THE CERPLEX GROUP, INC.
and subsidiaries
Cash Acquired $ 14,124
-------- --------
$ 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.
In the opinion of management, the financial information for the three and
nine-month periods ended September 29, 1996 and October 1, 1995, and at
September 29, 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 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. Common stock equivalent shares are not included in the computation of
net income (loss) per share for the three and nine-month periods ended September
29, 1996 and October 1, 1995, respectively, because their effect would be
anti-dilutive.
NOTE 3 - INVENTORIES
Inventories consist of the following:
September 29, December 31,
1996 1995
------------- ------------
(in thousands)
Spare and repair parts $15,812 $18,001
Work-in-process 3,233 6,402
Finished goods 3,629 3,386
------- ----------
$22,674 $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 at the option of each holder at the lower
of $5.07 per share or 80% of the average closing bid price over a ten-day period
ending three days prior to the date of conversion. The Series B Stock will
automatically convert into Common Stock on the earlier of five-years from the
date of issuance or such date as the Company's Common Stock has traded above
$19.13 per share for a specified period of time. The Series B Stock has certain
rights, privileges and preferences, including a $2,000 per share preference in
the event of a sale of the Company. The Board of Directors may not pay dividends
to the holders of the Company's Common Stock unless and until the Board has paid
an equivalent dividend to the holders of Series B Stock based upon the number of
shares of Common Stock into which each share of Series B Stock is convertible.
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. In October
1996, the Company, in connection with the receipt of waivers of certain breaches
of the Note Purchase Agreements and Credit Agreement, decreased the exercise
price of the warrants from $6.00 to $2.50 per share.
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 ($19.9 million at September 29, 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. Revenues and
income before taxes of Cerplex SAS since the date of the acquisition were $18.3
million and $2.7 million, respectively.
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THE CERPLEX GROUP, INC.
and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 since the date of
the acquisition were $19.1 million and $1.9 million, respectively.
Assuming the above acquisitions occurred at the beginning of 1996, the pro
forma results of operations of the Company for the nine months ended September
29, 1996 would have been as follows:
Pro Forma
---------
(in thousands)
Net Sales $177,289
Income from continuing operations (12,617)
Net income per share from continuing operations (0.95)
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.
NOTE 7 - RESTRUCTURING CHARGES
During the three-month period ended September 29, 1996, the Company
closed its contract manufacturing operations in Texas and its computer training
operations in Redmond, Washington. In connection with the closure of these
operations, the Company recorded restructuring charges of $2.1 million. The
restructuring charges related to write-downs of inventories, property and
equipment and other assets to net realizable value, provision for losses on
collection of accounts receivable, accruals for lease commitments and severance
pay, and costs to complete closure of the facilities.
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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, 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 Nine Months Ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Costs of sales 92.6 91.7 84.8 85.3
Gross margin 7.4 8.3 15.2 14.7
Selling, general and administrative 24.2 37.3 19.5 22.1
Restructuring charges 4.1 1.5
Operating income (loss) (20.9) (29.0) (5.8) (7.4)
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Net sales for the three and nine-month periods ended September 29, 1996
increased $15.3 million and $40.9 million, respectively, to $50.6 million and
$142.8 million, respectively, over the net sales for the corresponding periods
of 1995. The increase in net sales of 43.1% and 40.2% in the three and
nine-month periods of 1996 compared to the corresponding periods of the prior
year is primarily attributable to the acquisition of the remaining 51% interest
in Modcomp/Cerplex in April 1996, the acquisition of Cerplex SAS in May 1996,
and the acquisition of Peripheral Computer Support, Inc. ("PCS") in May 1995.
The increase in sales from such acquisitions was partially offset by the sale of
the InCirT Division, effective April 1, 1996, decreased sales of repair services
to British Telecommunications plc ("BT") and decreased sales in the Company's
North American operations.
Gross profit as a percentage of net sales for the three and nine-month
periods ended September 29, 1996 was 7.4% and 15.2%, respectively, compared to
8.3% and 14.7% during the corresponding periods of the prior year. The gross
profit ratios during the three and nine-month periods ended September 29, 1996
were adversely affected by a variety of factors primarily relating to the
Company's North American operations including, without limitation, changes in
the Company's business and the business of third parties, and the impact of
unprofitable contracts and operations such as the Company's Texas operations and
Redmond, Washington computer training operations which were closed during the
third quarter. The effect of these factors included, without limitation,
approximately $2.5 million in inventory writedowns, $.8 million in operating
losses related to the Texas operations, $.7 million in operating losses related
to sales of telephones purchased from Lucent and $.4 in operating losses from
the Company's computer training operations. The Company's gross profit ratios
during the three and nine month periods ended October 1, 1995 were also
adversely impacted by inventory writedowns and the impact of unprofitable
operations. See further discussion below regarding North American operations.
Selling, general and administrative expenses as a percentage of net sales
for the three and nine-month periods ended September 29, 1996 were 24.2% and
19.5%, respectively, compared to 37.3% and 22.1% during the corresponding
periods of the prior year. Selling, general and administrative expenses during
the three-month periods ended September 29, 1996 and October 1, 1995,
respectively, included provisions for estimated losses on collection of accounts
receivable and other assets of $2.0 million and $3.2 million, respectively, and,
during the three-month period ended October 1, 1995, a $3.0 million provision
for loss on an investment in a stock purchase warrant of Novadyne Computer
Systems, Inc. Excluding these items, selling, general and administrative
expenses as a percentage of net sales for the three and nine-month periods ended
September 29, 1996 were 20.2% and 18.1%, respectively, compared to 19.8% and
16.0% 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.
During the three-month period ended September 29, 1996, the Company closed
its contract manufacturing operations in Texas and its computer training
operations in Redmond, Washington. In connection with the closure of these
operations, the Company recorded restructuring charges of $2.1 million. The
restructuring charges related to write-downs of inventories, property and
equipment and other assets to net realizable value, provision for losses on
collection of accounts receivable, accruals for lease commitments and severance
pay, and costs to complete closure of the facilities.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Income (Loss) from Continuing Operations
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Operating income (loss) $(10,566) $(10,260) $ (8,305) $(7,520)
Equity in earnings of joint venture 347 357 1,506
Gain on sale of InCirT Division 450
Interest expense, net (1,811) (1,295) (4,980) (3,740)
-------- -------- -------- -------
Income (loss) from continuing $(12,377) $(11,208) $(12,478) $(9,754)
operations ======== ======== ======== =======
The operating losses during the three and nine month periods ending
September 29, 1996 resulted primarily from a variety of factors affecting North
American operations including, without limitation, declining sales and
unprofitable contracts, changes in the Company's business and the business of
the Company's customers, and the closure of unprofitable operations. To a lesser
extent, the operating losses for the three-month period ending September 29,
1996 resulted from the effect declining sales to BT had on the Company's
operations in the United Kingdom. Commencing during the third quarter of 1995,
the Company discontinued its end-of-life programs and commenced a process to
consolidate its North American depot operations into fewer, strategically
located facilities. These actions have included closing the Company's Anaheim
repair depot, consolidation of certain of the Company's Northern, CA repair
depots into Livermore, CA, disposition of the Company's contract manufacturing
operations in Tustin, CA (see Note 6), closing the Company's contract and repair
operations in Texas, and closing the Company's computer training operations in
Redmond, CA. As a result of the foregoing, the Company has substantially reduced
the North American operations fixed costs of operations. The Company has
recently reorganized its North American operations into two business lines;
repair depots and spare parts sales. In addition, the Company has opened two new
repair depots in Ontario, CA and Louisville, Kentucky, to improve its strategic
location to major transportation centers. Although these repair depots are still
in the start-up phase, the Company expects these locations will focus on high
volume throughput for designated OEMs in line with its service outsourcing
strategy.
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, CA to Pen Interconnect for $3.5 million in cash and
restricted common stock valued at approximately $2 million at the time of the
acquisition. The gain on the sale of the InCirT Division was $450,000.
Interest expense for the three and nine-month periods ended September 29,
1996 increased $516,000 and $1,240,000 as a result of increased average
borrowings under the Company's credit facilities and a higher weighted average
interest rate. Average borrowings outstanding were $64.9 million during the
nine-month period ended September 29, 1996 compared to $58.9 million during the
nine-month period
14
15
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
ended October 1, 1995. The effective interest rate on credit facilities
increased to 10.24% during the nine-month period ended September 29, 1996 from
8.47% during the nine-month period ended October 1, 1995.
Income Taxes
Income tax expense for the nine months ended September 29, 1996 is
primarily related to income taxes on earnings of the Company's operations in
Europe at an effective tax rate of 32%. 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
recorded an income tax benefit during the nine-month period ended October 1,
1995, of $1.3 million related to projected losses from continuing operations for
1996. No income tax benefit was recorded for the estimated loss from liquidation
of discontinued operations.
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
nine-month period ended September 29, 1996, net sales of discontinued operations
were $8.4 million. No gain or loss on discontinued operations was recorded
during the nine-month period ended September 29, 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
"Lenders"). 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 originally matured in October 1997 and
provided 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 dated October 12, 1994, by and among
the Company and the Lenders (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 (the
"Amended Credit Agreement") that reduced 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 29, 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. The interest rate on the Credit
Facility as of September 29, 1996 was 10.5% based upon prime lending rates. 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
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
the sale of assets and issuance of additional equity or certain excess cash flow
as such terms are defined in the Amended Credit Agreement.
The Company was in violation of certain financial covenants under the
Amended Credit Agreement during the three-month period ended September 29, 1996.
In consideration of decreasing the exercise price of the above warrants from $6
per share to $2.50, the Lenders have waived these covenant violations through
November 30, 1996. The Company intends to negotiate an amendment to the Credit
Facility, although there is no assurance that the Company will be successful in
this regard.
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 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 with 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 was in
violation of certain financial covenants under the Note Purchase Agreements
during the three-month period ended September 29, 1996. In consideration
of decreasing the exercise price of the above warrants from $6 per share to
$2.50, the Senior Note Holders have waived these covenant violations through
November 30, 1996. The Company intends to negotiate an amendment to the Note
Purchase Agreements, although there is no assurance that the Company will be
successful in this regard.
The Company's primary sources for liquidity are cash flow from operations
and its ability to reduce working capital requirements. The Company does not
have available capacity under its Credit Agreement 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 be favorable to the Company and its stockholders.
Effective April 1, 1996, the Company sold its contract manufacturing
operations in Tustin, California for $3.5 million cash and restricted Common
Stock valued at approximately $2.0 million at the time of the acquisition. The
Company was required to use $2.0 million of the proceeds from the sale of the
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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 a 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 ($19.9 million at September 29, 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 option of each holder at the lower of $5.07 per
share or 80% of the average closing bid price over a ten-day period ending three
days prior to the date of conversion. The Series B Stock will automatically
convert into Common Stock on the earlier of five years from the date of issuance
or such date as the Company's Common Stock has traded above $19.13 per share for
a specified period of time. The Series B Stock has certain rights, privileges
and preferences, including a $2,000 per share preference in the event of a sale
of the Company. The Board of Directors may not pay dividends to the holders of
the Company's Common Stock unless and until the Board has paid an equivalent
dividend to the holders of Series B Stock based upon the number of shares of
Common Stock into which each share of Series B Stock is convertible.
The Company acquired inventory consisting of used telephones from Lucent
Technologies, Inc. ("Lucent"). At September 29, 1996, the Company had $7.0
million of inventory, production cost commitments and assets related to the
telephones acquired from Lucent. In June 1996, the Company executed a promissory
note bearing interest at 9.75% in the amount of $4.6 million payable on
September 15, 1996 in favor of Lucent, reflecting a portion of the amount
invoiced to the Company by Lucent (the "Lucent Note"). Lucent has invoiced the
Company for an additional $.6 million. Due to the quality of the inventory and
the lack of availability of spare parts to effect repairs, the Company believes
it has claims against Lucent. The Company currently does not intend to pay the
Lucent Note or other Lucent invoices. The failure to pay the Lucent Note on
September 15, 1996 constitutes an event of default under the Company's senior
Credit Facility and may result in an event of default under the Company's Note
Purchase Agreements. If the Company is required to pay the Lucent Note and other
Lucent invoices in full, it would have a material adverse effect on the
Company's financial resources. On October 7, 1996, the Company filed a lawsuit
against Lucent in the Orange County Superior Court seeking to have the Lucent
Note declared invalid. On November 6, 1996, Lucent filed a cross-complaint
seeking payment of the Lucent Note, alleging damages for breach of contract and
seeking a constructive trust on any proceeds from the sale of the telephones.
The Company's failure to have the Lucent Note declared invalid, or the loss to
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Lucent of any of the material claims asserted against the Company, could
materially and adversely affect the Company.
In October 1996, the Company entered into a transaction with Atwood
Richards, Inc. ("ARI") pursuant to which the Company is obligated to continue to
repair and refurbish the remaining telephones in inventory through December 31,
1996, and deliver 100% of the repaired product to ARI. The Company will receive
trade credits for up to $7.5 million in goods and services depending on the
number of telephones repaired. The trade credits received from ARI may be used
to acquire various goods and services, and the Company also believes it may be
able to use the trade credits to repay indebtedness or other operating expenses.
There can be no assurance that the Company will be able to use the trade credits
in the near term, if at all.
The Company is committed to pay BT (pound)1.8 million (approximately $2.9
million as of September 29, 1996) in 1999 or earlier if certain sales volumes
are reached, and to pay a former shareholder of PCS up to $500,000 during 1997.
18
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 7, 1996 the Company filed a complaint against Lucent in the
Orange County Superior Court seeking to have the Lucent Note declared invalid.
Lucent filed an Answer and Cross-Complaint on November 6, 1996 for payment of
the Lucent Note, breach of contract and a constructive trust on any proceeds
from the sale of the phones. The Company's failure to have the Lucent Note
declared invalid, or the loss to Lucent of any of the material claims asserted
against the Company, could materially and adversely affect the Company. Such
legal proceedings are more fully described in "Liquidity and Capital Resources"
herein.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter ended September 29, 1996, the Company was in default
under its Amended Credit Agreement and its Note Purchase Agreements, as amended.
The Company has obtained waivers through November 30, 1996 waiving compliance
with the provisions of such agreements giving rise to the default. In addition,
the Company has not paid any principal or interest on the Lucent Note. See
"Liquidity and Capital Resources" herein for a more detailed discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of its Stockholders on August 22, 1996.
The following directors were elected at such meeting (the number of votes in
favor of each director and the number of abstentions are indicated in the
parenthetical following each director's name; there were no broker non-votes
for any director): Richard C. Davis (9,566,036 in favor / 2,610 abstentions),
Robert Finzi (9,566,836 in favor / 2,010 abstentions), Jerome Jacobson
(9,566,636 in favor / 2,010 abstentions), Patrick S. Jones (9,566,636 in favor /
2,010 abstentions), William A. Klein (9,552,910 in favor / 15,736 abstentions),
Myron Kunin (9,566,636 in favor / 2,010 abstentions) and James T. Schraith
(9,557,400 in favor / 11,246 abstentions). In addition, the stockholders
approved, by a vote of 9,536,740 in favor, 3,630 abstentions, and no broker
non-votes, a proposal to authorize the issuance of Common Stock equal to 20% or
more of the outstanding Common Stock upon conversion of the Company's Series B
Stock. The stockholders also approved, by a vote of 9,357,503 in favor, 3,630
abstentions and no broker non-votes, certain amendments to the Company's 1993
Restated Stock Option Plan, as amended, which increased the number of shares of
the Company's Common Stock available for issuance from 1,000,000 to 2,000,000
shares and increased the total number of shares of Common Stock for which any
one individual may be granted stock options or separately exercisable stock
appreciation rights in any calendar year from 300,000 to 500,000. Finally, the
stockholders approved, by a vote of 9,564,146 in favor, 3,990 abstentions and no
broker non-votes, the ratification of KPMG Peat Marwick LLP as the Company's
independent auditors for the 1996 fiscal year.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
RISK FACTORS
Losses and Accumulated Deficit. For the nine-month period ended
September 29, 1996 and the year ended December 31, 1995, the Company reported a
net loss of $13.8 million and $39.4 million, respectively. As of September 29,
1996, the Company had an accumulated deficit of $60.8 million. The Company also
expects to report a loss for the fourth quarter of 1996. 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 1996,
the Company was in default under its senior Credit Agreement and subordinated
Note Purchase Agreements. The Company obtained a limited waiver of designated
defaults through November 30, 1996 with its lenders and Subordinated Note
Holders. The Company intends to negotiate an amendment to the Credit Agreement
and Note Purchase Agreements, although there is no assurance that the Company
will be successful in this regard. The failure of the Company to negotiate an
amendment to the Credit Agreement and Note Purchase Agreements could have a
material adverse effect upon the Company.
The terms of the senior Credit Facility have resulted in a reduced
borrowing base which will be further reduced over the period ending March 1997.
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 Credit Agreement. In addition, the Company is
restricted from accessing the cash or the assets of the Company's Cerplex SAS
operations in France, which further limits the Company's financial resources. As
a result, the Company currently has limited capital. In addition, the terms of
the Company's Credit Agreement and Note Purchase 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 not incur additional defaults under
such agreements, or that additional financing will be available or, if
available, will be on acceptable terms.
Dispute with Lucent Technologies. The Company acquired inventory
consisting of used telephones from Lucent. At September 29, 1996, the Company
had $7.0 million of inventory, production cost commitments and assets related to
the telephones acquired from Lucent. In June 1996, the Company executed a
promissory note bearing interest at 9.75% in the amount of $4.6 million payable
on September 15, 1996 in favor of Lucent, reflecting a portion of the amount
invoiced to the Company by Lucent. Lucent has invoiced the Company for an
additional $.6 million. Due to the quality of the inventory and the lack of
availability of spare parts to effect repairs, the Company believes it has
claims against Lucent. The Company currently does not intend to pay the Lucent
Note or other Lucent invoices. The failure to pay the Lucent Note on September
15, 1996 constitutes an event of default under the Company's senior Credit
Facility and may result in an event of default under the Company's Note Purchase
Agreements. If the Company is required to pay the Lucent Note and other Lucent
invoices in full, it would have a material adverse effect on the Company's
financial resources. On October 7, 1996, the Company filed a lawsuit against
Lucent in the Orange County Superior Court seeking to have the Lucent Note
declared invalid.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
On November 6, 1996, Lucent filed a cross-complaint seeking payment of the
Lucent Note, alleging damages for breach of contract and seeking a constructive
trust on any proceeds from the sale of the telephones. The Company's failure to
have the Lucent Note declared invalid, or the loss to Lucent of any of the
material claims asserted against the Company, could materially and adversely
affect the Company.
Risk of Excess and Unusable Inventory; Decreased Value of Assets. At
September 29, 1996, inventory constituted approximately 19.2% of the Company's
assets. Any decrease in the demand for the Company's repair services could
result in a substantial portion of the Company's inventory becoming excess,
obsolete or otherwise unusable. During the last few years, the Company wrote
down a significant amount of inventory and a significant amount of other assets,
including receivables, securities and goodwill. Changes in the Company's
business, as well as the business of third parties, could adversely affect the
value of assets remaining on the Company's financial statements, possibly
resulting in write-offs. The existence, amounts and timing of any such
additional write-offs will be dependent upon various factors including, without
limitation, the volume and profitability of future operations, market conditions
as well as the operations of the above-mentioned third parties. In addition, the
Company became entitled to receive an aggregate of approximately 370,000 shares
of Common Stock of Pen Interconnect in connection with the sale of its InCirT
division which were valued at $5.40 per share. Recently, the trading price of
such shares has decreased substantially and there can be no assurance that the
Company will not be required to write down its investment with respect to such
shares in the future. In October, the Company sold all of its inventory of
phones purchased from Lucent to Atwood Richards, Inc. ("ARI"). The consideration
paid to the Company from ARI was up to $7.5 million in trade credits. As of
September 29, 1996, the Company had $7.0 million of inventory, production cost
commitments and assets related to the telephones acquired from Lucent. The
Company has no prior experience in using trade credits and there can be no
assurance the Company will realize the value of the trade credits. There can be
no assurance that the Company will not be required to write down significant
amounts of its inventory or other assets in the future, which could have a
material adverse effect on the Company's business and results of operations.
Dependence on Key Customers. During the nine months ended September 29,
1996, BT, Rank Xerox, IBM, and SpectraVision accounted for approximately 12%,
9%, 8% and 4%, 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. The
Company ceased performing services for SpectraVision in August 1996. A
significant portion of the Company's net sales attributable to IBM in 1995 were
from discontinued operations, and, as such, the Company expects net sales
attributable to IBM to continue to account for a decreasing percentage of the
Company's net sales. Also, an agreement with IBM for spare parts (which
accounted for approximately 7% of the Company's net sales from continuing
operations through September 29, 1996) expired in September 1996. Although the
Company will not provide spare parts under this agreement after September 1996,
the Company believes it will continue to provide services to IBM under other
programs. 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
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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 and 1996, several of the Company's customers experienced severe financial
difficulty resulting in significant losses to the Company as a result of write
downs of receivables and other assets. There can be no assurance that existing
customers or future customers will not experience financial difficulty, which
could have a material adverse effect on the Company's business.
Reliance on Short-Term Purchase Orders. The Company's customer
contracts are typically subject to termination on short notice at the customer's
discretion and purchase orders under such contracts typically only cover
services over a 90-day period. The termination of any material contracts or any
substantial decrease in the orders received from major customers could have a
material adverse effect on the Company's business.
Competition. The Company competes with the in-house repair centers of
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 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 three-month period ended
September 29, 1996, approximately 50% 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.
22
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
Dependence on Acquisition Strategy. Certain of the Company's repair
programs result in decreasing net sales as the installed base of the particular
products under such programs decreases over time. An important component of the
Company's strategy to maintain its revenue and to grow its business has been the
acquisition of repair programs and complementary businesses. Competition for
these types of transactions is likely to intensify. The Company's ability to
effect any significant transactions requiring capital will be limited by the
terms of the Company's senior credit facility and subordinated notes. There can
be no assurance that the Company will be able to acquire additional repair
programs or complementary businesses or, if acquired, that such operations will
prove to be profitable.
Discontinued Operations; Change in Strategy. In September 1995, Cerplex
adopted a plan to discontinue its end-of-life programs, a line of business which
historically generated a significant percentage of the Company's total sales,
but which 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. In addition, the Board of Directors
of the Company has the authority under the Company's Restated Certificate of
Incorporation to issue shares of the Company's authorized Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any unissued shares of Preferred Stock. The issuance
of Preferred Stock may adversely affect the voting and dividend rights, rights
upon liquidation and other rights of the holders of Common Stock. The issuance
of Preferred Stock and the control by existing stockholders, if they were to act
in concert, may have the effect of delaying, deferring or preventing a change in
control of the Company.
On June 11, 1996, the Company consummated a private placement of Series
B Stock. Holders of Series B Stock are entitled to receive dividends as may be
declared from time to time by the Board prior and in preference to payment of
any dividends to the holders of Common Stock. In the event of any liquidation,
dissolution or winding up of the Company or the merger or sale of the Company,
the holders of Series B Stock will be entitled to receive, prior and in
preference to any distribution to the holders of Common Stock, the amount of
$2,000 per share of Series B Stock plus all accrued or declared but unpaid
dividends. Additionally, the Series B Stock is convertible into Common Stock at
a rate equal to the lower of a 20% discount to the trading price of the Common
Stock or $5.07 per share. The conversion rights of the Series B Stock could have
a significant dilutive effect upon the holders of Common Stock.
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.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
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. James T. Schraith, the Company's Chief
Executive Officer, resigned in October 1996 to accept a key position with
Compaq. William A. Klein, the Company's Chairman, is currently acting as
President and Chief Executive Officer. The Company currently is searching for a
new Chief Executive Officer.
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. At September 29, 1996, the Company was not in
compliance with Nasdaq National Market System's net tangible asset requirement
which could result in the loss of listing on the National Market System unless
the Company is able to increase its net tangible assets in the near term. The
Company believes it will be eligible for listing on the Nasdaq SmallCap Market
if it loses its National Market System listing. There can be no assurance that
the Company will be able to maintain its listing on Nasdaq's National Market
System or obtain listing on The Nasdaq SmallCap Market. In addition, the trading
price of the Common Stock has been, and in the future could be, subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management or new
products or services by the Company or its competitors, general trends in the
industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market price for many companies in similar industries and which
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock.
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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, Incorporated herein by reference
by and among Cerplex Incorporated, Diversified to Exhibit 2.1 to the Company's
Manufacturing Services, Inc. ("DMS"), EMServe, Registration Statement on Form S-1
Inc. ("EMServe"), InCirT Technology Incorporated (File No. 33-75004) which was
("InCirT") and Testar, Inc. ("Testar"). declared effective by the
Commission on April 8, 1994.
2.2 Agreement and Plan of Merger dated November 12, Incorporated herein by reference
1993, between The Cerplex Group Subsidiary, Inc. to Exhibit 2.2 to the Company's
and Registrant (conformed copy to original). Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
2.3 Certificate of Ownership and Merger of Registrant Incorporated herein by reference
with and into The Cerplex Group Subsidiary, Inc. to Exhibit 2.3 to the Company's
dated as of November 12, 1993. Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
2.4 Asset Purchase Agreement effective December 17, Incorporated herein by reference
1993 by and between CerTech Technology, Inc., a to Exhibit 2.4 to the Company's
wholly-owned subsidiary of the Registrant Registration Statement on Form S-1
("CerTech"), and Spectradyne, Inc. ("Spectradyne"). (File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
2.5 Purchase and Sale Agreement dated as of July 29, Incorporated herein by reference
1994, by and among The Cerplex Group, Inc., to Exhibit 2 to the Form 8-K filed
Cerplex Limited, BT Repair Services Limited and July 29, 1994.
British Telecommunications plc.
2.6 Contract for repair, calibration and warehousing of Incorporated herein by reference
certain items of BT Equipment dated as of July 29, to Exhibit 10 to the Form 8-K
1994, among The Cerplex Group and Cerplex filed July 29, 1994.
Limited and BT.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
2.7 Formation and Contribution Agreement effective Incorporated herein by reference
December 1, 1994 by and among Modcomp/Cerplex to Exhibit 2.7 to the Company's
L.P., Modular Computer Systems, Inc., Cerplex Annual Report on Form 10-K for
Subsidiary, Inc. and The Cerplex Group, Inc. the fiscal year ended January 1,
1995.
2.8 Contingent Promissory Note dated December 1, 1994 Incorporated herein by reference
issued by Modcomp/Cerplex L.P. to Modular to Exhibit 2.8 to the Company's
Computer Systems, Inc. Annual Report on Form 10-K for
the fiscal year ended January 1,
1995.
2.9 Limited Partnership Agreement of Modcomp/Cerplex Incorporated herein by reference
L.P. effective December 1, 1994. to 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, Incorporated herein by reference
1994 by and among Cerplex Subsidiary, Inc., The to Exhibit 2.10 to the Company's
Cerplex Group, Inc., Modular Computer Systems, Annual Report on Form 10-K for
Inc. and Modcomp Joint Venture Inc. the fiscal year ended January 1,
1995.
2.11 Stock Purchase Agreement dated as of June 29, 1995 Incorporated herein by reference
by and among The Cerplex Group, Inc., Tu Nguyen to Exhibit 2.11 to the Company's
and Phuc Le. Quarterly Report on Form 10-Q
for the quarter ended October 1,
1995.
2.12 Letter Agreement dated April 5, 1996 by and among Incorporated herein by reference
Modular Computer Systems, Inc., Modcomp Joint to Exhibit 2.12 to the Company's
Venture, Inc., AEG Aktiengesellschaft, the Annual Report on Form 10-K for
Company, Cerplex Subsidiary, Inc. and the fiscal year ended December
Modcomp/Cerplex L.P. 31, 1995.
3.1 Restated Certificate of Incorporation of the Incorporated herein by reference
Registrant. to 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.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
3.3 Certificate of Designation of Preferences of Series B Incorporated herein by reference
Preferred Stock of The Cerplex Group, Inc. to Exhibit 3.3 to the Company's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
4.1 Stock Purchase Agreement dated as of November 19, Incorporated herein by reference
1993 by and among the Registrant, the stockholders to Exhibit 4.1 to the Company's
of the Registrant identified in Part A of Schedule I Registration Statement on Form S-1
thereto and the purchasers of shares of the (File No. 33-75004) which was
Registrant's Series A Preferred Stock identified in declared effective by the
Schedule I thereto (including the Schedules thereto; Commission on April 8, 1994.
Exhibits omitted).
4.2 Registration Rights Agreement dated as of November Incorporated herein by reference
19, 1993, by and among the Registrant, the investors to Exhibit 4.2 to the Company's
listed on Schedule A thereto and the security holders Registration Statement on Form S-1
of the Registrant listed on Schedule B thereto, (File No. 33-75004) which was
together with Amendment No.1. declared effective by the
Commission on April 8, 1994.
4.3 Co-Sale Agreement dated as of November 19, 1993, Incorporated herein by reference
by and among the Registrant, the managers listed on to Exhibit 4.3 to the Company's
Schedule A thereto and the investors listed on Registration Statement on Form S-1
Schedule B thereto. (File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
4.4 Warrant Agreement dated as of November 19, 1993, Incorporated herein by reference
by and among the Registrant and the purchasers listed to Exhibit 4.4 to the Company's
in Annex 1 thereto. Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
4.5 Placement Agent Warrant Purchase Agreement dated Incorporated herein by reference
as of November 19, 1993, between the Registrant to Exhibit 4.5 to the Company's
and Donaldson, Lufkin & Jenrette Securities Registration Statement on Form S-1
Corporation. (File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
4.6 Observation Rights Agreement dated as of November Incorporated herein by reference
19, 1993, between the Registrant and certain stock to 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.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
4.7 Observation Rights Agreement dated as of November Incorporated herein by reference
19, 1993, between the Registrant and certain note to Exhibit 4.7 to the Company's
purchasers. Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
4.8 Note Purchase Agreement dated as of November 19, Incorporated herein by reference
1993, by and among the Registrant and The to Exhibit 4.8 to the Company's
Northwestern Mutual Life Insurance Company, John Registration Statement on Form S-1
Hancock Mutual Life Insurance, Registrant and Bank (File No. 33-75004) which was
of Scotland London Nominees Limited. declared effective by the
Commission on April 8, 1994.
4.9 Amendment No. 2 to Registration Rights Agreement Incorporated herein by reference
dated as of April 6, 1994, by and among the to Exhibit 4.9 to the Company's
Registrant and certain of its Securities holders. Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
4.10 Amendment to Note Purchase Agreement, dated as of Incorporated herein by reference
October 27, 1994, by and among the Company, to Exhibit 4.10 to the Company's
Northwestern Mutual Life Insurance Company, John Annual Report on Form 10-K for
Hancock Mutual Life Insurance Company and North the fiscal year ended December
Atlantic Smaller Companies Trust P.L.C. 31, 1995.
(collectively, the "Noteholders").
4.11 Waiver and Amendment Agreement dated April 15, Incorporated herein by reference
1996 by and among Company, The Northwestern to Exhibit 4.11 to the Company's
Mutual Life Insurance Company, John Hancock Annual Report on Form 10-K for
Mutual Life Insurance Company and North Atlantic the fiscal year ended December
Smaller Companies Investment Trust PLC. 31, 1995.
4.12 Warrant Agreement dated as of April 15, 1996 by Incorporated herein by reference
and among Company, The Northwestern Mutual Life to Exhibit 4.12 to the Company's
Insurance Company, John Hancock Mutual Life Annual Report on Form 10-K for
Insurance Company and North Atlantic Smaller the fiscal year ended December
Companies Investment Trust PLC. 31, 1995.
4.13 First Amendment to Warrant Agreement dated April Incorporated herein by reference
15, 1996 by and among Company and each of the to Exhibit 4.13 to the Company's
holders of warrants listed on Schedule A thereto, Annual Report on Form 10-K for
with respect to that certain Warrant Agreement dated the fiscal year ended December
November 19, 1993. 31, 1995.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
4.14 First Amendment to Observation Rights Agreement Incorporated herein by reference
dated as of April 15, 1996 between Company and to Exhibit 4.14 to the Company's
certain note purchasers. Annual Report on Form 10-K for
the fiscal year ended December
31, 1995.
4.15 Third Amendment to Registration Rights Agreement Incorporated herein by reference
dated as of April 15, 1996 by and among Company, to Exhibit 4.15 to the Company's
the investors of Company listed on Schedule A Annual Report on Form 10-K for
thereto and the security holders of Company listed on the fiscal year ended December
Schedule B thereto. 31, 1995.
4.16 Warrant Agreement dated April 15, 1996 by and Incorporated herein by reference
among Company, Wells Fargo Bank, National to Exhibit 4.16 to the Company's
Association, Sumitomo Bank of California, BHF Annual Report on Form 10-K for
Bank Aktiengesellschaft and Comerica Bank- the fiscal year ended December
California. 31, 1995.
4.17 Stock Purchase Agreement dated June 10, 1996 by Incorporated herein by reference
and among the Company and the investors listed on to Exhibit 4.17 to the Company's
Schedule A thereto. Quarterly Report on Form 10-Q
for the quarter ended June 30,
1996.
4.18 Fourth Amendment to Registration Rights Agreement Incorporated herein by reference
dated June 10, 1996 by and among the Company, the to Exhibit 4.18 to the Company's
investors listed on Schedule A thereto, the security Quarterly Report on Form 10-Q
holders of the Company listed on Schedule B thereto, for the quarter ended June 30,
the banks listed on Schedule C thereto and each of 1996.
the parties listed on Schedule D thereto.
4.19 Certificate of Designation of Preferences of Series B Incorporated herein by reference
Preferred Stock of The Cerplex Group, Inc. to Exhibit 3.3 filed herein.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
4.20 Waiver and Amendment Agreement dated as of Filed herein.
October 31, 1996 by and among the Company, The
Northwestern Mutual Life Insurance Company, John
Hancock Mutual Life Insurance Company and North
Atlantic Smaller Companies Investment Trust PLC,
which waiver is made with reference to the Note
Purchase Agreement, as amended, and Warrant Agreement
dated April 15, 1996.
10.1 The Registrant's 1990 Stock Option Plan (the "1990 Incorporated herein by reference
Plan"). to Exhibit 10.1 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
10.2 Form of Stock Option Agreement pertaining to the Incorporated herein by reference
1990 Plan. to Exhibit 10.2 to the Company's
Registration Statement on Form
S-1 (File No. 33-75004) which
was declared effective by the
Commission on April 8, 1994.
10.3 Form of Stock Purchase Agreement pertaining to the Incorporated herein by reference
1990 Plan. to 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
Plan"). to Exhibit 10.4 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
10.5 Form of Stock Option Agreement (grants to Incorporated herein by reference
employees) pertaining to the 1993 Plan. to 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.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.6 Form of Stock Option Agreement (grants to directors Incorporated herein by reference
and certain officers) pertaining to the 1993 Plan. to 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
Options pertaining to the 1993 Plan. to 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
Exercisable Options pertaining to the 1993 Plan. to 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, as Filed herein.
amended (the "Restated Plan").
10.10 Form of Stock Option Agreement, together with Incorporated herein by reference
Addenda, pertaining to the Restated Plan. to 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 Incorporated herein by reference
between IBM and the Company. to 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 Incorporated herein by reference
and between International Business Machines to Exhibit 10.12 to the Company's
Incorporated ("IBM") and the Registrant, together Registration Statement on Form S-1
with Amendment to Master Agreement and Task (File No. 33-75004) which was
Order. declared effective by the
Commission on April 8, 1994.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.13 Technology Services Agreement effective March 1, Incorporated herein by reference
1993, by and between Novadyne Computer Systems, to Exhibit 10.12 to the Company's
Inc. ("Novadyne") and Cerplex Incorporated (a Registration Statement on Form S-1
California corporation and a predecessor of the (File No. 33-75004) which was
Registrant), together with Amendments Nos. 1 and 2. declared effective by the
Commission on April 8, 1994.
10.14 Technology Services Agreement effective December Incorporated herein by reference
17, 1993, by and between Spectradyne, Inc. to Exhibit 10.13 to the
("Spectradyne") and the Registrant. Company's 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 Incorporated herein by reference
between Henry G. Page Jr., and Diversified to Exhibit 10.16 to the Company's
Manufacturing Services, Inc. ("DMS"). Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
10.17 Sublease dated January 1, 1994 by and between Bull Incorporated herein by reference
and Cerplex Group, Inc. (a Massachusetts to Exhibit 10.17 to the Company's
corporation). Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
10.18 Standard Industrial/Commercial Single-Tenant Lease Incorporated herein by reference
- Net dated November 29, 1990 by and among Kilroy to 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.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.19 Lease dated December 17, 1993 by and between Incorporated herein by reference
Spectradyne and CerTech. to 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 Incorporated herein by reference
Novadyne and the Registrant together with Lease to Exhibit 10.20 to the
Amendment dated July 22, 1991 by and between Company's Registration Statement
McDonnell Douglas Realty Company and Novadyne. on Form S-1 (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
September 4, 1991 by and between Proficient Food to Exhibit 10.21 to the Company's
Company and W.C. Cartwright Corporation Registration Statement on Form S-1
("Cartwright"), together with Addendum and (File No. 33-75004) which was
Sublease dated September 6, 1991 by and between declared effective by the
Cartwright and the Registrant. Commission on April 8, 1994.
10.22 Sublease dated July 30, 1992 by and between Incorporated herein by reference
Cartwright and DMS. to 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 Incorporated herein by reference
and between Bull HN Information Systems, Inc. and to Exhibit 10.14 to the Company's
the Registrant. Registration Statement on Form S-1
(File No. 33-75004) which was
declared effective by the
Commission on April 8, 1994.
10.24 Credit Agreement dated as of October 12, 1994 (the Incorporated herein by reference
"Credit Agreement") among The Cerplex Group, to Exhibit 10.24 to the Company's
Inc., as Borrower; the lenders listed therein, as Annual Report on Form 10-K for
Lenders; and Wells Fargo Bank, National the fiscal year ended January 1,
Association, as Administrative Agent; and those 1995.
certain exhibits, schedules and collateral documents
to such Credit Agreement.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
10.25 Limited Waiver dated as of November 14, 1995 Incorporated herein by reference
("Waiver") by and among The Cerplex Group, Inc. to Exhibit 10.25 to the
(the "Company"), the financial institutions listed on Company's Quarterly Report on
the signature pages thereof ("Lenders"), and Wells Form 10-Q for the quarter ended
Fargo Bank, National Association, as administrative October 1, 1995.
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
Plan (Restated and Amended as of January 13, 1995). to 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
Agreement. to Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for
the quarter ended October 1, 1995.
10.28 First Amendment to Credit Agreement dated April Incorporated herein by reference
15, 1996 by and among Company, the lenders whose to Exhibit 10.28 to the Company's
signatures appear on the signature pages thereof, as Annual Report on Form 10-K for
Lenders; Wells Fargo Bank, National Association, as the fiscal year ended December
Administrative Agent; and the Subsidiaries for certain 31, 1995.
limited purposes.
10.29 Promissory Note dated June 21, 1996 payable by the Incorporated herein by reference
Company to Lucent Technologies. to Exhibit 10.29 to the Company's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
10.30 Limited Waiver dated as of October 31, 1996 by and Filed herein.
among the Company, Lenders and Administrative Agent,
and for certain limited purposes, the Subsidiaries,
Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc.,
Modular Computer Services, Inc., Modular Computer
Systems GmbH and Modcomp France S.A., which waiver is
made with reference to the Credit Agreement.
11.1 Statement Regarding Computation of Net Income Filed herein.
(Loss) Per Share.
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
35
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
(b) REPORTS ON FORM 8-K
(1) On September 24, 1996, the Company filed a current report on Form
8-K updating the Company's risk factors.
(2) On October 15, 1996, the Company filed a current report on Form
8-K regarding the resignation of James T. Schraith from the
officers of President and Chief Executive Officer of the Company.
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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: November 13, 1996 /s/ JAMES R. ECKSTAEDT
-----------------------
James R. Eckstaedt
Senior Vice President and Chief Financial
Officer
(Principal financial and chief accounting
officer)
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THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
EXHIBIT INDEX
QUARTER ENDED SEPTEMBER 29, 1996
Sequential
Exhibit Description of Exhibits Page No.
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4.20 Waiver and Amendment Agreement dated as of October 31, 1996
by and among the Company, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual Life Insurance Company
and North Atlantic Smaller Companies Investment Trust PLC,
which waiver is made with reference to the Note Purchase
Agreement, as amended, and Warrant Agreement dated April 15, 1996.
10.9 The Registrant's Restated 1993 Stock Option Plan, as amended
(the "Restated Plan").
10.30 Limited Waiver dated as of October 31, 1996 by and among
the Company, Lenders and Administrative Agent, and for
certain limited purposes, the Subsidiaries, Modcomp/Cerplex L.P.,
Modcomp Joint Venture, Inc., Modular Computer Services, Inc.,
Modular Computer Systems GmbH and Modcomp France S.A., which
waiver is made with reference to the Credit Agreement.
11.1 Computation of Net Income (Loss) Per Share.
27.1 Financial Data Schedule.
38