-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mtz7qJXUvflChEvaZzERdnkbkWqQs2ZtkmARkcLrEXLXNFwWbUO3gR0T36GpQ7ku gpDYREm4M6mV8O40g50S3A== 0000892569-96-001625.txt : 19960816 0000892569-96-001625.hdr.sgml : 19960816 ACCESSION NUMBER: 0000892569-96-001625 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERPLEX GROUP INC CENTRAL INDEX KEY: 0000915870 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 330411354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23602 FILM NUMBER: 96615178 BUSINESS ADDRESS: STREET 1: 1382 BELL AVE CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7142585600 MAIL ADDRESS: STREET 1: 1382 BELL AVENUE CITY: TUSTIN STATE: CA ZIP: 92680 10-Q 1 FORM 10-Q FOR PERIOD ENDING JUNE 30, 1996 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. --------------------------------------------------------------- (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 --------------------------------------------------------------- (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 August 8, 1996 was 13,405,384. 2 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 . . . . . . 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
2 3 PART I FINANCIAL INFORMATION 3 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 4 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 5 6 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 6 7 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) ------- ------- 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 ------- ------- $ 5,147 $(4,500) ======= =======
See accompanying notes to consolidated financial statements 7 8 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 ======= =======
8 9 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 9 10 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. 10 11 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
11 12 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. 12 13 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%. 13 14 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. 17 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 26 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.
26 27 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.
27 28 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 29 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.
29 30 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.
30 31 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 32 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 33 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 EX-3.3 2 CERT. OF DESIGNATION OF PREFERENCE SERIES B 1 Exhibit 3.3 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 06/10/1996 960167477 - 2352159 CERTIFICATE OF DESIGNATION OF PREFERENCES OF SERIES B PREFERRED STOCK OF THE CERPLEX GROUP, INC. a Delaware Corporation The undersigned, James T. Schraith and Frederic A. Randall, Jr., hereby certify that: (a) They are the duly elected and acting President and Secretary, respectively, of The Cerplex Group, Inc., a Delaware corporation (the "Corporation"). (b) Pursuant to the authority conferred upon the Board of Directors of the Corporation by paragraph B of Article IV of the Corporation's Certificate of Incorporation (the "Certificate"), the Board of Directors of the Corporation on June 7, 1996 adopted the following resolutions creating a series of preferred stock designated as Series B Preferred Stock; WHEREAS, the Certificate provides for a class of shares known as Preferred Stock, issuable from time to time in one or more series; and WHEREAS, the Board of Directors of the Corporation is authorized by the Certificate to determine the powers, rights, preferences, qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, to fix the number of shares constituting any such series, and to determine the designation thereof, or any of them; WHEREAS, the Board of Directors of the Corporation desires, pursuant to its authority as aforesaid, to determine and fix the powers, rights, preferences, qualifications, limitations and restrictions relating to Series B Preferred Stock and the number of shares constituting, and the designation of, such series: NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate, the series of Preferred Stock is hereby created, and the Board of Directors hereby fixes and determines the designation of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, such series of Preferred Stock as follows: 1. Designation. The series of Preferred Stock of the Corporation shall be designated as "Series B Preferred Stock," $0.001 par value. 2. Authorized-Number. The number of shares constituting the Series B Preferred Stock shall be Eight Thousand (8,000) shares. The Board of Directors is authorized to decrease 2 the number of shares of any series of preferred stock prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 3. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. The Board of Directors shall not pay any dividend to the holders of the Common Stock unless and until it has paid an equivalent dividend, based upon the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible as of the record date for the payment of the dividend, to the holders of the Series B Preferred Stock. In addition to the foregoing, in the event the Corporation should fail to register the shares of Common Stock into which the Series B Preferred Stock are convertible under the Securities Act of 1933, as amended, within one hundred fifty (150) days following the closing of that certain Stock Purchase Agreement dated June 10, 1996 by and between the Corporation and the holders of Series B Preferred Stock (the "Original Issue Date"), as provided in that certain Fourth Amendment to Registration Rights Agreement between the Corporation, the holders of Series B Preferred Stock and certain other securityholders of the Corporation entered into on the Original Issue Date, the holders of Series B Preferred Stock shall be entitled to receive a dividend at the rate of $0.83 1/3 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) per day for each day after one hundred fifty (150) days following the Original Issue Date during which the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock are not so registered, which dividends shall accrue beginning one hundred fifty (150) days following the Original Issue Date until such shares of Common Stock are so registered. Such dividend shall be payable quarterly on the first day of each calendar quarter commencing with the first calendar quarter ending after one hundred fifty (150) days following the Original Issue Date. The foregoing notwithstanding, (i) such dividends shall not be payable if the failure to register the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock is a direct result of the actions of the holders of Series B Preferred Stock, and (ii) the aggregate amount of dividends payable on each share of Series B Preferred Stock pursuant to the foregoing shall not exceed $500 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares). 4. Liquidation Preference. (A) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, subject to the rights of any series of Preferred Stock which may from time to time come into existence, the holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $2,000 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) plus all accrued or declared but unpaid 2 3 dividends on such share (the "Liquidation Preference") for each share of Series B Preferred Stock then held by such holder. If upon the occurrence of any such event, the assets and funds thus distributed among the holders of Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any series of Preferred Stock which may from time to time come into existence, entire assets and funds of the Corporation legally available for distribution shall be distributed ratably upon the holders of Series B Preferred Stock in proportion to the product of the Liquidation Preference of each such share and the number of such shares owned by each such holder. (B) After the distributions described in Section 4(A) above have been paid, subject to the rights of any series of Preferred Stock which may from time to time come into existence, the remaining assets of the Corporation available or distribution to stockholders shall be distributed among the holders of Common Stock pro rata based upon the number of shares of Common Stock held by each stockholder. (C) For purposes of this Section 4, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction) in which in excess of 50% of the Corporation's voting power is transferred to a person or persons different from those who held such prior to such transaction or (ii) a sale of all or substantially all of the assets of the Corporation or (iii) any other transaction or series of related transactions by the Corporation in which in excess of 50% of the Corporation's voting power is transferred to a person or persons different from those who held such securities prior to such transaction, shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Series B Preferred Stock to receive at the closing in cash, securities of other property (valued as provided in Section 4(D) below) the Liquidation Preference. (D) Whenever the distribution provided for in this Section 4 shall be payable in securities or property other than cash, the value of such distribution shall be as follows: (i) Securities not subject to investment letters or other similar restrictions on free marketability; (A) If traded on a securities exchange (which shall include the Nasdaq National Market), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30-day trading period ending three (3) days prior to the closing, (B) If traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever are applicable) over the 30-day trading period ending three (3) days prior to the closing as reported in pink sheets or other publications reasonably selected by the Board of Directors; and 3 4 (C) If there is no public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. 5. Redemption. Except as provided in Section 6(C) below, the Series B Preferred Stock is not redeemable. 6. Conversion. The holders of Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (A) Right to Convert. Each share of Series B Preferred Stock shall be convertible into shares of Common Stock at any time commencing ninety (90) days after the Original Issue Date subject to the following terms and provisions: (i) The Series B Preferred Stock shall be convertible in minimum amounts of at least twenty-five (25) preferred shares. (ii) Each share of Series B Preferred Stock shall be convertible into the number of shares of Common Stock equal to $1,000.00 (the "Original Issue Price") divided by the Conversion Price (as defined below). The Conversion Price shall be the lower of: (1) 80% of the average closing bid price of the Common Stock for the ten (10) trading days ending three (3) days prior to the date of the notice of conversion delivered as provided in Section 6(D) below; or (2) $5.07 (as adjusted for any stock dividends, combinations or splits with respect to such shares of Common Stock). (B) Automatic Conversion. Each share of Series B Preferred Stock shall automatically be converted into the number of shares of Common Stock, determined as provided in Section 6(A) above, upon the earlier to occur of (i) five (5) years following the Original Issue Date, or (ii) five (5) days after written notification to the holders of the Series B Preferred Stock by the Corporation that the price of the Common Stock for thirty (30) consecutive trading days has exceeded $19.13 per share, as adjusted for stock dividends, combinations or splits. Such price shall be calculated as follows: 4 5 (i) If traded on a securities exchange (which shall include the Nasdaq National Market), the value shall be deemed to be the closing sales price of the securities on such exchange for each trading day during the applicable 30-day trading period; and (ii) If traded over-the-counter, the value shall be deemed to be the closing bid or sales price (whichever are applicable) for each trading day during over the applicable 30-day trading period. (C) Limitation on Conversion; Redemption. (i) Anything hereunder to the contrary notwithstanding, the Corporation shall not be required to issue upon conversion of the Series B Preferred Stock more than an aggregate of 2,679,484 shares of Common Stock (the "Nasdaq Cap"), if the issuance of a larger number of shares would constitute a breach of the Corporation's obligations under its agreements with the National Association of Securities Dealers, Inc. (the "NASD") or the Bylaws of the NASD. Subject to the obligation of the Corporation to effect certain redemptions and the exception as provided below, if further issuances of shares of Common Stock upon the conversion of shares of Series B Preferred Stock would constitute a breach of the Corporation's obligations under any applicable agreement with the NASD or the NASD Bylaws because all of the shares permitted to be issued under the Nasdaq Cap shall have been previously issued, and so long thereafter as such limitation shall continue to be applicable, and any shares of Series B Preferred Stock are submitted for conversion, such shares shall receive an amount equal to the Liquidation Preference for such shares as provided in Section 4(A) above in lieu of the shares of Common Stock which would otherwise be issued upon such conversion. Payment of such cash amounts shall be made within five (5) business days following the date of the notice of conversion as provided in Section 6(D) below. In the event the Corporation for any reason should fail to make any such payment within such five (5) day period, the unpaid amount shall bear interest at the rate of 1/10 of one percent (0.1%) per day, or the maximum rate permitted by law, whichever is lower. The amount of shares of Common Stock subject to the Nasdaq Cap shall be adjusted for stock dividends, combinations or splits. In the event the Nasdaq Cap should continue to be applicable to the issuance of shares of Common Stock upon conversion of the shares of Series B Preferred Stock ninety (90) days following the Original Issue Date, the Corporation shall redeem the minimum number of shares of Series B Preferred Stock such that the Corporation's agreements with the NASD or the Bylaws of the NASD regarding the Nasdaq Cap will not be breached upon the conversion of the remaining shares of Series B Preferred Stock outstanding following such redemption. In such event, the redemption price to be paid by the Corporation shall be equal to the Liquidation Preference as provided in Section 4(a) above. Any redemption effected pursuant to the preceding provisions shall require no more than ten (10) days notice and the redemption dates shall be on or before one hundred five (105) days following the Original Issue Date. Any such redemption shall be effected pro rata among the holders of Series B Preferred Stock. If the funds of the Corporation legally available for redemption of Series B Preferred Stock are insufficient to redeem the number of shares to be so redeemed as provided above, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series B Preferred Stock, such funds will immediately be used 5 6 to redeem the balance of the shares which the Corporation has become obligated to redeem as provided above but which have not been redeemed. If for any reason any shares of Series B Preferred Stock are not redeemed on the date when such shares were to have been so redeemed, as provided above, the unpaid redemption price which should have been paid shall bear interest until fully paid at the rate of 1/10 of one percent (0.1%) per day, or the maximum rate permissible by law, whichever is lower. (ii) Notwithstanding anything to the contrary in Section 6(C)(ii) above, if the redemption of any of the shares of Series B Preferred Stock, or the payment of any Liquidation Preference in lieu of the delivery of shares of Common Stock as provided above, would violate covenants of any agreement of the Company with its secured lenders existing as of the Original Issue Date, the shares of Series B Preferred Stock will not be redeemed unless the lenders consent to the redemption or payment of the Liquidation Preference. If for any reason the Corporation (A) (i) fails to issue and deliver shares of Common Stock upon conversion, or (ii) fails to pay the Liquidation Preference in lieu of issuing and delivering shares of Common Stock upon conversion; or (B) fails to redeem shares of Series B Preferred Stock as a result of the Nasdaq Cap remaining in effect one hundred five (105) days after the Original Issue Date as provided above, then in either such event, anything herein to the contrary notwithstanding, the Corporation shall issue and deliver shares of Common Stock upon conversion of Series B Preferred Stock. The shares of Series B Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. (D) Mechanics of Conversion. Before any holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall give written notice (which may be by mail, postage prepaid or by facsimile transmission) to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the number of shares to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. Promptly thereafter the holder shall by messenger or overnight delivery surrender the certificate or certificates representing the shares to be converted, duly endorsed, at the office of the Corporation or of any transfer agent for such shares, or at such other place designated by the Corporation. The Corporation shall, as soon as practicable after receipt of such notice, issue and deliver to or upon the order of such holder of the Series B Preferred Stock, or to the nominee or nominees of such holder, against delivery of the certificates representing the shares which have been converted, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The Corporation shall use its best efforts to effect such issuance within 48 hours of the receipt of the certificates representing the shares to be converted and shall transmit the certificates by messenger or overnight delivery service to the address designated by such holder. Such conversion shall be deemed to have been made immediately prior to the close of business on the date such notice of conversion is given, or in the case of automatic conversion pursuant to Section 6(B), the effective date of automatic conversion as provided in Section 6(B), and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. 6 7 (E) Adjustments to Conversion Ratio for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the purchase date of the Series B Preferred shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the number of shares of Common Stock into which the Series B Preferred Stock can be converted shall be proportionately decreased or increased, as appropriate. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (F) Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 6(E) above or a merger or other reorganization referred to in Section 4(C) above), the number of shares of such other class or classes of stock into which the Series B Preferred Stock shall be convertible shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series B Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series B Preferred Stock immediately before that change. (G) Rights Offerings. In the event the Corporation shall issue and distribute to all holders of Common Stock in any manner on or after the date of the filing of this Certificate of Designation any rights to subscribe for, or any rights or options to purchase, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, which rights or options do not result in any adjustment to the number of shares of Common or other classes of stock into which the Series B Preferred Stock can be converted under either Section 6(E) or Section 6(F) above, then the Corporation shall issue and distribute such rights or options to the holders of Series B Preferred Stock to the same extent as though they were holders, at the time of such distribution, of that number of shares of Common Stock into which the shares of Series B Preferred Stock held by each holder could be then be converted as of the record date for the issuance of such Convertible Securities. 7 8 (H) No Impairment. This Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. (I) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon conversion of the Series B Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred Stock the holder is then converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the number of shares of Common Stock into which the Series B Preferred Stock can be converted pursuant to this Section 6, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the conversion ratio at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Preferred Stock. (J) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series B Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (K) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the Series B Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the 8 9 conversion of all the then outstanding Series B Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. (L) Notices. Any notice required by the provisions of this Section 6 to be given to the holders of Series B Preferred Stock shall be deemed given at the time deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. Any notice to be given to the Corporation by a holder of Series B Preferred Stock shall be given as provided in Section 6(D) above. 7. Voting Rights. (A) Except as otherwise provided by law, each holder of shares of Series B Preferred Stock shall be entitled to vote with the holders of Common Stock on an as-converted basis (assuming for the purpose of this Section 7(A) that the Conversion Price is determined according to Section 6(A)(ii)(2) above) as a single class on all matters presented for stockholder vote, and shall be, entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes, as determined on an aggregate conversion basis for each holder, shall not, however, be permitted and any fractional voting rights resulting from the conversion of Series B Preferred Stock into Common Stock shall be rounded to the nearest whole number (with one-half being rounded upward). 8. Protective Provisions. Notwithstanding anything to the contrary in the foregoing provisions and for so long as at least 800 shares of Series B Preferred Stock remain issued and outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent) of the holders of at least a majority of the voting power of the then outstanding shares Series B Preferred Stock, voting together as one class: (A) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock; (B) create (by new authorization reclassification, recapitalization, designation or otherwise) or issue any class or series of stock or any other securities convertible into equity securities of the Corporation having a preference over the Series B Preferred Stock with respect to voting, dividends or upon liquidation; (C) increase the authorized number of shares of the Series B Preferred Stock; or, (D) amend this Section 8. 9. Status of Converted Stock. In the event any Series B Preferred Stock shall be converted pursuant to Section 6 hereof, the shares so converted shall be promptly cancelled after the conversion thereof. All such shares shall upon their cancellation become authorized but 9 10 unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. RESOLVED FURTHER, that the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, and the Secretary, the Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant Treasurer of this Corporation are each authorized to execute, verify, and file a Certificate of Designation of Preferences in accordance with Delaware law. 10 11 IN WITNESS WHEREOF, the undersigned have executed this certificate and do affirm the foregoing as true under penalty of perjury this 7th day of June, 1996. ___________________________________________ James T. Schraith, President ___________________________________________ Frederic A. Randall, Jr., Secretary 11 EX-4.17 3 STOCK PURCHASE AGREEMENT 1 Exhibit 4.17 STOCK PURCHASE AGREEMENT THIS AGREEMENT is made and entered into as of this 10th day of June, 1996 between The Cerplex Group, Inc., a Delaware corporation (the "Company") and the investors listed on Schedule A attached hereto (individually an "Investor" and collectively the "Investors"). WHEREAS, the Company intends to sell to the Investors, and the Investors desire to purchase from the Company, shares of Series B Preferred Stock convertible into Common Stock; and WHEREAS, concurrently with the execution of this Agreement, the Company and the Investors have entered into an agreement in the form attached hereto as Exhibit A granting certain registration rights to the Investors (the "Registration Rights Agreement"), such agreement being entered into by the parties hereto and concurrently herewith. NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions set forth below, and in reliance on the representations and warranties herein provided, the parties intending to be legally bound agree as follows: 1. Purchase and Sale. (a) The Purchase. Subject to the terms and conditions of this Agreement, each Investor agrees, severally, to purchase at the Closing, and the Company agrees to sell and issue to each Investor at the Closing, at a price per share of $1,000.00, that number of shares of the Company's Series B Preferred Stock (the "Preferred Stock"), set forth opposite each Investor's name on Schedule A hereto for the aggregate purchase price set forth therein. The Company intends to sell a maximum of 8,000 shares of the Preferred Stock for an aggregate maximum purchase price equal to $8,000,000. (b) The Closing. The purchase and sale of the Preferred Stock shall take place at the offices of Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California, at 11:00 a.m. on June 10, 1996, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of the Preferred Stock sold pursuant hereto mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing, the Company shall deliver to each Investor a certificate registered in such Investor's name, representing the Preferred Stock which such Investor is purchasing against delivery to the Company by such Investor of a check or wire transfer in the amount of the purchase price therefor payable to the Company's order. 2. Conditions to Obligations. (a) Conditions to the Investors' Obligations. The obligation of the Investors to purchase and pay for the Preferred Stock contemplated by Section 1 at the Closing shall be subject to the satisfaction of each of the following conditions precedent, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 2 (i) Representations and Warranties. Each of the representations and warranties of the Company set forth in Section 3 shall be true and correct as if made at the Closing. (ii) Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (iii) Certificate of Designation of Preferences. The Certificate of Designation of Preferences of Series B Preferred Stock substantially in the form of Exhibit B attached hereto (the "Certificate of Designation") shall have been duly adopted by the Board of Directors of the Company and filed with the Delaware Secretary of State. (iv) Compliance Certificate. The Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Company shall deliver to each Investor at the Closing a certificate certifying that the conditions specified in subsections (i) and (ii) of this section 2(a) have been fulfilled. (v) Opinion of Counsel to the Company. Each Investor shall have received from Brobeck, Phleger & Harrison, counsel for the Company, an opinion dated as of the Closing, substantially in the form set forth in Exhibit C attached hereto. (vi) Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Stock to the Investors pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing, except for any post-sale filings that may be required under federal and state securities laws. (vii) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Investor and the Investors' counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. (viii) Registration Rights Agreement. The Company and each Investor shall have entered into a Registration Rights Agreement in the form attached hereto as Exhibit A and all third party consents to the execution and delivery of the Registration Rights Agreement shall have been obtained. (ix) Irrevocable Proxies/Voting Agreements. The Investors shall have received from stockholders holding more than fifty percent (50%) of the outstanding voting capital stock of the Company Irrevocable Proxies/Voting Agreements substantially in the form of Exhibit D attached hereto with respect to the proposal to be considered to authorize the issuance of Preferred Stock as provided in Section 5(f) below. (b) Conditions to the Company's Obligations. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor, any one or more of which may be waived by the Company: 2 3 (i) Representations and Warranties. Each of the representations and warranties of the Investor set forth in Section 4 shall be true and correct as if made at the Closing. (ii) Payment of Purchase Price. The Investor shall have delivered payment of the aggregate purchase price of the Preferred Stock to be purchased by such Investor. (iii) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and the Company's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. (iv) Performance. The Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (v) Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Stock to the Investors pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing, except for any post-sale filings that may be required under federal and state securities laws. 3. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions attached hereto as Schedule B, specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder, the Company hereby represents and warrants to each Investor that: (a) Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in each jurisdiction where failure to qualify would have a materially adverse effect on the financial condition, assets, liabilities, prospects, business or properties of the Company (a "Material Adverse Effect"). The Company has full power and authority to own its properties, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. (b) Authorization. The Company has full power to execute, deliver and perform this Agreement and the Registration Rights Agreement, and this Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and are the legal, valid and, assuming due execution by the other parties hereto, binding obligations of the Company, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally, and to general equitable principles. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, including the sale, issuance and delivery of the Preferred Stock, have been duly authorized by all necessary corporate actions of the Company and its stockholders. (c) Valid Issuance of Preferred and Common Stock. The shares of Preferred Stock being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, and, based in part upon the representations of the Investors in this Agreement, will be issued in 3 4 compliance with the registration and qualification requirements of all applicable federal and state securities laws and such shares of Preferred Stock will be fully paid and non-assessable. The rights, privileges and preferences of the Preferred Stock will be as stated in the Company's Certificate of Designation, attached hereto as Exhibit B. The shares of Common Stock issuable upon conversion of the Preferred Stock purchased under this Agreement have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate of Designation, shall be duly and validly issued, fully paid and nonassessable, and issued in compliance with the registration and qualification requirements of all applicable securities laws, as presently in effect, of the United States and each of the states whose securities laws govern the issuance of any of the Preferred Stock hereunder. (d) Governmental Approvals. Based in part on the representations made by the Investors in Section 4, no authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any applicable laws, rules or regulations presently in effect, is or will be necessary for, or in connection with, the offer, issuance, sale, execution and delivery by the Company of the Preferred Stock or for the performance by the Company of its obligations under this Agreement, except for filings under applicable securities laws which will be made by the Company within the prescribed periods. (e) Litigation. There is no litigation or governmental proceeding or investigation pending or, to the best knowledge of the Company, threatened against the Company which would have a Material Adverse Effect or which would materially and adversely affect the execution and delivery of this Agreement or the performance by the Company of its obligations hereunder. (f) Subsidiaries; Charter Documents. Except as set forth in the Schedule of Exceptions, the Company has no active subsidiaries and does not otherwise directly or indirectly control any other business entity. The Company has furnished the Investors with copies of its Certificate of Incorporation and Bylaws, as currently in effect, together with any amendments or Certificates of Designation thereto as of the date hereof. The documents so furnished are true, correct and complete copies of the existing original documents, and contain all modifications, amendments, deletions and revocations. (g) Financial Statements. The Company has delivered to the Investors copies of the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31, 1996 and the Annual Report on Form 10-K for the year ended December 31, 1995, containing audited consolidated balance sheets, statements of income and changes in financial position for the Company for the fiscal year ended December 31, 1995 (the "Financial Statements"). The Financial Statements are complete and correct in all material respects, have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present the financial position of the Company as of each such date and the results of operations for each such periods then ended. (h) Absence of Certain Developments. Since March 31, 1996, there has been no (i) material adverse change in the condition, financial or otherwise, of the Company or its assets, liabilities, properties, business, operations or prospects generally, (ii) declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company, (iii) loss, destruction or damage to any property of the Company, whether or not insured, or the occurrence of any other event, which has or is likely to have a Material Adverse Effect, (iv) material 4 5 change in the compensation to officers or directors, (v) any material transactions with any insiders or affiliates of the Company or (vi) the entering into or termination of any material agreements by the Company. The Company has not failed to disclose to the Investors any material facts, or omitted to state any material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. (i) Absence of Undisclosed Liabilities. Except for liabilities arising in the ordinary course of its business, since March 31, 1996 the Company has no material accrued or contingent liability which is reasonably likely to occur arising out of any transaction or state of facts existing prior to the date hereof. (j) Business. The Company has all necessary franchises, permits, governmental licenses and other governmental rights and privileges necessary to permit it to own its properties and to conduct its present business, except where the failure to do so would not have a Material Adverse Effect. The Company is not in violation of any law, regulation, authorization or order of any public authority relevant to the ownership of its properties or the carrying on of its present business, except where such violation would not have a Material Adverse Effect. (k) Non-Contravention. The execution, delivery and performance by the Company of this Agreement and the Registration Rights Agreement does not and will not (i) contravene or conflict with the Certificate of Incorporation, as amended, or Bylaws of the Company, or (ii) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company, or (iii) any contract, agreement or instrument to which the Company is a party or by which any of its properties or assets is subject, in any manner which would materially and adversely affect the Investors' rights or their ability to realize the intended benefits under this Agreement or the Registration Rights Agreement, or which would have a Material Adverse Effect. (l) Filings. The Company has filed all reports required to be filed with the Commission under the Securities Exchange Act of 1934 (the "1934 Act"), including (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, (ii) its Quarterly Reports on Form 10-Q for its fiscal quarters ending March 31, 1995, June 30, 1995, September 30, 1995 and March 31, 1996, and (iii) all of its other reports (including without limitation reports on Form 8-K, statements, schedules and registration statements filed with the Commission since December 31, 1994). As of its filing date, no such report or statement filed pursuant to the 1934 Act contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (m) Registration Rights Agreement. The Company has entered into the Registration Rights Agreement with each Investor as provided in Section 2(a)(ix), and, other than the registration rights described in the Schedule of Exceptions, no other registration rights currently exist. (n) Indemnification. The Company maintains provisions in its Certificate of Incorporation or Bylaws, as amended, for the indemnification of its officers and directors to the fullest extent permitted by law. 5 6 (o) Insurance. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. The Company has in full force and effect products liability insurance in amounts customary for companies similarly situated. (p) Tax Returns, Payments and Elections. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith which are listed in the Schedule of Exceptions. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to be treated as a collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a Material Adverse Effect. (q) Environmental and Safety Laws. The Company is not in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, which could have a Material Adverse Effect and, based on the Company's business as currently conducted, no material expenditures are or will be required in order to comply with any such existing statute, law, or regulation. (r) Patents and Trademarks. To the best of its knowledge, the Company has sufficient title and ownership of, or has obtained licenses on terms which will not result in any Material Adverse Effect, all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted without any conflict with or infringement of the rights of others. There are no outstanding material options, licenses, or agreements of any kind relating to the foregoing other than in the ordinary course of business, nor is the Company bound by or a party to any material options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity other than in the ordinary course of business. All material agreements pursuant to which the Company is either the licensor or licensee of any patent, patent application, copyright, trademark, service mark, trade secret or other intellectual property are identified on the Schedule of Exceptions. All third party licenses referred to above are in full force and effect and neither the Company nor any other party thereto are in material breach or default under any provisions of any such license. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, the infringement or violation of which would have a Material Adverse Effect. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of their respective best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 6 7 (s) Capitalization. The authorized, issued and outstanding Capital Stock of the Company is as set forth on the Schedule of Exceptions. Except as set forth on the Schedule of Exceptions, there are no outstanding rights of first refusal, preemptive rights, or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its Capital Stock. (t) Employee Benefit Plans. The Schedule of Exceptions contains a true and complete list of all of the defined benefit plans of the Company. Each defined benefit plan of the Company is in compliance with the applicable provisions of the Employee Retirement Income Security Act ("ERISA"), except where the noncompliance would not have a Material Adverse Effect. Each of the Company defined benefit plans which is intended to constitute a qualified plan within the meaning of Section 401 of the Internal Revenue Code of 1986, as amended, is so qualified and has been determined by the Internal Revenue Service to be so qualified. All contributions due and payable to or under the Company's defined benefit plans have been made. (u) Labor Relations. None of the employees of the Company is represented by a labor union and no petition has been filed or proceedings instituted by any employee or group of employees with any labor relations board seeking recognition of a bargaining representative. There are no controversies or disputes pending between the Company and its employees, except for controversies and disputes with individual employees arising in the ordinary course of business which have not had and will not have, individually or in the aggregate a Material Adverse Effect. (v) Material Contracts and Agreements. Except as set forth in the Schedule of Exceptions, the Company does not have any material contract, agreement, lease or other commitment, written or oral, absolute or contingent. All material contracts, agreements and instruments to which the Company is a party are valid, binding and in full force and effect in all material respects without any material breach by any party thereto. 4. Representations, Warranties and Covenants of the Investor. Each Investor hereby represents, warrants and covenants to the Company as follows: (a) Investment Experience. The Investor is an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended (the "1933 Act"), and, in the case of any Investor which is a partnership or other legal entity, was not organized for the specific purpose of acquiring the Preferred Stock. Such Investor has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof. (b) Purchase for Own Account. The Investor is acquiring the Preferred Stock for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof. Such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any of the Preferred Stock. The Investor understands that the shares of Preferred Stock have not been registered under the 1933 Act by reason of an exemption from the registration provisions of the 1933 Act which depends upon, among other things, the bona fide nature of its investment intent as expressed herein. 7 8 (c) Restricted Securities. The Investor understands that the Preferred Stock, and any Common Stock issuable upon conversion thereof, may not be sold, transferred, or otherwise disposed of without registration under the 1933 Act, or an exemption therefrom, and that in the absence of an effective registration statement covering the Preferred Stock, and Common Stock issuable upon conversion thereof, or an available exemption from registration under the 1933 Act, the Preferred Stock, and any Common Stock issuable upon conversion thereof, must be held indefinitely. In the absence of an effective registration statement covering the Preferred Stock or any Common Stock issuable upon conversion thereof, the Investor will sell, transfer, or otherwise dispose of the Preferred Stock, and any Common Stock issuable upon conversion thereof, only in a manner consistent with its representations and agreements set forth herein. (d) Information. The Investor believes it has received all of the information it considers necessary or appropriate for deciding whether to purchase the Preferred Stock. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Preferred Stock. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Investor to rely thereon. (e) Legend. It is understood that the certificates evidencing the Preferred Stock, and any Common Stock issued upon conversion thereof, may bear substantially the following legends: (i) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. (ii) Any legend required by the laws of the State of California or any other applicable jurisdiction. (f) Voting. The Investor hereby agrees to vote his, her or its voting capital stock of the Company for any proposal to authorize the issuance and authorization of the Preferred Stock and the conversion thereof into shares of Common Stock. 5. Covenants of the Company. Without limiting any other covenants and provisions hereof, the Company covenants and agrees that: (a) The Company will provide each Investor with copies of the Company's Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Annual Reports to Stockholders within twenty (20) days of the filing of such documents with the Commission; provided, however, that such obligation shall terminate as to any Investor upon the earlier of (i) the sale, disposition or conversion into Common Stock of all of such Investor's Preferred Stock or (ii) such time as such Investor holds less than 500 shares of Preferred Stock and/or an equivalent number of shares of Common Stock which are issuable upon conversion of 500 shares of Preferred Stock. 8 9 (b) The Company will permit each Investor who holds at least 500 shares of Preferred Stock and/or an equivalent number of shares of Common Stock which are issuable upon conversion of 500 shares of Preferred Stock, at such Investor's expense, to visit and inspect the Company's properties, to examine its books, accounts and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 5(b) to provide access to any information which it reasonably considers to be a trade secret or similar confidential information and, provided further, that all obligations under this Section 5(b) shall terminate as to any Investor upon the earlier of (i) the sale, disposition or conversion into Common Stock of all of such Investor's Preferred Stock or (ii) such time as such Investor holds less than 500 shares of Preferred Stock. (c) The Company will maintain provisions in its Certificate of Incorporation or Bylaws for the indemnification of its officers and directors to the fullest extent permitted by law for so long as any representative of any of the Investors serves on the Company's Board of Directors. (d) The Company will use its best efforts to obtain and keep directors' and officers' liability insurance in the amount of at least $3,000,000 if such coverage is available at commercially reasonable rates. Such coverage will be kept in place for so long as any representative of any of the Investors serves on the Company's Board of Directors. (e) The Company will use the proceeds from the sale of the Preferred Stock for repayment of existing indebtedness in the approximate amount of twenty-five percent (25%) of the proceeds, and the remainder for general corporate purposes. (f) The Company shall include in its proxy materials for its next scheduled annual meeting of stockholders, a proposal to authorize the issuance of the Preferred Stock, and the conversion thereof into shares of Common Stock to satisfy the requirements of the Bylaws of the National Association of Securities Dealers, Inc. 6. Miscellaneous. (a) No Waiver: Cumulative Remedies. No failure or delay on the part of the Investors or the Company in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. (b) Amendments, Waivers and Consents. Except as otherwise expressly provided in this Agreement, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein or therein set forth may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), so long as the Company and the holders of at least a majority of the then outstanding shares of Preferred Stock issued hereunder and/or an equivalent number of then outstanding shares of Common Stock which have been issued upon conversion of shares of Preferred Stock which are held by the Investors and/or transferees of an Investor other than pursuant to a public sale, so agree in writing. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Investor and their transferees. 9 10 Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only to the extent expressly set forth therein. (c) Addresses for Notices. All notices, requests, demands and other communications provided for hereunder to be sent to the Investors shall be in writing (including telegraphic communication) and mailed, telecopied or delivered to the applicable party at the addresses indicated on Schedule A hereto. Any such notices, requests, demands or other communications to the Company shall be sent to: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92680 Attention: Bruce D. Nye with a copy to: Brobeck, Phleger & Harrison 4675 MacArthur Court, Suite 1000 Newport Beach, California 92660-1836 Attention: Frederic A. Randall, Jr., Esq. Any party to this Agreement may change its address by written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall, when delivered by courier, mailed or telecopied, respectively, be effective when delivered to the courier, deposited in the mails or sent on the telecopier, respectively, addressed as aforesaid. (d) Fees, Costs and Expenses. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, reimburse the reasonable fees of Stradling, Yocca, Carlson & Rauth, special counsel for the Investors, not to exceed an aggregate of $25,000, and shall upon receipt of a bill therefor, reimburse the out of pocket expenses of such counsel. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or the Certificate of Designation, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (e) Binding Effect, Assignment. Except as otherwise specifically provided for herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any of the shares sold hereunder). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (f) Survival of Representations and Warranties. All representations and warranties made in this Agreement shall survive the execution and delivery hereof, the Closing 10 11 hereunder, and any examination made by the Investors for a period of eighteen (18) months following the Closing. (g) Prior Agreements. This Agreement constitutes the entire agreement between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. (h) Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. (i) Public Disclosure. The Company shall consult with the holders of a majority of the outstanding Preferred Stock prior to making the initial public disclosure concerning the transactions contemplated hereby. (j) Governing Law. This Agreement shall be governed by and construed in accordance with, the laws of the State of California without giving effect to principles of conflict of laws. (k) Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not-constitute a part of this Agreement for any other purpose. (l) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. 11 12 IN WITNESS WHEREOF, the Company and the Investors have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE CERPLEX GROUP, INC. By: ------------------------------------ Title: --------------------------------- SPROUT GROWTH II, L.P. By: DLJ Capital Corporation Its: General Managing Partner By: -------------------------------- Robert Finzi, Attorney-in-Fact DLJ CAPITAL CORPORATION By: ------------------------------------ SCORPION OFFSHORE INVESTMENT FUND By: ------------------------------------ Title: --------------------------------- THE & TRUST By: ------------------------------------ Title: --------------------------------- 12 13 CHESTNUT PACIFIC LTD. PARTNERS By: ------------------------------------ Title: --------------------------------- STANDARD GLOBAL EQUITY PARTNERS L.P. By: ------------------------------------ Title: --------------------------------- STANDARD PACIFIC CAPITAL OFFSHORE FUND LTD. By: ------------------------------------ Title: --------------------------------- COMMON FUND EQUITY FUND By: ------------------------------------ Title: --------------------------------- ---------------------------------------- MALCOLM FAIRBAIRN ---------------------------------------- EMILY FAIRBAIRN ---------------------------------------- ANDREA MARTIN ---------------------------------------- NITIN T. MEHTA 13 14 PEAK INVESTMENT LIMITED PARTNERSHIP By: ------------------------------------ Title: --------------------------------- PLEIADES INVESTMENT PARTNERS By: ------------------------------------ Title: --------------------------------- WHITMAN PARTNERS, L.P. By: ------------------------------------ Title: --------------------------------- MAHUMA N.V. By: ------------------------------------ Title: --------------------------------- 14 15 SCHEDULE A SCHEDULE OF INVESTORS
Shares of Series B Aggregate Purchase Investor Preferred Stock Price -------- ------------------ ------------------ Sprout Growth II, L.P. 3000 Sand Hill Road Building 4, Suite 270 Menlo Park, CA 94025 Attn: Robert Finzi 2,269 $ 2,269,000 DLJ Capital Corporation 3000 Sand Hill Road Building 4, Suite 270 Menlo Park, CA 94025 Attn: Robert Finzi 231 $ 231,000 Scorpion Offshore Investment Fund c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 1,575 $ 1,575,000 The & Trust c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 103 $ 103,000 Chestnut Pacific Ltd. Partners c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 183 $ 183,000 Standard Global Equity Partners L.P. c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 373 $ 373,000 Standard Pacific Capital Offshore Fund Ltd. c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 157 $ 157,000
15 16 Common Fund Equity Fund c/o Standard Pacific Capital LLC 600 California Street, 18th Floor San Francisco, CA 94108 Attn: Daniel S. Martin 109 $ 109,000 Malcolm and Emily Fairbairn 16117 Sunset Boulevard, Apt. 203 Pacific Palisades, CA 90272 100 $ 100,000 Andrea Martin 84 Willowbrook Road Longmeadow, MA 01106 10 $ 10,000 Nitin T. Mehta 58 Greenoaks Drive Atherton, CA 94027 200 $ 200,000 Peak Investment Limited Partnership One Financial Center, Suite 1600 Boston, MA 02111 Attn: Peter H. Kamin 1,000 $ 1,000,000 Pleiades Investment Partners c/o Peak Investment Limited Partnership One Financial Center, Suite 1600 Boston, MA 02111 Attn: Peter H. Kamin 300 $ 300,000 Whitman Partners, L.P. c/o Whitman Capital One Sansome Street, 18th Floor San Francisco, CA 94104 Attn: Douglas F. Whitman 1,332 $ 1,332,000 Mahuma N.V. c/o Whitman Capital One Sansome Street, 18th Floor San Francisco, CA 94104 Attn: Douglas F. Whitman 58 $ 58,000 TOTALS: 8,000 $ 8,000,000 ===== ===========
16 17 SCHEDULE B SCHEDULE OF EXCEPTIONS 18 EXHIBIT A (FOURTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT) 19 EXHIBIT B (CERTIFICATE OF DESIGNATION) 20 EXHIBIT C (LEGAL OPINION OF BROBECK, PHLEGER & HARRISON) EX-4.18 4 4TH AMEND TO THE REGISTRATION RIGHTS AGREE 1 Exhibit 4.18 EXECUTION COPY FOURTH AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT THIS FOURTH AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT (this "Amendment") is made effective as of the 10th day of June, 1996, by and among The Cerplex Group, Inc., a Delaware corporation (the "Company"), the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor" and collectively as the "Investors," the security holders of the Company listed on Schedule B hereto, each of which is herein referred to as a "Stockholder" and collectively as the "Stockholders," the banks listed on Schedule C hereto, each of which is herein referred to as a "Bank Holder" and collectively as the "Bank Holders" and each of the parties listed on Schedule D hereto, each of which is herein referred to as a "Series B Preferred Holder" and collectively as the "Series B Preferred Holders." RECITALS: A. The Company, the Investors, the Stockholders, and certain other investors and stockholders entered into a Registration Rights Agreement dated November 19, 1993 (as in effect prior to the effectiveness of this Amendment, the "Existing Registration Rights Agreement"). B. Pursuant to a Waiver and Amendment Agreement, dated as of April 15, 1996, among The Northwestern Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company and North Atlantic Smaller Companies Investment Trust PLC (each individually, a "Warrant Group Holder" and collectively, the "Warrant Group Holders") and the Company, and a Warrant Agreement dated as of April 15, 1996, among the Warrant Group Holders and the Company, the Company issued one million (1,000,000) warrants (the "1996 Warrants") to purchase Common Stock (as such term is defined in the Existing Registration Rights Agreement) to the Warrant Group Holders. C. Pursuant to a First Amendment to Credit Agreement and Limited Waiver (the "Bank Amendment and Waiver Agreement"), dated as of April 15, 1996, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and the Bank Holders and a Warrant Agreement (the "Bank Warrant Agreement"), dated as of April 15, 1996, among the Company and the Bank Holders, the Company issued one hundred twenty-five thousand (125,000) warrants (the "Bank Warrants") to purchase Common Stock (as such term is defined in the Existing Registration Rights Agreement) to the Bank Holders. 1 2 EXECUTION COPY D. Pursuant to the Third Amendment to the Existing Registration Rights Agreement, dated as of April 15, 1996, by and among the Company, the Investors, the Stockholders and the Bank Holders, the shares of Common Stock issuable upon exercise of the Bank Warrants and the 1996 Warrants have been made subject to the Existing Registration Rights Agreement. E. The Company and the Series B Preferred Holders (as defined herein) are parties to the Stock Purchase Agreement of even date herewith (the "Series B Agreement") pursuant to which Series B Preferred Holders have purchased an aggregate of 8,000 shares of the Company's Series B Preferred Stock; and in order to induce the Company and the Series B Preferred Holders to enter into the Series B Agreement, the Series B Preferred Holders and the Company hereby agree that the Existing Registration Rights Agreement as hereby amended shall govern the rights of the Series B Preferred Holders to cause the Company to register shares of Common Stock issuable to the Series B Preferred Holders upon the conversion of the Series B Preferred Stock and certain other matters set forth herein. F. The parties to the Existing Registration Rights Agreement wish to amend the terms thereof to (i) permit the Bank Holders certain additional rights hereunder and (ii) permit the Series B Preferred Holders certain rights. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINED TERMS Terms used herein without definition shall have the meaning given such terms in the Existing Registration Rights Agreement. The terms specified below are hereby incorporated, as applicable, into the Existing Registration Rights Agreement. As used in this Amendment, the following terms have the respective meanings specified below: "ADDITIONAL SHARES" -- has the meaning given such term in Section 1.2(b) of the Existing Registration Rights Agreement, as amended hereby "AMENDMENT, THIS" -- means this Fourth Amendment to the Existing Registration Rights Agreement "DEFICIENCY" -- has the meaning given such term in Section 1.2(f) of the Existing Registration Rights Agreement, as amended hereby 2 3 EXECUTION COPY "EFFECTIVENESS PERIOD" -- has the meaning given such term in Section 1.19(a) of the Existing Registration Rights Agreement, as amended hereby "EXCESS SHARES" -- has the meaning given such term in Section 1.2(f) of the Existing Registration Rights Agreement, as amended hereby "EXISTING REGISTRATION RIGHTS AGREEMENT" -- Recital A "NASD" means the National Association of Securities Dealers, Inc. "NON-INITIATING HOLDER" -- has the meaning given such term in Section 1.2(b) of the Existing Registration Rights Agreement, as amended hereby "NON-REQUESTING HOLDER" -- has the meaning given such term in Section 1.12(f) of the Existing Registration Rights Agreement, as amended hereby "SELLING GROUP" -- shall have the meaning given such term in Section 1.6 "SERIES B AGREEMENT" -- Recital E "SHELF REGISTRATION" -- has the meaning given such term in Section 1.19(a) of the Existing Registration Rights Agreement, as amended hereby "SHORTAGE" -- shall have the meaning given such term in Section 1.2(b) of the Existing Registration Rights Agreement, as amended hereby "SHORTFALL" -- has the meaning given such term in Section 1.2(b) of the Existing Registration Rights Agreement, as amended hereby "SPROUT" -- means (a) (x) The Sprout Group, and any affiliates thereof, Sprout Growth II, L.P., or (y) DLJ Capital Corporation or any subsidiaries or affiliates thereof, as the case may be, for so long as it holds any warrants on the date hereof issued pursuant to the Existing Registration Rights Agreement (the "Original Sprout Warrants") or any Common Stock issued pursuant to the exercise of such Warrants and (b) any successors thereto or direct or successive transferees thereof; it being the intention of the parties hereto that any successive holder of a warrant, or the Common Stock issued upon the exercise of such warrant, which warrant derived from an Original Sprout Warrant, shall be included in this definition, provided that any holder of shares of Common Stock issued upon the exercise of any Original Sprout Warrant or any warrant that derived from such Original Sprout Warrant which shares have been, or derive from shares that have been, publicly sold pursuant to a registration statement filed under the Act or 3 4 EXECUTION COPY pursuant to Rule 144 shall, to the extent of its holdings of such shares, be excluded from this definition. Rights under this Agreement of successors, assigns and transferees of Sprout Holders are subject to compliance with the requirements of Section 1.13 of the Existing Registration Rights Agreement. SECTION 2. AMENDMENTS 2.1 AMENDMENTS TO SECTION 1.1 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT (A) Section 1.1 of the Existing Registration Rights Agreement is hereby amended by amending and restating the following definition, in its entirety, as set forth below: (Q) The term "Registrable Securities" means (i) the Common Stock currently issued to the Investors and the Stockholders, (ii) all Common Stock issued or issuable to the Investors, the Stockholders, the Bank Holders and the Series B Preferred Holders upon exercise or conversion, as the case may be, of the Warrants, the Bank Warrants, other warrants, options or the Series B Preferred Stock held by them, and (iii) all Common Stock issued (or issuable upon the exercise or conversion, as the case may be, of any Warrant, any Bank Warrant, any other warrant, option or the Series B Preferred Stock, any right or any other security, which Warrant, Bank Warrant, Series B Preferred Stock, other warrant, right, any other security or option is itself issued) as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Common Stock referenced in (i) and (ii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned. (B) The following definitions are hereby added to Section 1.1 of the Existing Registration Rights Agreement so as to preserve the alphabetical ordering of the definitions set forth therein. The term "Series B Preferred Holders" means (a) each of the entities, or persons, as the case may be, set forth on Schedule D hereto, for so long as they hold any shares of Series B Preferred Stock or any Common Stock issued pursuant to the conversion of such shares and (b) any successors thereto or direct or successive transferees thereof; it being the intention of the parties hereto that any successive holder of Series B Preferred 4 5 EXECUTION COPY Stock, or the Common Stock issued upon the conversion of such Series B Preferred Stock, shall be included in this definition, provided that any Holder of shares of Common Stock issued upon the conversion of any share of Series B Preferred Stock that has been, or derives from any share that has been, publicly sold pursuant to a registration statement filed under the Act or pursuant to Rule 144 shall, to the extent of its holdings of such shares, be excluded from this definition. Any decisions to be made by the Series B Preferred Holders shall be made upon a vote of a majority in interest of Series B Preferred Holders on the basis of the number of shares of Common Stock issuable upon conversion of Series B Preferred Stock and the number of shares of such Common Stock then held. Rights of successors, assigns and transferees of Series B Preferred Holders are subject to compliance with the requirements of Section 1.13. The term "Series B Preferred Stock" means that certain series of Preferred Stock designated Series B, having par value of $0.001 per share, enjoying the rights and privileges set forth in that Certificate of Designation of the Company as in effect on the date hereof. 2.2 AMENDMENTS TO SECTION 1.2 (A) Section 1.2(a) of the Existing Registration Rights Agreement is hereby amended by deleting the word "and" at the end of clause (ii), by deleting the period at the end of clause (iii) and replacing it with a semi-colon, and by adding the following clauses after clause (iii): (iv) the Bank Holders may request one (1) registration under this Section 1.2; and (v) the Series B Preferred Holders may request one (1) registration under this Section 1.2. (B) Section 1.2(b) of the Existing Registration Rights Agreement is hereby amended to delete the first full paragraph and such paragraph is restated in its entirety as follows: If the Initiating Demand Holder in respect of any registration requested under this Section 1.2 intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a)(A). The underwriter will be one or more underwriting firms of recognized national standing selected, after consultation with the Initiating Demand Holder, by the Company and shall be acceptable to the Initiating 5 6 EXECUTION COPY Demand Holder, which shall not unreasonably withhold its acceptance of such underwriters, provided that any Original Warrantholder, Independent Equity Group Holder or Series B Preferred Holder that constitutes, in whole or part, the Initiating Demand Holder may require the managing underwriter so selected above to invite not more than one (1) underwriter selected by such Original Warrantholder, Independent Equity Group Holder or Series B Preferred Holder to join the selling syndicate in respect of such registration. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and inclusion in the underwriting of the Registrable Securities of such Holder in such registration (unless otherwise mutually agreed by the Initiating Demand Holder and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting, all as contemplated by subsection 1.4(e). Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Demand Holder that the number of securities requested to be included in such registration exceeds the number that can be sold in such offering within a price range acceptable to the Initiating Demand Holder (such advice to state the basis of such opinion and the approximate number of shares of Registrable Securities that may be included in such offering without such effect), then the Initiating Demand Holder shall so advise all Holders of Registrable Securities which would otherwise be included in such registration pursuant hereto, and the number of shares of Registrable Securities that may be so included shall be allocated as follows: (i) All of the Registrable Securities of the Initiating Demand Holder and each member (or who derived their ownership of Registrable Securities after the date hereof from such Holder) of the applicable group (as set forth in Section 1.2(a)(i) through and including 1.2(a)(v) (a "group") to which such Holder belongs, shall first be included in such registration; provided, however, in the event the number of Registrable Securities requested to be included in such Registration by the Holders in such group exceeds the number of shares which may be included in such registration, such allocation shall be made among the Holders of such group pro rata based upon the number of Registrable Securities owned by each such Holder. For the purposes of determining to which group Sprout belongs any Original Sprout Warrant received, or the Common Stock received upon the exercise thereof, shall, if applicable, be included in the Independent Equity Group and any shares of Series B Preferred Stock, or Common Stock received upon the conversion thereof, shall be included, if applicable, with those of the Series B Preferred Holders; and 6 7 EXECUTION COPY (ii) in the event that the number of Registrable Securities includable in such registration exceeds the number of Registrable Securities includable therein pursuant to the foregoing clause (i) (such securities "Additional Shares"), then in such case, such Additional Shares shall be allocated to the Holders of Registrable Securities which are not members of the group to which the Initiating Demand Holder belongs but which have requested inclusion in the registration (the "Non- Initiating Holders") on a pro rata basis (as nearly as practicable) based on the number of Registrable Securities held by each. In the event this clause (ii) is applicable, and for purposes of effecting the calculations provided for herein, the number of Registrable Securities owned by all of the Primary Stockholders as a group shall be deemed to be equal to the number of Registrable Securities owned by the Investors as a group (not counting for this purpose any Investor that is a member of the group to which the Initiating Demand Holder belongs and any Common Stock issued, or issuable, upon conversion of the Series B Preferred Stock owned by Sprout). As such, each Primary Stockholder who is a Non- Initiating Holder shall be deemed for the purposes of the computations in this paragraph to own a proportionately smaller number of shares. In addition, to the extent the Registrable Securities in respect of the 1996 Warrants result in an allocation of Additional Shares to the Independent Equity Group under this clause (ii) that is less than it would have been if there had been no issuance of 1996 Warrants (such deficiency is referred to herein as the "Shortfall"), the Primary Stockholders will be deemed, for purposes of this clause (ii), to have assigned to the Independent Equity Group a number of Additional Shares that would have otherwise been allocated to such Primary Stockholders equal to 50% of such Shortfall. The number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities (including, without limitation, any securities of the Company or any other person then included in such registration, as contemplated by the immediately succeeding sentence) are first entirely excluded from the underwriting. The Company will not register securities for sale for the account of any person other than Holders of Registrable Securities participating in such registration and the Company in connection with any registration pursuant to this Section 1.2 unless it shall have obtained the prior written consent of the Initiating Demand Holder or unless the requirements of Section 1.14 have been fully satisfied in respect of such other securities. Upon receipt of such consent, the Company will notify each Holder of Registrable Securities requesting participation in such registration of such consent. 7 8 EXECUTION COPY (c) Section 1.2(d) of the Existing Registration Rights Agreement is hereby amended so that clause "(ii)" shall be renumbered as clause "(iii)" and the following clause shall be added as clause "(ii)": A registration statement effected pursuant to Section 1.19 shall not preclude a request or a demand under Section 1.2 or a registration, public offering or distribution in respect thereof. The Holders acknowledge and agree that upon the receipt from a Holder of a request under Section 1.2, no other request under this Section 1.2 or Section 1.12 need be honored by the Company pending the discharge or withdrawal of such request, and the first such request under this Section 1.2 or Section 1.12, as the case may be, shall preempt all other such requests until such time as the procedures and processes that commence upon the receipt of such request shall have been completed in a manner consistent with the intent hereof or such request is withdrawn. 2.3 AMENDMENT TO SECTION 1.3 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.3 of the Existing Registration Rights Agreement is hereby amended to add "(i)" before the word "If" in the first sentence of Section 1.3 and to add the following paragraph as Section 1.3(b): (b) In the event that the Company has filed, or files, a registration statement within thirty (30) days of receipt of a notice under Section 1.2 or 1.12, pursuant to this Section 1.3, then the Company shall not be required to honor any demand under Section 1.2 or 1.12 until the earlier of (i) one hundred twenty days following the date of such notice or (ii) such date as the Company is no longer using its best efforts to effect such offering (including, without limitation, the date the Company withdraws such registration statement). 2.4 AMENDMENT TO SECTION 1.4(E) OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.4(e) of the Existing Registration Rights Agreement is hereby amended to add ", Bank Holders or Series B Preferred Holders" after the word "Investors" but before the word "shall" in the last sentence of Section 1.4(e). 2.5 AMENDMENT TO SECTION 1.6 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.6 of the Existing Registration Rights Agreement is hereby amended so that all of the words from "All expenses" up to, but not including "provided, however," are deleted and replaced with the following: 8 9 EXECUTION COPY All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, Section 1.12 and Section 1.19, including (without limitation) all registration, filing and qualification fees of the Act and any other securities or Blue Sky laws, printers and accounting fees, fees and disbursements of counsel for the Company and the Stockholders and the reasonable and customary fees and disbursements of one counsel for the selling Investors, Bank Holders and Series B Preferred Holders (collectively, the "Selling Group") (excluding, however, any fees and disbursements for special counsel for the Holders other than such one counsel for the Selling Group; the Selling Group shall appoint its counsel by a two-thirds vote of the Registrable Securities of those Holders who are members of the Selling Group then participating in such registration) shall be borne and paid by the Company (which right in favor of the Holders is assignable by the Holders as provided in Section 1.13); 2.6 AMENDMENT TO SECTION 1.7 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.7 of the Existing Registration Rights Agreement is hereby amended so that the words "selling Investors" are deleted and replaced with the words "Selling Group" and the words "such Investors" are replaced with "members of the Selling Group." 2.7 AMENDMENT TO SECTION 1.8 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.8 of the Existing Registration Rights Agreement shall be deleted and restated in its entirety as follows: 1.8 Underwriting Requirements. (a) In connection with any offering involving an underwriting of securities of the Company referred to in Section 1.3, the Company shall not be required under said Section 1.3 to include any of the Holders' Registrable Securities in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as such underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities (other than securities to have been originally offered under such offering by the Company for its own account or for the account of persons other than the Holders) requested by holders of such securities (including Registrable Securities requested by the Holders) to be included in such offering (with respect to any such offering, the "piggyback securities") exceeds the amount of securities that the underwriters determine in their sole discretion can be sold without jeopardizing the success of the sale of such originally offered securities, then the Company shall be 9 10 EXECUTION COPY required to include in such offering only that number of such piggyback securities, including Registrable Securities, which the underwriters reasonably determine in their sole discretion will not jeopardize the success of the sale of said originally offered securities (the piggyback securities to be so included in such offering to be apportioned among the Holders (or who derived their ownership of Registrable Securities after the date hereof from Holders) on a pro rata basis, in proportion (as nearly as practicable) to the amount of Registrable Securities owned by each such Holder to the piggyback securities, provided, however, that for purposes of such determination, the number of Registrable Securities owned by all of the Primary Stockholders as a group shall be deemed to be equal to the number of Registrable Securities owned by the Investors as a group (not counting for this purpose any Series B Preferred Stock, or Common Stock issued or issuable upon the conversion thereof, owned by Sprout). As such, each Primary Stockholder shall be deemed for the purposes of such calculations to own a proportionately smaller number of shares. In addition, to the extent the Registrable Securities in respect of the 1996 Warrants result in an allocation of piggyback securities to the Independent Equity Group under this Section 1.8 that is less than it would have been if there had been no issuance of 1996 Warrants (such deficiency is referred to herein as the "Shortage"), the Primary Stockholders will be deemed, for purposes of this Section 1.8, to have assigned to the Independent Equity Group a number of piggyback securities that would have otherwise been allocated to such Primary Stockholders equal to 50% of such Shortage. 2.8 AMENDMENT TO SECTION 1.10(A) OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.10(a) of the Existing Registration Rights Agreement is amended so that the phrase ", Bank Holders or Series B Preferred Holders" is included in the first parenthetical after the word "Investors" and before the comma which follows the word "Investors." 2.9 AMENDMENT TO SECTION 1.12 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT (a) Section 1.12(a) of the Existing Registration Rights Agreement is hereby amended and restated in its entirety as follows: 1.12 Form S-3 Registration. (a) One or more Holders (such Holders are, with respect to each request made by them under this Section 1.12, referred to collectively as a "Requesting Holder") may make written requests of the Company to effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Requesting Holder, provided that such Requesting Holder belongs to one or more of the following: the Northwestern Group Holders, the Hancock Group Holders, the Independent Equity Group Holders, the Primary Stockholders, Bank Holders or Series B Preferred Holders. 10 11 EXECUTION COPY (b) Section 1.12 of the Existing Registration Rights Agreement is hereby amended to include the following as "Section 1.12(g)": A registration statement effected pursuant to Section 1.19 shall not preclude a request or a demand under Section 1.12 or a registration, public offering or distribution in respect thereof. The Holders acknowledge and agree that upon the receipt from a Holder of a request under Section 1.12, no other request under this Section 1.12 or Section 1.2 need be honored by the Company pending discharge or withdrawal of such request, and the first such request under this Section 1.12 or Section 1.2, as the case may be, shall preempt all other such requests until such time as the procedures and processes that commence upon the receipt of such request shall have been completed in a manner consistent with the intent hereof or such request is withdrawn. (c) Section 1.12(b)(ii)(D) of the Existing Registration Rights Agreement is amended to add the following language after "Section 1.12" and before the "; provided, however, that in no event shall a registration effected pursuant to Section 1.12(a) be counted for the purposes of this Section 1.12(b)(ii)(D) if such firmly underwritten registration statement on Form S-3 was initiated by a Bank Holder or a Series B Preferred Holder as a "Requesting Holder" under Section 1.12. (d) Section 1.12(b)(ii)(E) of the Existing Registration Rights Agreement is hereby amended so that "five (5)" is deleted and replaced with "seven (7)." (e) Section 1.12(b)(ii)(F) of the Existing Registration Rights Agreement shall be amended: (F) if the Company has, within the 90-day period preceding the date of such request, already effected an underwritten registration statement. (f) Section 1.12(f)(i) and (ii) are hereby amended and restated in their entirety as follows: (i) All of the Registrable Securities of the Requesting Holder and each member (or who derived their ownership of Registrable Securities after the date hereof from such Holder) of the applicable group (as set forth in Section 1.12(a) (a "group")) to which such Holder belongs, shall first be included in such registration; provided, however, in the event the number of Registrable Securities requested to be included in such Registration by the Holders in such group exceeds the number of shares which may be included in such registration, such allocation shall be made among the Holders of such group pro rata based upon the number of Registrable Securities owned by each such 11 12 EXECUTION COPY Holder. For the purposes of determining to which group Sprout belongs any Original Sprout Warrant received, or the Common Stock received upon the exercise thereof, shall, if applicable, be included in Independent Equity Group and any shares of Series B Preferred Stock, or Common Stock received upon the conversion thereof, shall be included, if applicable, with those of the Series B Preferred Holders; and (ii) in the event that the number of Registrable Securities includable in such registration exceeds the number of Registrable Securities includable therein pursuant to the foregoing clause (i) (such securities "Excess Shares"), then in such case, such Excess Shares shall be allocated to the Holders of Registrable Securities which are not members of the group to which the Requesting Holder belongs but which have requested inclusion in the registration (the "Non-Requesting Holders") on a pro rata basis (as nearly as practicable) based on the number of Registrable Securities held by each. In the event this clause (ii) is applicable, and for purposes of effecting the calculations provided for herein, the number of Registrable Securities owned by all of the Primary Stockholders as a group shall be deemed to be equal to the number of Registrable Securities owned by the Investors as a group (not counting for this purpose any Investor that is a member of the group to which the Requesting Holder belongs and any Common Stock issued, or issuable, upon conversion of the Series B Preferred owned by Sprout). As such, each Primary Stockholder who is a Non-Requesting Holder shall be deemed for the purposes of the computations in this paragraph to own a proportionately smaller number of shares. In addition, to the extent the Registrable Securities in respect of the 1996 Warrants result in an allocation of Excess Shares to the Independent Equity Group under this clause (ii) that is less than it would have been if there had been no issuance of 1996 Warrants (such deficiency is referred to herein as the "Deficiency"), the Primary Stockholders will be deemed, for purposes of this clause (ii), to have assigned to the Independent Equity Group a number of Excess Shares that would have otherwise been allocated to such Primary Stockholders equal to 50% of such Deficiency. 2.10 AMENDMENT TO SECTION 1.14 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.14 of the Existing Registration Rights Agreement is hereby amended so that the phrase "without the prior written consent of the Investors holding two-thirds of the Registrable Securities held by Investors," is replaced with the phrase "without the prior written consent of the Investors and Series B Preferred Holders collectively holding two-thirds of the aggregate Registrable Securities held by the Investors and the Series B Preferred Holders." 12 13 EXECUTION COPY 2.11 MODIFICATION OF SECTION 1.15 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 1.15 is hereby modified to delete the phrase "in the case of a nonunderwritten offering." 2.12 ADDITION OF SECTION 1.19 TO EXISTING REGISTRATION RIGHTS AGREEMENT The following paragraphs are hereby added to the Existing Registration Rights Agreement: 1.19 Shelf Registration. (a) (i) The Company shall file, not later than one hundred fifty (150) days after the date hereof, a "shelf" registration statement (the "Shelf Registration") covering the securities then constituting Registrable Securities (other than shares held by Holders who are permitted, as of June 10, 1996, to sell all their shares during a three (3)-month period under Rule 144 of the Act and the Registrable Securities of Holders who have decided not to participate in a registration under this Section 1.19) on any appropriate form, which shall state that the subject Registrable Securities are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Act. The Company shall use its reasonable best efforts to have the Shelf Registration declared effective as soon as practicable after its filing and to keep the Shelf Registration continuously effective and current for a period of three (3) years following the date hereof or, if earlier, until all Registrable Securities included therein have been sold or can be sold within three months under Rule 144 of the Act. If necessary, the Company shall cause to be filed, and shall use its reasonable best efforts to have declared effective as soon as practicable following filing, additional "shelf" registration statements or amendments as necessary to maintain such effectiveness for such period. It is understood, however, that the Shelf Registration may be required to be amended or suspended for reasonable periods of time from time to time due to a variety of matters, including corporate developments undertaken by the Company in good faith and for valid business reasons such as the acquisition of third parties or the divestiture of assets which developments may require notice to the holders pursuant to Section 1.19(vii). The Holders acknowledge that during these periods they may not be entitled to sell under the registration statement filed pursuant to this Section 1.19. 13 14 EXECUTION COPY (ii) Within ten (10) days of the filing of a registration statement pursuant to this Section 1.19, the Company shall give written notice of such fact to all Holders (and shall deliver a copy of such registration statement to all Holders). Within ten (10) days of the receipt thereof, each Holder which desires its Registrable Securities to be included in such registration statement shall provide notice of such desire to the Company, and shall indicate the number of Registrable Securities it holds that it wishes to be included in such registration statement. (b) The Holders acknowledge that the procedures section in the subsequent subparagraph (c) of this Section 1.19 (the "Procedures") shall be applicable only to the shelf registration described in the foregoing Subsection (a) and that to the extent that any other provisions of this Agreement conflict with the Procedures by reason of the application of this Section 1.19, the Procedures shall govern such Shelf Registration. (c) The Company, in connection with its obligation under Section 1.19, shall: (i) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current for the period specified in Section 1.19(a) and comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement in accordance with the Holders intended method of disposition set forth in such registration statement for such period. (ii) Make every reasonable effort to obtain the withdrawal of any order or other action suspending the effectiveness of any such registration statement or suspending the qualification or registration (or exemption therefrom) of the Registrable Securities for sale in any jurisdiction. (iii) As soon as practicable after public disclosure of any matters described in subsection (a) of this Section 1.19 and in accordance with the Company's obligations under the 1934 Act, the Act or the rules of the NASD or otherwise, or as soon as practicable after the happening of any other event that makes any statement made in such registration statement or registration statements or in any related prospectus, prospectus supplement, amendment or document incorporated therein by reference untrue in any material respect or that requires the making of any changes in such registration statement or registration statements or in any such prospectus, supplement, amendment or other such document so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the 14 15 EXECUTION COPY statements therein (in the case of any prospectus in the light of the circumstances under which they were made) not misleading, prepare a supplement or post-effective amendment to such registration statement or to the related prospectus or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (iv) Furnish to each Holder of Registrable Securities covered by such registration statement such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (v) Promptly notify each Holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (vi) Use its best efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Holder of Registrable Securities covered by such registration statement shall reasonably request and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and to do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the Registrable Securities owned by such Holder; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (vi), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (vii) Promptly notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the occurrence of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company will prepare a supplement or 15 16 EXECUTION COPY amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each such Holder any such supplement or amendment. (viii) Use its best efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, if any. (ix) The Company may require each Holder of Registrable Securities included in such registration statement to promptly furnish in writing to the Company such information regarding distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such. (d) The following provisions of the Existing Registration Rights Agreement shall be deemed deleted and inapplicable to a registration statement effected under this Section 1.19: Section 1.4(i), Section 1.4(k), Section 1.4(m) and Section 1.10. In addition, in such event, the words "such drafts" in Section 1.4 shall be deemed deleted in such event, with respect to any Shelf Registration. 2.13 ADDITION OF SECTION 1.20 TO THE EXISTING REGISTRATION RIGHTS AGREEMENT The following paragraph is hereby added as Section 1.20 of the Existing Registration Rights Agreement: The Company agrees not to utilize its rights under any of Sections 1.2(c) or 1.12(b)(ii)(C) based upon a registration and/or public sale or distribution of Registrable Securities effected under Section 1.12 or Section 1.19, in the case of Section 1.2, or Section 1.2 or Section 1.19 in the case of Section 1.12. 2.14 AMENDMENT TO SECTION 2.7 OF THE EXISTING REGISTRATION RIGHTS AGREEMENT Section 2.7 of the Existing Registration Rights Agreement is hereby amended so that the phrase "the Series B Preferred Holders" is added to the third sentence of Section 2.7 after each occurrence of the phrase "the Independent Equity Group Holders." 16 17 EXECUTION COPY 2.15 ADDITION OF SCHEDULE D TO EXISTING REGISTRATION RIGHTS AGREEMENT Schedule D hereto is hereby added to the Existing Registration Rights Agreement as Schedule D. SECTION 3. MISCELLANEOUS 3.1 SERIES B PREFERRED HOLDERS TO BECOME PARTIES Each Series B Preferred Holder by executing this Amendment shall become a party to, and shall be obligated and bound by the provisions of, the Existing Registration Rights Agreement, as amended by this Amendment. 3.2 GOVERNING LAW. This Amendment shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York. 3.3 DUPLICATE ORIGINALS. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 3.4 EFFECT OF THIS AMENDMENT. Except as specifically provided in this Amendment, no terms or provisions of the Existing Registration Rights Agreement have been modified or changed by this Amendment and the terms and provisions of the Existing Registration Rights Agreement, as amended hereby, shall continue in full force and effect. This Amendment and the amendments contained herein shall have and be in effect on and after the date hereof upon the execution by the Company and the required number of each of the Investors, Stockholders, Bank Holders and Series B Preferred Holders. 3.5 SECTION HEADINGS. The titles of the section hereof appear as a matter of convenience only, do not constitute a part of this Amendment and shall not affect the construction thereof. 17 18 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. THE CERPLEX GROUP, INC. By:_______________________________________ James T. Schraith, President Address: 1382 Bell Avenue Tustin, California 92680 STOCKHOLDERS: __________________________________________ William A. Klein Address: 1382 Bell Avenue Tustin, California 92680 __________________________________________ Richard C. Davis Address: 1382 Bell Avenue Tustin, California 92680 __________________________________________ Myron Kunin Address: Regis Corporation 7201 Metro Boulevard Minneapolis, MN 55439 [Signature Page to the FOURTH AMENDMENT TO THE 1993 REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Investors, Stockholders, Banks and Series B Preferred Holders listed therein.] 19 STOCKHOLDERS (CONTINUED) ___________________________________________ Theodore J. Wisniewski Address: 1382 Bell Avenue Tustin, California 92680 [Signature Page to the FOURTH AMENDMENT TO THE 1993 REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Investors, Stockholders, Banks and Series B Preferred Holders listed therein.] 20 INVESTORS: SPROUT GROWTH II, L.P. By: DLJ Capital Corporation, Managing General Partner By: ___________________________________ Robert Finzi, Attorney-in-Fact DLJ CAPITAL CORPORATION By: ___________________________________ Robert Finzi, Attorney-in-Fact CANAAN VENTURE LIMITED PARTNERSHIP By: Canaan Management Limited Partnership, General Partner By: Canaan Venture Partners L.P., General Partner By: ___________________________________ General Partner CANAAN VENTURE OFFSHORE LIMITED PARTNERSHIP C.V. By: Canaan Management Limited Partnership, General Partner By: Canaan Venture Partners L.P., General Partner By: ___________________________________ General Partner [Signature Page to the FOURTH AMENDMENT TO THE 1993 REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Investors, Stockholders, Banks and Series B Preferred Holders listed therein.] 21 BESSEMER VENTURE PARTNERS III L.P. By: Deer III & Co., General Partner By: ____________________________________ Robert H. Buescher, General Partner By: ____________________________________ Robert H. Buescher, Attorney-in-Fact BANK HOLDERS: WELLS FARGO BANK, NATIONAL ASSOCIATION By: ________________________________ Name: __________________________ Title: _________________________ SUMITOMO BANK OF CALIFORNIA By: ________________________________ Name: __________________________ Title: _________________________ BHF - BANK AKTIENGESELLSCHAFT By: ________________________________ Name: __________________________ Title: _________________________ COMERICA BANK CALIFORNIA By: ________________________________ Name: __________________________ Title: _________________________ [Signature Page to the FOURTH AMENDMENT TO THE 1993 REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Investors, Stockholders, Banks and Series B Preferred Holders listed therein.] 22 WARRANT GROUP HOLDERS: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: ________________________________ Name: __________________________ Title: _________________________ JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: ________________________________ Name: __________________________ Title: _________________________ NORTH ATLANTIC SMALLER COMPANIES TRUST PLC By: ________________________________ Name: __________________________ Title: _________________________ [Signature Page to the FOURTH AMENDMENT TO THE 1993 REGISTRATION RIGHTS AGREEMENT among THE CERPLEX GROUP, INC. and the Investors, Stockholders, Banks and Series B Preferred Holders listed therein.] 23 EXECUTION COPY Schedule A SCHEDULE OF INVESTORS Warrant Group Holders The Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 North Atlantic Smaller Companies Trust PLC c/o J.O. Hambro & Co., Ltd. 30 Queen Anne's Gate London, England SW1H9AL Independent Equity Group Name Sprout Growth II, L.P. DLJ Capital Corp. Canaan Venture Limited Partnership Canaan Venture Offshore Limited Partnership Deepak Kamra Neill H. Brownstein Robert H. Buescher Michael I. Barach Christopher Gabrieli Brimstone Island Co., L.P. William T. Burgin G. Felda Hardymon Gabrieli Family Foundation John K. Rodakis Gautam A. Prakash David J. Cowan Rachel J. Erickson 24 EXECUTION COPY Bessemer Venture Partners III, L.P. C. Samantha Chen Rodney A. Cohen Richard R. Davis Adam P. Godfrey Barbara M. Henagan Robert D. Lindsay Bradford Mills Thomas F. Ruhm Ward W. Woods, Jr. Leo & Nicole Arnaboldi, JTWROS Perry H. Braun Norman H. Brown, Jr. John G. Danhalk Hoyt L. Davidson Thompson Dean Peter K. Deeks Ralph L. DeGroff, Jr. Anthony M. DeLuise David L. Dennis Thomas S. DePre Robert E. Diemar Robert Finzi Daniel K. Flatley Mark K. Gormley Joyce I. Greenberg Thomas G. Greig, III James D. Hann & Bonnie J. Hann, JTWROS Douglas M. Hayes Stephen J. Ketchum Richard E. Kroon Frederick C. Lane Mark Lanigan Steven E. Lebow Brian McLoughlin Kenneth David Moelis & Julie Lynn Moelis Trustees Under The Moelis Family Trust John Joseph Navin, III Michael R. Nicolais Peter J. Nolan Steven G. Puccinelli Larry E. Reeder Elan Adiel Schultz James T. Sington Jon R. Stone 25 EXECUTION COPY Steven F. Strandberg Kenneth A. Tucker R. Scott Turricchi Warren Woo Kirk B. Wortman 26 EXECUTION COPY Schedule B SCHEDULE OF STOCKHOLDERS Catherine Bartholomew Frank Cameron Tom Cherry Roberta Claborn David O. Creasman Raymond Cruz Randle Dewees Edward Diaz Susan Eaton Harry Edmiston Dennis Fandrich Jon Gill Jacqueline Gillett Gary Graff Nelson Guillory Peggy Hams James Jones Roberta Kean Jennifer Klein Melissa Klein Pollianna Lewis Van Nguyen Richard Ollech Thomas D. Pipkin Juanita Pitts Keith Rathbone Richard Richardson Vincent Simpson Grover Smith Joyce Valdez Richard C. Davis Davis Children's Trust (Trustee: Beth J. Pearce) Jerome Jacobson William A. Klein Myron Kunin Alan Weaver Theodore J. Wisniewski 27 EXECUTION COPY Schedule C SCHEDULE OF BANKHOLDERS Wells Fargo Bank, N.A. Sumitomo Bank of California BHF - Bank Aktiengesellschaft Comerica Bank - California 28 EXECUTION COPY Schedule D SCHEDULE OF SERIES B PREFERRED HOLDERS Sprout Growth II, L.P. DLJ Capital Corporation Scorpion Offshore Investment Fund The & Trust Chestnut Pacific Ltd. Partners Standard Global Equity Partners L.P. Standard Pacific Capital Offshore Fund Ltd. Common Fund Equity Fund Malcolm and Emily Fairbairn Andrea Martin Nitin T. Mehta Peak Investment Limited Partnership Pleiades Investment Partners Whitman Partners, L.P. Mahuma, N.V. 29 EXECUTION COPY EX-10.29 5 PROMISSORY NOTE DATED JUNE 21, 1996 1 EXHIBIT 10.29 $4,570,551.27 June 21, 1996 FOR VALUE RECEIVED, I, we promise to pay LUCENT TECHNOLOGIES, or order, Four Million Five Hundred Seventy Thousand Five Hundred Fifty-One and 27/100 DOLLARS payable in installments at the time or times stated in the SCHEDULE OF PAYMENTS hereon, at: P. O. Box 18099B, St. Louis, MO 63160 or at the office of the legal holder of this note, with interest at the rate of 9.75 percent per annum, after date, payable monthly on the principal and collection charges. If any installment of this note is not paid at the time and place specific herein, the entire amount unpaid shall be due and payable forthwith at the election of the holder of this note, without any notice whatever. The acceptance of any installment hereof by the payee after the time when it becomes due as herein set forth shall not be held to establish a custom, or waive any rights of the payee to enforce payment of any installment herein. And to secure the payment of said amount the makers and endorsers hereon do hereby authorize, irrevocably any attorney of any Court of Record to appear for the undersigned in such court in term time or vacation at any time after maturity, and confess a judgment without process in favor of the holder of this note, for such amount as may appear to be unpaid thereon, together with costs and 20% attorney fees, and to waive and release all errors which may intervene in any such proceedings and consent to immediate execution upon such judgment, hereby ratifying and confirming all that my said attorney may do by virtue hereof, and the endorsers hereon for value received do further guarantee payment of this note at maturity or at any time thereafter waiving presentment, demand, protest and notice of non-payment. Cerplex Group, Inc. Tustin, CA COMPANY NAME CITY & STATE _____________________________________________________ Bruce Nye, Vice President/Chief Financial Officer (Seal) 2 SCHEDULE OF PAYMENTS
Total Installment DATE DUE Principal Interest Due 06/28/96 $ 0.00 $141,849.89 $ 141,849.89 07/15/96 $ 0.00 $ 17,160.49 $ 17,160.49 08/15/96 $ 0.00 $ 34,320.98 $ 34,320.98 09/15/96 $4,570,551.27 $ 34,320.98 $4,604,872.25
2 EX-11.1 6 COMPUTATUIN OF NET INCOME (LOSS) PER SHARE 1 EXHIBIT 11.1 THE CERPLEX GROUP, INC. EXHIBIT TO CONSOLIDATED FINANCIAL STATEMENTS COMPUTATION OF NET INCOME (LOSS) PER SHARE (in thousands, except per share data)
Three months ended June 30 Six months ended June 30 -------------------------- ------------------------ 1996 1995 1996 1995 -------- -------- ---------- --------- WEIGHTED AVERAGE COMMON AND COMMON SHARES EQUIVALENT SHARES OUTSTANDING Average common stock outstanding 13,398 13,079 13,286 13,070 Dilutive Convertible Preferred Stock options and warrants - based on the treasury stock method using the average price(1) 1,448 1,335 1,342 -------- -------- -------- -------- Total 14,846 14,414 13,286 14,412 ======== ======== ======== ======== COMPOSITION OF NET INCOME Income (loss) from continuing operations $ 702 $ 170 $ (871) $ 959 Income from discontinued operations 112 153 -------- -------- -------- -------- Net Income $ 702 $ 282 $ (871) $ 1,112 ======== ======== ======== ======== PER SHARE DATA Continuing operations $ .05 $ .01 $ (.07) .07 Discontinued operations .01 .01 -------- -------- -------- -------- Net income per share $ .05 $ .02 $ (.07) $ .08 ======== ======== ======== ========
(1) Stock options and warrants were not assumed to be converted under the treasury stock method for the six month period ended June 30, 1996 because their effect would be anti-dilutive. EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 27,206 0 28,252 0 28,819 90,548 28,919 0 129,736 95,254 0 0 7,911 13 2,398 129,736 0 92,185 0 74,285 15,639 0 3,169 (101) 770 (871) 0 0 0 (871) (.07) 0
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