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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No.: 0-20979
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INDUSTRIAL SERVICES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0172746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7100 Grade Lane
P.O. Box 32428
Louisville, Kentucky 40232
(502) 368-1661
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
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Aggregate market value of the 939,796 shares of voting Common
Stock held by non-affiliates of the registrant at the closing sales
price on April 8, 1999: $2,466,965.
Number of shares of Common Stock outstanding as of the close of
business on March 8, 1999: 1,929,600.
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DOCUMENT INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999
Annual Meeting of Shareholders are incorporated by reference into
Part III of this report.
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PART I
ITEM 1. BUSINESS.
GENERAL
Industrial Services of America, Inc. (the "Registrant") is a
management service company specializing in solid waste
management, as well as ferrous, non-ferrous and fiber recycling.
The management division of the Registrant is engaged in the
business of commercial, retail and industrial waste management
and waste handling equipment sales and service. The ferrous
division's major products include recycling of steel and iron
products, whereas the non-ferrous division recycles copper,
aluminum and brass. The fiber recycling consists mainly of high-
grade papers and corrugated cardboard. The Registrant is able to
offer a "total package" concept to commercial, retail and
industrial clients to cover their waste management needs.
Combining waste reduction, waste materials diversion and waste
equipment technology, the Registrant creates waste programs
tailored to each client's individual needs. The Registrant
believes that it offers a more complete line of products and
services than its competitors and is better able to coordinate
these services on a regional and nationwide basis. By offering
competitively priced waste handling equipment from a number of
different manufacturers, the Registrant is able to tailor
equipment packages for individual client needs. The waste
management services offered by the Registrant include locating
and contracting with a hauling company at a reasonable cost at
each participating location for the retail chain customers of the
Registrant that are a part of the management program offered by
the Registrant. Because the Registrant is not a "waste
transporter," it is able to maintain a neutral position vis-a-via
the customers and the hauling companies. The Registrant has
designed and developed proprietary computer software that
provides the Registrant's personnel with relevant information on
each of the client's locations, as well as pertinent information
on disposal rates and costs of equipment, installation and
shipping. The availability of this software has allowed the
Registrant to build a database for serving customers from coast
to coast. The Registrant is able to estimate cost savings to
potential customers by reviewing their current waste hauling
invoices either regionally or nationwide.
The Registrant plans to grow by expanding its marketing base
and by seeking future joint ventures and acquisitions of
companies in related businesses. The Registrant continues to
target retail and industrial customers throughout the United
States for the purpose of increasing its clientele in this
sector. Although the number of locations for each industrial
customer will generally be less than that of large retail chains,
solid waste output for each location of industrial clients is
generally greater than that of retail clients. The Registrant
believes that the corresponding greater need for appropriate
equipment results in the increased possibility of large equipment
orders. Further, the Registrant believes it can provide savings
for each industrial location.
The Registrant believes that opportunities for its continued
growth are enhanced by the increasingly stringent regulatory and
political constraints being placed on the waste hauling and
disposal industries. These more stringent federal, state and
local regulations drive prices higher throughout the industry.
With ever-increasing costs, solid waste disposal is becoming one
of the larger expense items for retail and industrial customers,
and perhaps one of the most difficult to contain. The Registrant
believes these increased costs will enhance the value of its
services. Through the retention of the Registrant's services,
customers will be able to "outsource" their in-house waste needs
to an experienced independent entity capable of lowering and
containing waste disposal costs. The Registrant is able to
provide customized reports detailing clients' recycling revenues
as well as waste disposal expense.
In January 1998, the Registrant entered into a Consulting
Agreement (the "K&R Consulting Agreement") with K&R Corporation,
a Kentucky corporation ("K&R"). The Registrant retains all
profits from the scrap and corrugated paper recycling facility
and pays only the consulting fee to K&R. The K&R Consulting
Agreement enables the Registrant to control the management and
day-to-day decisions regarding the recycling plant. See
"BUSINESS-K&R Lease; K&R Consulting Agreement" for details of the
K&R Consulting Agreement.
On July 1, 1997, the Registrant acquired the assets of a
complete non-ferrous scrap metal recycling facility in
Louisville, Kentucky, known as "The Metal Center" from TMG
Enterprises, Inc. thus expanding the Registrant's recycling
product lines and markets. The Metal Center is located at 7100
Grade Lane, Louisville, Kentucky 40213. The acquisition of
assets included purchase of equipment and a non-compete agreement
with the two selling principals for $1,600,000. The purchase
price was to be paid in two installments of $800,000 each,
payable on January 2, 1998 and July 1, 1998. Such payments were
made timely. The Registrant believes that this acquisition
enhances the Registrant's ability to provide turnkey services in
the recycling business. On an annualized basis this acquisition
increased revenues in 1998 by $7,100,000.
During August 1997, the Registrant issued options (the
"Bierman Options") to purchase 100,000 shares of its Common Stock
to its then acting Chief Executive Officer, Glenn Bierman. Mr.
Bierman's Letter Agreement of August 21, 1997 (the "Bierman
Agreement") set forth a monthly consulting fee. Bierman Options
provide for an exercise price of $5.00 per share and are
exercisable through October 1999. Because the exercise price of
these options was in excess of the market value of the
Registrant's Common Stock on the date of grant, there was no
compensation cost recorded in 1997 related to these options.
None of the Bierman Options have been exercised.
In October 1997, the Registrant issued options (the "Garber
Options") to purchase 25,000 shares and an additional option to
purchase 100,000 shares of Common Stock to its, then, Interim
President and Chief Operating Officer, Sean M. Garber, as a
component of a five-year employment agreement (the "Garber
Employment Agreement"). The exercise price related to the
options to purchase (i) the 25,000 shares is $1.00 per share and
(ii) the 100,000 shares is $5.00 per share. Compensation cost
charged to operations in 1998 and 1997 related to the option to
purchase 25,000 shares was $71,875 and $14,974, respectively. The
option to purchase 100,000 shares was at market value the day of
the grant, therefore no charges were associated with this option.
None of the Garber Options have been exercised.
OFFICER AND DIRECTOR CHANGES
On February 17, 1998,the Registrant announced the
appointment of Sean M. Garber to the position of President, which
was retroactive to February 5, 1998. The Board of Directors
elected Mr. Garber to this position at its meeting on February
16, 1998. Garber filled the role as interim President from
December 1, 1997 to February 5, 1998, when Harry Kletter, former
President, resigned. Harry Kletter retained his positions with
the Registrant as Chief Executive Officer and Chairman of the
Board.
On February 16, 1998, the Registrant received resignations
from the following Board Members: Matthew L. Kletter and Timothy
W. Myers. The Board of Directors of the Registrant accepted their
resignations effective February 16, 1998 and appointed Joseph H.
Cohen and R. Michael Devereaux to fill the vacancies.
Additionally, for purposes of having outside Members on the
Board, the Registrant, with Board approval, appointed Dr. Barry
Naft to the Board, thus providing the Registrant with three
outside members.
FITZPATRICK PURCHASE AGREEMENT; LEASE AGREEMENT
Effective June 1, 1998 but executed as of July 31, 1998, ISA
Indiana, Inc. (the "Subsidiary"), an Indiana corporation and
wholly-owned subsidiary of the Registrant,; R. J. Fitzpatrick
Smelters, Inc. (the "Seller"); and R. J. Fitzpatrick and Cheryl
Fitzpatrick (collectively the "Guarantors"); entered into an
Asset Purchase Agreement (the "Fitzpatrick Purchase Agreement")
whereby the Subsidiary acquired all of the business, property,
rights and assets of the Seller and assumed certain of the
liabilities of the Seller as set forth in the Fitzpatrick
Purchase Agreement. Under the Fitzpatrick Purchase Agreement,
the Subsidiary entered into a real property Lease Agreement (the
"Fitzpatrick Lease"), effective June 1, 1998, from the Guarantors
and the Seller for ten successive terms of ten years each at a
rental of $13,000 per month during the original term (as adjusted
in accordance with the Consumer Price Index for each renewal
term) with an option to purchase for $1,600,000 the real property
(including an adjoining 20 acre tract less 3 acres to be retained
by the Seller and Guarantors). In addition, the assets purchased
include furniture, fixtures and equipment, contracts, agreements,
commitments, understandings, trademarks, service marks, trade
names, books and records of the Seller and goodwill associated
with the business of the Seller. In addition, the Subsidiary
entered into a Commission Agreement and Covenant Not To Compete
for a five-year term with the Guarantors recognizing the Seller's
right to liquidate and sell the inventory of the Seller as of the
date of the Fitzpatrick Purchase Agreement and agreeing to pay
the Guarantors and the Seller $10,500 per month plus a percentage
commission of gross profit for any new sales generated from their
efforts.
The Subsidiary is an Indiana corporation newly formed for
the purpose of acquiring the assets of the Seller. The location
of the business is on an approximate 14-acre tract at U.S. 50 and
Jennings County Road 900 West, North Vernon, Jennings County,
Indiana, approximately 65 miles north of Louisville, Kentucky.
The business of the Seller is a metal salvage and metal handling
operation and is comprised of five buildings, the total square
footage of which is approximately 71,400 feet. The principal
improvement is a one-story concrete warehouse/foundry/office
approximating 25,500 square feet. The remaining buildings are
steel-framed buildings constituting warehouses, garages and
office space.
Under the Fitzpatrick Purchase Agreement, the Subsidiary has
not assumed any material liabilities of the Seller, and
specifically, the Subsidiary will not pay, perform, assume or
discharge any liability related to environmental, health or
safety matters or conditions. The Seller and the Guarantors
remain specifically responsible for all conditions with respect
to any hazardous material activity at the site of the business
prior to June 1, 1998; however, as between the Guarantors and the
Seller on the one hand and the Subsidiary on the other hand, the
Guarantors and the Seller shall be responsible to the Subsidiary
in an amount not in excess of $500,000. In that connection, the
Guarantors have entered into an Environmental Indemnity
Agreement, dated as of June 1, 1998, in favor of the Subsidiary
and the Registrant relating to the indemnity for all
environmental conditions affecting the real property (subject to
the monetary limitation referred to above). The aggregate
purchase price for the business was $900,000, $250,000 of which
was paid June 1, 1998, the balance of which was paid on July 31,
1998.
Funds from the operating line of credit of the Registrant
made available by Mid-America Bank of Louisville and Trust
Company were used as a source of funds for consummating this
acquisition.
The Fitzpatrick Lease provides for the right of the
Subsidiary to terminate at any time after May 31, 2003, for a
termination payment of $156,000. Defaults include (i) failure of
the Subsidiary to pay rent or any other payments due under the
Fitzpatrick Lease within 20 days after written demand, (ii)
failure by the Subsidiary to observe or perform any other
covenants, agreements or conditions of the Fitzpatrick Lease
after 20 days written notice unless the Subsidiary has within
that 20 day period commenced to cure the default, and (iii)
certain events of bankruptcy of the Subsidiary. Remedies for a
default include termination of the Fitzpatrick Lease and a suit
for damages. The Subsidiary has the option to terminate the
Fitzpatrick Lease if it is deprived of the use and benefit of the
real property under certain conditions described in the
Fitzpatrick Lease.
The Fitzpatrick Purchase Agreement provides for cross-
indemnifications. The Seller and the Guarantors are providing
indemnity in favor of the Subsidiary for any misrepresentation,
breach of warranty, or non-fulfillment of any covenant under the
Fitzpatrick Purchase Agreement in addition to any damage,
deficiency or cost resulting from claims regarding the business,
the assets, or the premises accruing prior to June 1, 1998, or
any claim, action, suit, proceeding, demand, judgment,
assessment, cost and expense incident to either of the above.
The Subsidiary may make a claim for indemnification for a period
ending no later than ten years after the date of the Fitzpatrick
Purchase Agreement so long as any single claim or aggregate of
claims equals $1,000. In turn, the Seller and the Guarantors
have a similar period within which to make claims against the
Subsidiary for similar violations of the Fitzpatrick Purchase
Agreement for damages, deficiencies or costs accruing after June
1, 1998 and related claims as set forth above. The threshold for
claims against the Subsidiary is also $1,000.
CONSULTING AGREEMENTS; LASSAK AGREEMENT AND JCA/LASSAK AGREEMENT
On June 2, 1998, the Registrant entered into an agreement
(the "Lassak Agreement") with Andrew M. Lassak ("Lassak") to
perform financial advisory services for the Registrant for a
period of up to five years. The Company grants to Lassak and/or
his designee for the financial advisory services rendered under
the Lassak Agreement options to purchase from 25,000 up to a
maximum of 250,000 shares of the Company's Common Stock (the
"Common Stock") on the basis of 25,000 shares for each
$10,000,000 in additional capitalization of the Company measured
from June 2, 1998 that vests upon maintenance for three (3)
consecutive months after achieving the increase in each
$10,000,000 in capitalization for which each 25,000 shares of
Common Stock subject to options are granted. The exercise price
for the shares subject to options earned on account of the
capitalization increase will equal the fair market value of the
Common Stock on the date the $10,000,000 in increased
capitalization for which each 25,000 shares of Common Stock
subject to options will be granted. From the date of vesting of
shares subject to options, Lassak has (i) five (5) years to
exercise with respect to shares subject to option vesting in
Years one (1) and two (2); (ii) four (4) years to exercise with
respect to shares subject to option in Year three (3); (iii)
three (3) years to exercise with respect to shares subject to
option vesting in Year four (4); and (iv) two (2) years to
exercise with respect to shares subject to option vesting in Year
five (5). "Years" for purposes of this Agreement shall mean the
365/366 day period from June 2, 1998 through June 1, 1999 and
each 365/366 day period thereafter. If as a result of any
merger, consolidation or other acquisition effected solely
through the efforts of the Registrant, and without the
participation of Lassak, an increase in the capitalization
occurs, Lassak is not entitled to any options.
The Lassak Agreement is terminable at the election of either
party upon written notice provided to the other party no later
than sixty (60) days before the end of the year. The Lassak
Agreement then terminates at the end of such year, otherwise the
Lassak Agreement continues through the following year. Although
the Lassak Agreement terminates, any Common Stock subject to
options that have vested will be exercisable according to the
terms of the Lassak Agreement.
On June 2, 1998, the Registrant entered into an agreement
(the "JCA/Lassak Agreement") with Joseph Charles & Associates,
Inc. ("JCA") and Lassak. The term of the JCA/Lassak Agreement is
for a period of up to five (5) years. The Registrant agrees to
grant to JCA and Lassak options to purchase the Registrant's
Common Stock on the basis of 65% of the shares of Common Stock
subject to options being granted to Lassak and 35% to JCA, at (a)
$6.00 per share for the first 150,000 shares that vest, and (b)
$8.00 per share for the remaining 35,000 shares that vest. The
number of shares of the Common Stock that vest is determined
based upon the following schedule:
REGISTRANT SHARES
SUBJECT TO OPTIONS VESTING
VESTING SCHEDULE DATE YEAR
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45,000 From June 2, 1998 to, but not 1
including, first anniversary date
of JCA/Lassak Agreement
("Anniversary Date")
35,000 From Anniversary Date to, but not 2
including, Second Anniversary Date
35,000 From Second Anniversary Date to, 3
but not including, Third Anniversary
Date
35,000 From Third Anniversary Date to, but 4
not including, Fourth Anniversary Date
35,000 From Fourth Anniversary Date to, but 5
not including, Fifth Anniversary Date
From the date of vesting of shares subject to option, JCA
and Lassak have (i) five (5) years to exercise with respect to
shares subject to options vesting in Vesting Years one (1) and
two (2); (ii) four (4) years to exercise with respect to shares
subject to options in Vesting Year three (3); (iii) three (3)
years to exercise with respect to shares subject to options
vesting in Vesting Year four (4); and (iv) two (2) years to
exercise with respect to shares subject to options vesting in
Vesting Year five (5).
The JCA/Lassak Agreement is terminable at the election of
either party upon written notice provided to the other party no
later than 60 days before the end of each Vesting Year. The
JCA/Lassak Agreement then terminates at the end of such Vesting
Year, otherwise the JCA/Lassak Agreement continues through the
following Vesting Year. Although the JCA/Lassak Agreement
terminates, any Common Stock subject to options that have vested
will be exercisable according to the terms of the JCA/Lassak
Agreement.
REGISTRANT BACKGROUND
The Registrant was incorporated in October 1953 in Florida
under the name Alson Manufacturing, Inc. ("Alson"). From the
date of incorporation through January 5, 1975, the Registrant was
involved in the design and manufacture of various forms of
electrical products. In 1979, the Board of Directors and the
shareholders of the Registrant commenced liquidation of all the
tangible assets of Alson. On October 27, 1983, Harry Kletter,
the Chairman of the Board and Chief Executive Officer of the
Registrant, acquired 419,500 shares of Common Stock of the
Registrant. The existing directors resigned and five new
directors were elected.
On July 1, 1984, the Registrant began a solid waste handling
and disposal equipment sales organization under the name Waste
Equipment Sales and Services Company ("WESSCO"). On January 1,
1985, the Registrant merged with Computerized Waste Systems, Inc.
("CWS"), a Massachusetts corporation. CWS was a corporation
specializing in offering solid waste management consultations for
large multi-location companies involved in the retail, restaurant
and industrial sectors. At the time of the merger, CWS was
concentrating on large retail chains, but has changed its
emphasis to include industrial clients. This strategy created an
additional target market for the Registrant. Subsequent to the
merger with CWS, the Registrant moved CWS headquarters from
Springfield, Massachusetts to Louisville, Kentucky. At the time
of the merger, much of the client base and marketing efforts were
concentrated in the Northeast. With the move to Louisville, the
Registrant began to expand its marketing efforts, which are now
nationwide and include most of Canada.
The Registrant's divisions operate closely with each other
in terms of present customer care and proposals for new
customers. WESSCO has expanded its product line and presently
offers a variety of equipment, which would be necessary for an
efficient waste handling and/or recycling system for an
individual user. The prices WESSCO can offer are competitive
with most dealers since it purchases equipment at dealer cost
without having to pay dealer overhead. The WESSCO program is
attractive to customers planning expansion programs. Some of
these customers have designated WESSCO as their exclusive waste
equipment supplier and consultant. By working with the customer
from the time the initial building plans are developed, WESSCO
has input into the design, development and implementation of the
waste handling system.
CWS has developed a network of over 2,500 vendors throughout
the United States, which include hauling companies, recycling
companies and equipment manufacturing and maintenance companies.
Through this network, the Registrant is able to provide pricing
estimates for potential customers in a timely fashion. CWS
customer representatives have access to this information through
the computer software designed and developed to accommodate the
daily needs of the Registrant. Through this information
retrieval system, customer representatives can review the
accuracy of customer concerns from recent billings to hauling
rates to the average monthly cost of service.
The Registrant also processes, sells and brokers a broad
range of materials for recycling. These materials include
ferrous and non-ferrous metals, corrugated containers, high-grade
paper and plastic. The Registrant offers document destruction
and transport of recyclable materials to the Registrant's
facility for regional clients. This division also brokers
recycled commodities for CWS customers.
The Registrant derives a significant portion of its revenues
from two primary customers (Home Depot and Office Depot)
accounting for approximately 44%, 57% and 58% of 1998, 1997 and
1996 total revenues, respectively. The Registrant is taking
affirmative action to counter its dependence on any one customer.
The potential negative effect of losing any single customer has
been reduced by the Registrant's expansion of its customer base.
However, there can be no assurance that if the Registrant was to
lose all or the substantial portion of the business with these
two customers that such losses would not have a material adverse
effect on the Registrant.
In addition to its other services, the Registrant provides
management services relating to recycling and waste stream
analysis. The main advantage to offering management services is
that the individual projects are priced on a substantial prepaid
individual basis. This method of pricing allows the Registrant
to collect an up-front fee with the opportunity to "sell" the
customer traditional services after the evaluation and/or any
subsequent implementation is complete. By offering management
and evaluation services, the Registrant is able to pursue
additional customers.
During 1998, the Registrant committed approximately
$1,240,168 towards capital improvements excluding the purchase of
fixed assets obtained in the Fitzpatrick Purchase Agreement. The
Registrant used a significant portion of such funds to purchase
two (2) balers, one (1) shear and rolling stock. The acquisition
of this new material processing equipment has enhanced operating
efficiencies and created additional capacity for new and expanded
equipment leasing business opportunities.
K&R LEASE; K&R CONSULTING AGREEMENT
On February 16, 1998 the Registrant's Board of Directors
ratified and formalized an existing relationship in connection
with (i) the leasing by the Registrant of its facilities from K&R
and (ii) the provision of consulting services from K&R to the
Registrant. K&R is an affiliate of the Registrant.
LEASE AGREEMENT. The Lease Agreement (the "K&R Lease"),
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effective as of January 1, 1998, between K&R, as landlord, and
the Registrant, as lessee, covers approximately 20.5 acres of
land and the improvements thereon, which are located at 7100
Grade Lane in Louisville, Kentucky (the "Leased Premises"). The
principal improvements consist of an approximately 22,750 square
foot building used as the Corporate Office, an approximately
8,286 square foot building used for CWS offices, an approximately
13,995 square foot used as the paper recycling plant, an
approximately 12,000 square foot building used for metals
recycling plant, and an approximately 51,760 square foot building
used as the recycling offices and warehouse space, with the
remaining 15,575 square feet of space contained in five (5)
buildings ranging in size from approximately 8,000 to 256 square
feet.
The initial term of the K&R Lease is for ten years with two
five-year option periods (the "Option Periods") available
thereafter. The base rent for the first five years is $450,000
per annum, payable at the beginning of each month in an amount
equal to $37,500 (the "Fixed Minimum Rent"). The Fixed Minimum
Rent adjusts each five years, including each of the Option
Periods, in accordance with the Consumer Price Index. The Fixed
Minimum Rent also increases to $750,000 per annum, in an amount
equal to $62,500 per month in the event of a "change in control"
of the Registrant. Under the K&R Lease, "change in control"
means a transaction or series of transactions as a result of
which (i) any person who does not currently own a majority of the
outstanding stock of the Registrant acquires a majority of the
outstanding stock of the Registrant, (ii) the Registrant sells or
otherwise disposes of all or substantially all of the assets or
business operations of the Registrant to any other person; or
(iii) the Registrant merges or consolidates with any other
person; unless, in any such case, shareholders owning the
outstanding voting stock of the Registrant immediately prior to
the consummation of such transaction or transactions will own,
upon consummation of such transaction or transactions, at least a
majority of the outstanding shares of the voting stock of the
person acquiring the shares or assets of the person acquiring the
Registrant or surviving the merger or consolidation of the
Registrant in the transaction(s).
The Registrant is also required to pay, as additional rent,
all real estate taxes, insurance, utilities, maintenance and
repairs, replacements (including replacement of roofs if
necessary) and other expenses. The Registrant provided a $50,000
security deposit to K&R for performance by the Registrant of the
terms, covenants and conditions of the K&R Lease applicable to
it.
The K&R Lease provides that the Leased Premises may be used
by the Registrant in its metal recycling and recycled paper
sorting and bailing businesses, and for its corporate offices.
Without the prior consent of K&R (and in the case of (ii) below
the prior consent of any mortgagee of K&R) the Registrant may not
(i) make any structural alterations, improvements or additions to
the K&R Leased Premises, or (ii) assign (including a change of
control) or sublet the Leased Premises. The K&R Lease provides
for indemnification of K&R by the Registrant for all damages
arising out of the Registrant's use or condition of the Leased
Premises excepting therefrom K&R's negligence. The K&R Lease
further provides that the Registrant will agree to subordinate
its leasehold interest to the mortgage interest of any mortgagee
of K&R.
The K&R Lease provides for termination by the Registrant
upon damage (the "Damage") by fire or other casualty that cannot
be reasonably repaired within, in most instances, 120 days of the
Damage. All rent ceases as of the "injury date" under these
circumstances. The K&R Lease also terminates upon condemnation
of the Leased Premises in whole, with a condemnation of a portion
of the Leased Premises resulting in an equitable adjustment of
the Fixed Minimum Rent.
Events of Default under the K&R Lease include (i) failure by
the Registrant to pay the Fixed Minimum Rent for 10 days after
written demand therefor, (ii) any other default in the observance
or performance by the Registrant of any of the other covenants,
agreements or conditions of the K&R Lease, which shall continue
for 30 days after written notice, unless the Registrant shall
have commenced and shall be diligently pursuing curing such
default, (iii) certain bankruptcy or related events affecting the
Registrant, (iv) vacation of the Leased Premises by the
Registrant, or (v) the transfer or devolution whether by
operation of law or otherwise of the K&R Lease or the
Registrant's estate or of any of the Registrant's interest to
anyone other than K&R. Upon the occurrence of an event of
default, K&R may, at its option, terminate the K&R Lease and
enter into and take possession of the Leased Premises with the
right to sue for and collect all amounts due, including damages.
All payments are current.
K&R CONSULTING AGREEMENT. The K&R Consulting Agreement
------------------------
remains in effect until December 31, 2007, with automatic annual
renewals thereafter unless one party provides written notice to
the other party of its intent not to renew at least six months in
advance of the next renewal date. K&R shall provide strategic
planning and development to the Registrant, including advice on
management activities, advertising, financial planning and
mergers and acquisitions (the "K&R Consulting Activities"). The
Registrant shall be responsible for all of K&R's expenses and pay
to K&R $240,000 in equal monthly installments of $20,000 in
connection with the K&R Consulting Activities.
The K&R Consulting Agreement terminates upon a non-
defaulting party providing written notice to the other party of
its intent to terminate. The recipient of the notice has 10 days
to cure monetary defaults and 30 days to cure non-monetary
defaults (which will be extended if a cure is being diligently
commenced and pursued during that 30 day period). The K&R
Consulting Agreement also terminates upon the condemnation or
destruction by fire or other casualty of all or substantially all
of the Leased Premises. Upon termination, K&R agrees not to
engage, directly or indirectly, in the business conducted by, or
hire employees from, the Registrant for a period of five years
and within 100 miles of any operation of the Registrant. The
Registrant's principal shareholder and Chief Executive Officer
is compensated through consulting fees pursuant to the K&R
Consulting Agreement.
The K&R Consulting Agreement provides for cross-
indemnification of each party by the other for acts other than
negligence or willful malfeasance. The K&R Consulting Agreement
further provides that K&R must maintain the confidentiality of
any information of the Registrant not otherwise in the public
domain or required to be disclosed by law.
EQUIPMENT LEASING/WESSCO
The Registrant leased approximately 154 pieces of solid
waste and recycling equipment to customers in 1998, with a
subsequent increase in monthly rental income to the Registrant of
14.7% as compared to the same period of 1997. The majority of
these contracts are for a minimum of 36 months. While the
resources required to purchase this equipment are generated
internally and the revenues returned are deferred over the term
of the contract, the Registrant's management believes this
investment in the rental fleet to be a proper use of capital and
will provide a long-term favorable return on its investment.
INDUSTRY BACKGROUND
The Registrant is involved in the management of non-
hazardous solid waste and recyclables for retail and industrial
customers. As such, the industry is actually driven by the multi-
billion dollar solid waste collection and disposal industry. The
size of this industry has increased for the past several years
and should continue to increase, as landfill space becomes more
scarce. Although society (and industry) have developed an
increased awareness of the environmental issues and recycling has
increased, waste production also continues to increase. Because
of environmental concerns, new regulations and cost factors, it
has become difficult to obtain the necessary permits to build any
new landfills. Management of the Registrant believes that with
the consolidation taking place in the waste industry, it will
become increasingly difficult for a customer to receive a fair
price. The Registrant should therefore be in a position to be
called upon to represent the best interest of that customer; this
fact can only enhance the Registrant's business.
The rising costs associated with solid waste disposal have
created additional opportunities for the Registrant. Because
waste disposal has begun to be an increasingly larger percentage
of the total monthly expenditures incurred by commercial
establishments, the Registrant believes that the services offered
by the Registrant will be in greater demand. Many commercial
establishments that have paid little attention to the costs
associated with waste disposal in the past are now looking for
ways to reduce expenses in this area. The Registrant offers
commercial establishments its expertise to lower waste disposal
bills and initiate recycling programs to generate additional
revenues and/or reduce costs and materials bound for ultimate
disposal.
In addition to increasing landfill costs, regulatory
measures and more stringent control of material bound for
disposal ("flow control") are making the management of solid
waste an increasingly difficult problem. The United States
Environmental Protection Agency (the "EPA") is expected to
continue the present trend of restricting the amount of
"potentially" recyclable material bound for landfills. Many
states have passed, or are contemplating measures, which would
require commercial establishments to recycle a minimum percentage
of their waste stream and would restrict the percentage of
recyclable materials in any commercial load of solid waste
material. Many states have already passed restrictive
regulations requiring a plan for the reduction of waste or the
segregation of recyclable materials from the waste stream at the
source. Management of the Registrant believes that these
restrictions may create additional marketing opportunities as
waste disposal needs within commercial establishments become more
specialized. Some large commercial establishments have hired in-
house staff to handle the solid waste management and recycling
responsibilities, but have found that without adequate resources
and staff support, in-house handling of these responsibilities
may not be an effective alternative. The Registrant offers these
establishments a possible solution to this increasing burden.
COMPETITION
On a commercial/industrial waste management level, the
Registrant has competition from a variety of sources. Much of it
is from companies that concentrate their efforts on a regional
level. Management of the Registrant believes that with the
proprietary database of regional and national pricing, the
Registrant will maintain its edge on a national basis.
There has been increased competition from national hauling
companies. The large national hauling companies often attempt to
handle an entire chain of locations for a "national chain"
client. This scenario poses a potential conflict of interest
since these hauling companies can attain greater profitability
from increases in hauling and disposal revenues. In addition to
having an interest in higher hauling and disposal rates, the
national hauling companies do not have operations in every
community and do not, to the knowledge of management, have some
of the billing and computer capabilities which the Registrant is
able to offer. Additionally, management has encountered evidence
of some reluctance from independent hauling companies to work
with national hauling companies.
There is also competition from some equipment manufacturers.
These companies have their primary interest in selling or leasing
equipment and offer management services in order to secure these
sales or leases. There is a cost involved in "using" the
equipment and the money saved must justify the amount spent on
this equipment.
The metals recycling business is highly competitive and is
subject to significant changes in economic and market conditions.
Certain of the Registrant's competitors have greater financial,
marketing and other resources. There can be no assurance that
the Registrant will be able to obtain its desired market share
based on the competitive nature of this industry.
An important difference between the Registrant and the
majority of its competition is the Registrant's management
"process". The systematic approach attempts to provide
consistent results for the customer. At the implementation
stage, the Registrant actively "bids out" every location that a
new customer requests. The Registrant repeats this bidding
process at any time that a client receives notice of an
undocumented price increase or at regular intervals as indicated
in the contractual relationship. At subsequent stages, the
Registrant will evaluate a customer's solid waste program and
give suggested alternatives for improvement.
The Registrant has developed a network of maintenance and
hauling companies throughout the country and due to the volume of
business awarded to them by the Registrant, often these companies
will offer discounted hauling and maintenance rates to the
Registrant. However, the Registrant is not "affiliated" with any
particular company or vendor in the hauling and/or maintenance
industries, but rather deals with those companies and vendors
that can supply quality service at a favorable price. In
addition to the volume of business handled by some of these
"vendors", the vendors understand that as long as the accounts
are well serviced, they will be invited to bid on future
accounts.
Few, if any, of the Registrant's competitors have a national
network of vendors similar to the one the Registrant has
developed over its years of operation. The major hauling
companies are limited in the scope of services which they can
provide to commercial/industrial accounts. Although the major
hauling companies have operating companies in most major and
intermediate-sized cities, they do not have nationwide geographic
coverage. Therefore, for large commercial/industrial clients,
they must obtain bids from local hauling companies that may
perceive them to be future competitors. The Registrant has
positioned itself to negotiate with the haulers, while servicing
its clients on a nationwide basis.
Most of the direct competition is from small regional
companies that bid on regional accounts or national accounts on a
regional basis. Few of the Registrant's competitors appear to be
equipped to handle large national accounts nor do they seem to
have the inclination to expand their geographic coverage. There
are numerous national companies in closely related businesses,
including national hauling companies that have substantially
greater financial resources than does the Registrant. Should any
of these companies decide to compete directly with the
Registrant, it could have a material adverse effect on the
business of the Registrant.
EMPLOYEES
The Registrant has approximately one hundred twenty-seven
(127) full-time employees.
EFFECT OF STATE AND FEDERAL ENVIRONMENTAL REGULATIONS
Any environmental regulatory liability relating to the
Registrant's operations is generally borne by the customers with
whom the Registrant contracts and the third party vendors in
their capacity as transporters. As a matter of Registrant's
policy, the Registrant uses its best efforts to secure
indemnification for environmental liability from its customers
and third party vendors. Although management of the Registrant
believes that for the most part its business does not subject it
to potential environmental liability, the Registrant continues to
use best efforts to be in compliance with federal, state and
local environmental laws, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Clean Air Act, as amended, and the Clean Water Act.
Such compliance in 1997 did not constitute a material expense to
the Registrant.
The collection and disposal of solid waste and rendering of
related environmental services are subject to federal, state and
local requirements which regulate health, safety, the
environment, zoning and land-use. Federal, state and local
regulations vary, but generally govern disposal activities and
the location and use of facilities and also impose restrictions
to prohibit or minimize air and water pollution. In addition,
governmental authorities have the power to enforce compliance
with these regulations and to obtain injunctions or impose fines
in the case of violations, including criminal penalties. These
regulations are administered by the EPA and various other
federal, state and local environmental, health and safety
agencies and authorities, including the Occupational Safety and
Health Administration of the U.S. Department of Labor.
The Registrant strives to conduct its operations in
compliance with applicable laws and regulations. While such
amounts expended in the past or anticipated to be expended in the
future have not had and are not expected to have a material
adverse effect on the Registrant's financial condition or
operations, the possibility remains that technological,
regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter
this expectation.
Each state in which the Registrant operates has its own laws
and regulations governing solid waste disposal, water and air
pollution and, in most cases, releases and cleanup of hazardous
substances and liability for such matters. Several states have
enacted laws that will require counties to adopt comprehensive
plans to reduce, through waste planning, composting, recycling,
or other programs, the volume of solid waste landfills. These
laws have recently been promulgated in several states.
Legislative and regulatory measures to mandate or encourage waste
reduction at the source and waste recycling, also are under
consideration by Congress and the EPA.
Finally, various states have enacted, or are considering
enacting, laws that restrict the disposal within the state of
solid or hazardous wastes generated outside the state. While
laws that overtly discriminate against out of state waste have
been found to be unconstitutional, some laws that are less
overtly discriminatory have been upheld in court. Challenges to
other such laws are pending. The outcome of pending litigation
and the likelihood that other such laws will be passed and will
survive constitutional challenge are uncertain. In addition,
Congress is currently considering legislation authorizing states
to adopt such restrictions.
SUBSEQUENT EVENTS
A. APPOINTMENT OF CHIEF FINANCIAL OFFICER.
The Board of Directors of the Registrant appointed John O.
Tietjen to the position of Chief Financial Officer/Senior Vice-
President effective March 1, 1999. Mr. Tietjen, 50, brings to
the Registrant nearly 30 years of experience in accounting, cash
and financial management and analysis. Most recently he was Vice-
President of Finance at Greater Louisville, Inc., the leading non-
profit, economic development agency in Louisville. Prior to that
time, he was Corporate Controller at OpenConnect Systems, Inc., a
worldwide distributor of hardware and software. Mr. Tietjen
began his career with the Glidden Paint Company, where he held
several executive positions during his 15-year tenure, including
Plant Controller and Corporate Manager of Budgeting and Financial
Analysis. Mr. Tietjen received a B.A. in Business
Administration/Economics from Muskingum College in New Concord,
Ohio and an M.B.A. from Baldwin-Wallace College in Berea, Ohio.
B. CHANGE IN TRANSFER AGENT
The Board also approved, authorized and ratified the hiring
of Reliance Trust Company ("Reliance") as the transfer agent for
the Common Stock effective March 18, 1999 upon the termination of
the Mid-America Bank of Louisville and Trust Company ("BOL").
C. AMENDMENT TO 1997 EMPLOYEE STOCK OPTION PLAN.
The Industrial Services of America, Inc. 1997 Employee Stock
Option Plan (the "Plan") as originally adopted reserved 100,000
shares for the granting of options to employees of the
Registrant. On February 11, 1998, the Board of Directors
authorized the Registrant to increase the shares reserved under
the Plan from 100,000 to 330,000. The Registrant never
implemented this increase. On March 22, 1999, the Board of
Directors approved, authorized and ratified an amendment (the
"Amendment") to the Plan, and, subject to shareholder approval,
the Amendment will become effective retroactively as of February
11, 1998. Upon effectiveness, the Amendment would (i) increase
the number of shares reserved under the Plan from 100,000 to
400,000, (ii) allow for the grant of non-qualified stock options
to non-employee directors of the Company under the Plan, (iii)
change the name of the Plan to the "Industrial Services of
America, Inc. 1997 Stock Option Plan," and (iv) effect certain
technical or administrative changes to the Plan. The Board will
recommend that the shareholders of the Registrant approve the
Amendment at the 1999 Annual Meeting of Shareholders.
On March 1, 1999, the Board granted to each of its three non-
employee directors (Messrs. Cohen, Devereaux and Naft) non-
qualified stock options under the Plan to purchase 20,000 shares
of Common Stock at $5.00 per share (the "Director Options"). The
Director Options vested on the grant date but the grantees may
not exercise the Director Options until the requisite percentage
of the Registrant's shareholders approves the Amendment. The
Director Options would become null and void and of no legal
effect in the event that shareholder approval is not obtained in
the required time period. The Director Options expire on March
1, 2009 unless terminated earlier pursuant to provisions in the
respective option certificates.
Additionally, on March 1, 1999, the Board granted to John O.
Tietjen, the Registrant's Chief Financial Officer, non-qualified
stock options under the Plan to purchase 15,000 shares of Common
Stock at $2.25 per share (the "Tietjen Option"). Subject to the
limitations contained in the next sentence, the Tietjen Option
vests as follows: 7,500 shares vest on January 1, 2000 and 7,500
shares vest on March 1, 2000. Mr. Tietjen may not exercise the
Tietjen Option until the requisite percentage of the Registrant's
shareholders approves the Amendment and the Tietjen Option would
become null and void and of no legal effect in the event that
shareholder approval is not obtained in the required time period.
The Tietjen Option expires on March 1, 2009 unless terminated
earlier pursuant to provisions in the option certificate.
ITEM 2. PROPERTIES.
The Registrant leases its corporate offices and processing
property and buildings for $37,500 per month from K&R pursuant to
the K&R Lease. See ITEM 1. BUSINESS. "K&R Lease; K&R Consulting
Agreement."
The Subsidiary has entered into the Fitzpatrick Lease
effective June 1, 1998, for ten successive terms of ten years
each at a rental of $13,000 per month during the original term
(as adjusted in accordance with the Consumer Price Index for each
renewal term) with an option to purchase for $1,600,000. See
ITEM 1. BUSINESS. "Fitzpatrick Purchase Agreement; Lease
Agreement."
ITEM 3. LEGAL PROCEEDINGS.
There are no material proceedings pending by, or against the
Registrant or affecting any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Served as an
Executive Position with the
Officer Registrant and Other
Name Since Age Principal Occupations
---- ----- --- ---------------------
Harry Kletter 1983 72 Chairman of the Board and Chief
Executive Officer of the Registrant
from July 31, 1992 to present,
President of the Registrant
from July 31, 1992 to December
1997, from January 1990 to
July 1991, and from October
1983 to January 1988; Mr.
Kletter is also Chairman and
sole shareholder of K&R.
Sean M. Garber 1996 32 President and Treasurer of the
Registrant since February 1998;
Interim President from December 1997
to February 1998; Chief Operating
Officer and Director of the
Registrant from November 1997 to
present; Vice President of Recycling
of the Registrant from November 1996
to December 1997. From 1989 to
November 1996, Mr. Garber was
an employee of and held
positions as general manager
and marketing director with
OmniSource, Inc., a Fort
Wayne, Indiana recycling
company; Mr. Garber holds a
degree in Business Management
from Indiana University.
John O. Tietjen 1999 50 Senior Vice President and Chief
Financial Officer of the Registrant
since March 1, 1999; from
September 1993 to February
1999, Vice President of
Finance at Greater Louisville,
Inc. (and its predecessor);
Mr. Tietjen served previously
Corporate Controller for
OpenConnect Systems, Inc. and
for 15 years prior to his
employment with OpenConnect
Systems, Inc., he served in
various positions with Glidden
Paint Company; Mr. Tietjen
holds a B.A. in Business
Administration/ Economics from
Muskingum College and an
M.B.A. from Baldwin-Wallace
College.
Timothy W. Myers 1998 47 Vice President of Operations of
the Registrant since July 1, 1998;
Senior Vice President and Chief
Operating Officer of the
Registrant from 1996 until
February 1998; President of
K&R from 1996 to July 1998;
Mr. Myers has served in
various operational capacities
with the Registrant and K&R
since 1973.
Charles J. Hulsman 1995 41 Manager of CWS, a division of the
Registrant, since December 1991, and
a sales representative of
WESSCO, a division of the
Registrant, prior to that
date.
Alan L. Schroering 1995 to 33 Director of Finance and
March 1998 Treasurer of the Registrant from
1995 to March 1998; Controller of
the Registrant from 1992 to
February 1998; Staff
Accountant of the Registrant
from 1984 to 1992. Mr.
Schroering is a graduate of
Indiana University.
Matthew L. Kletter 1994 to 39 Vice President of Legal
February 1998 Affairs and Secretary of the
Registrant from 1997 to February 1998;
Director of Legal Affairs from
1996 to 1997; Director of the
Registrant from 1995 to
February 1998 and from 1990 to
1991; Attorney, New York, New
York; Nephew of Harry Kletter.
Except as described under "Position with the Registrant and
Other Principal Occupations" in the above table, none of the
above officers is related to one another. With respect to
certain arrangements with certain officers of the Registrant
relating to executive compensation, see section entitled
"Executive Compensation - Certain Transactions" in the
Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders as incorporated herein by reference at Item 11.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Effective August 29, 1996, the $.01 par value common stock
of the Registrant became listed on the Small Cap Market (the
"Small Cap Market") of the Nasdaq Stock Market under the symbol
"IDSA". Prior to August 29, 1996, the Registrant's common stock
traded on the Over the Counter Bulletin Board ("OTCBB") operated
by the National Association of Securities Dealers, Inc.
("NASD").
QUARTER ENDED 1998 1997 1996
- ------------- ----------- ---------- -----------
HIGH LOW HIGH LOW HIGH LOW
March 31 6.63 4.13 13.25 7.25 8.50 5.50
June 30 7.00 4.75 9.50 5.50 18.00 7.25
September 30 4.88 3.63 9.50 7.13 15.75 8.25
December 31 4.00 1.75 7.38 4.50 12.50 8.38
There were approximately 418 shareholders of record as of
March 8, 1999.
The Registrant has never declared a cash dividend on its
Common Stock. The Board of Directors intends to retain all
earnings for investment into the Registrant's business and does
not anticipate any cash dividends in the foreseeable future. The
retention of these earnings will be used to help finance the
Registrant's expansion programs. Although there are no
restrictions on the Registrant's present or future ability to pay
dividends, the Board of Directors has the discretionary power to
make that determination.
The Nasdaq Stock Market, which began operation in 1971, is
the world's first electronic securities market and the fastest
growing stock market in the U.S. Nasdaq utilizes today's
information technologies-computers and telecommunications-to
unite its participants in a screen-based, floorless market. It
enables market participants to compete with each other for
investor orders in each Nasdaq security and, through the use of
Nasdaq Workstation II and other automated systems, facilitates
the trading and surveillance of thousands of securities. This
competitive marketplace, along with the many products and
services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These
include industry leaders in computers, pharmaceuticals,
telecommunications, biotechnology, and financial services. More
domestic and foreign companies list on Nasdaq than on all other
U.S. stock markets combined.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in Thousands,
Except Per Share Data)
Year ended December 31:
Total revenue $65,205 $45,212 $34,277 $30,545 $23,380
======= ======= ======= ======= =======
Income from operations (543) 215 742 1,162 489
======= ======= ======= ======= =======
Earnings
per common share:
Basic $ (0.26) $ 0.07 $ 0.25 $ 0.41 $ 0.28
======= ======= ======= ======= =======
Assuming dilution $ (0.26) $ 0.07 $ 0.24 $ 0.40 $ 0.28
======= ======= ======= ======= =======
Cash dividends declared
Per common share - - - - -
At year end:
Total assets $18,648 $13,893 $ 9,439 $ 6,209 $ 4,093
======= ======= ======= ======= =======
Long-term notes
Payable $ 2,613 $ 760 $ 5 $ 367 $ 13
======= ======= ======= ======= =======
RECLASSIFICATIONS
Earnings per share are computed under the provisions of
statement of financial accounting standards (FAS) No. 128,
"Earnings per Share" which was adopted retroactively at the
beginning of the fourth quarter of 1997. This resulted in
restatement of earnings per share as previously reported for
1996, 1995 and 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN
CONJUNCTION WITH THE INFORMATION SET FORTH UNDER ITEM 6,
"SELECTED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE REGISTRANT AND THE ACCOMPANYING NOTES THERETO INCLUDED
ELSEWHERE IN THIS REPORT.
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN FINANCIAL
PREDICTIONS, FORECASTS AND PROJECTIONS WHICH CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE FEDERAL SECURITIES
LAWS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
FINANCIAL PREDICTIONS, FORECASTS AND PROJECTIONS AND THERE CAN BE
NO ASSURANCE THAT SUCH FINANCIAL PREDICTIONS, FORECASTS AND
PROJECTIONS WILL BE ACHIEVED.
GENERAL
The Registrant continued to pursue a growth strategy in the
waste management services arena servicing over 4,200 customer
locations throughout the country and building a base of
approximately 2,500 vendors. This strategy will allow for
diversity of business opportunities so that the Registrant is not
as dependent upon the profitability of the recycling division.
This diversity has helped to stabilize revenues and gross profit
during a period of time when commodity prices fluctuate and
affect the ferrous and non-ferrous markets. This strategy is
evidenced by the purchase of the management services accounts of
MGM Services, Inc. ("MGM") in September 1997. The impact of this
acquisition for the full year of 1998 added approximately
$3,200,000 in revenue. Much of management's focus and attention
now and in the future is directed towards the growth of this
business segment through an acquisition strategy.
It is management's plan to expand in the management services
segment in 1999. At the same time, the Registrant will be
seeking more operational cost control, increased efficiency in
the information technology area and emphasize sales and marketing
efforts.
Management continues to maintain and grow the recycling
business, although not actively seeking any further acquisitions
or mergers.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Registrant held cash and cash
equivalents of $1,014,068.
The Registrant currently maintains a working capital line of
credit with BOL in the amount of $2,000,000. Indebtedness under
this credit facility accrues interest at BOL's prime rate as
promulgated from time to time. The maturity date under this
agreement is July 1, 1999. The Credit Line is collateralized by
eligible accounts receivable, inventories, equipment and the
personal guarantees of the Chief Executive Officer of the
Registrant, Harry Kletter. As of December 31, 1998, $1,850,000
was outstanding under the credit facility as compared to
$1,800,000 as of December 31, 1997.
As consideration for the acquisition of The Metal Center,
the Registrant provided two (2) notes payable to the sellers in
the amount of $800,000 each, payable one half on January 2, 1998
and one half on or before July 1, 1998. The payments were made
timely.
RESULTS OF OPERATIONS
The following table presents, for the years indicated, the
percentage relationship which certain captioned items in the
Registrant's Consolidated Statements of Operations bear to total
revenues and other pertinent data:
YEAR ENDED DECEMBER 31, 1998 1997 1996
- ----------------------- ---- ---- ----
STATEMENTS OF OPERATIONS DATA:
Total Revenue .................... 100.0% 100.0% 100.0%
Cost of Goods Sold ............... 94.2% 91.4% 87.0%
Selling, General and
Administrative Expenses ......... 6.6% 8.1% 10.8%
Income (loss) from Operations .... (0.8%) 0.5% 2.2%
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,
1997
The revenue in 1998 was $65,204,980 representing an increase
of $19,993,387 or 44.2% compared to 1997. The management
services business grew 36.7% to $44,106,218 by increasing the
same account and new account business serviced to over 2,500
accounts nationwide. Recycling revenues grew 66.5% to
$19,167,893 contributing to much of the remaining overall growth.
The major products include recycling of copper, aluminum and
brass, referred to herein as non-ferrous scrap. The ferrous
recycling business increased its revenues by 14.6% through an
increase in direct sales to mills and more aggressive purchasing
practices.
The 1998 total cost of goods sold was $61,457,890 increasing
$20,127,352 or 48.7% compared to 1997. The cost of goods sold in
management services increased by 38.5% versus an increase in
recycling cost of goods sold of 79.5%. The increase in
management services mirrored the sales increase within one (1)
percentage point, but the major cost of sales impact was realized
in the recycling business. Commodity prices of the ferrous and
non-ferrous markets began to decline during the third and fourth
quarters of 1998. The influx of foreign steel due to the
depressed Asian market caused domestic commodity pricing to
plummet. Due to the lack of domestic steel production, many of
the regional steel mills, which consume the Registrant's ferrous
product, had limited scrap purchasing during the fourth quarter.
The Registrant's inventory volume increased due to the local
dismantling of an automotive plant. Offsetting this quantity
increase in inventory is a decrease in inventory market value. The
Registrant estimates that these factors had a $370,000 adverse
impact on its 1998 operations.
The gross margin was $3,747,090 representing a decrease of
$133,965 or as a percentage to revenue a 2.9% decrease. A slight
decrease in gross margin as a percentage to revenue from 5.7% to
5.1% was realized in the management services segment due to some
fixed fee contracts which experienced store location growth
during the year. The recycling division experienced a decrease
in gross margin as a percentage to revenue of 6.9% due mainly to
the declining commodity price index. It is estimated that the
decline in commodity values had an adverse gross margin impact on
operations of approximately $370,000. The equipment
sales/leasing business incurred a decline in gross margins due to
the changing mix of higher sales relative to the rental and leasing
volume.
The selling, general and administrative expenses increased
$624,192 from 1997. The increase was primarily attributable to
Goodwill and Non-compete amortization related to two recent
acquisitions.
The loss from operations in 1998 resulted not only from the
$370,000 due to inventory devaluation, but also from the additional
$376,800 due to an aggregate of non-cash charges made in 1998.
FINANCIAL CONDITION AT DECEMBER 31, 1998 COMPARED TO DECEMBER 31,
1997
Trade accounts receivable increased $2,445,704 to $7,474,473
at December 31, 1998. This represents a 48.6% increase while
overall revenue increased 44.2%. Average days outstanding in
1998 were 41.8 days versus 40.6 days in 1997. Although there was
a slight increase in days outstanding due to the revenue mix, it
still reflects management focus on working capital through the
liquidation of accounts receivable.
Inventory increased $3,526 from $2,511,826 to $2,515,352
representing a .1% increase. The inventory of equipment and
parts increased from $752,099 to $761,780 or a 1.3% increase.
Non-ferrous materials inventory decreased 37.9% to $622,527 and
the inventory of ferrous materials increased 49.4% or $374,105.
The increase is due primarily to the purchase of a major ferrous
scrap plant rework which occurred at the end of 1998.
Accounts payable trade increased $3,570,103 from December
31, 1997 to $9,746,536 as of December 31, 1998. This increase
was due to higher volumes in operations.
As of December 31, 1998 the Registrant's working capital
deficit was $659,997, which represents a decrease of $164,447
from 1997. The total current assets increased $3,049,934 due to
the $2,445,704 in accounts receivable and the $518,234 increase
in cash. The total current liabilities increased $3,214,381
affected primarily by total accounts payable increase of
$3,570,103.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996
The revenue in 1997 was $45,211,593 representing an increase
of $10,934,377 or 32% compared to 1996. The revenue from the
newly acquired The Metal Center is included for six months and
represented 14% of the overall growth. The major products
include recycling of copper, aluminum and brass, referred to
herein as non-ferrous scrap. Except for equipment and corrugated
recycling, all other existing businesses had solid growth
contributing the remaining 18% of the total. One of the major
contributors to the remaining growth was the ferrous recycling
business, which includes iron and steel products. Recycling
revenues grew 126% to $11,513,600 through an increase in direct
sales to mills and more aggressive purchasing practices. The
management services business grew 17% to $32,064,237 by
increasing the same account and new account business serviced
from approximately 1,500 locations on December 31, 1996 to 2,000
locations on December 31, 1997. In addition, the management
services business absorbed approximately 550 additional locations
from MGM in the last quarter.
The 1997 total cost of goods was $41,330,538 increasing
$11,496,175 or 39% compared to 1996. The cost of goods sold in
management services increased by 22.2% versus an increase in
recycling cost of goods sold of 161.3%. This divergence was
caused by the addition of the non-ferrous business, which has
typically a lower gross profit percentage than the existing
business base. Secondly, the ferrous business spreads narrowed
due to competitive pressures. Finally, the corrugated recycling
business, while the most profitable product line in recycling and
which showed an improved percentage gross margin in 1997,
experienced a drop in revenue during 1997. The equipment
division had cost of goods sold of $953,463 or 22% less in 1997
versus 1996. This cost decrease compares with a revenue decrease
of 11%. The business experienced a 28% cost decrease in
equipment sales to approximately $803,500 while experiencing a
29% increase in rental/leasing. The Registrant has focused on
the growth of the rental/leasing portion of its business.
The gross margin was $3,881,055 representing a decrease of
$561,798 in 1997 or 12.6% from 1996. The gross margin was 8.6%
of revenue, which was 4.4% lower than 1996. A reduced gross
margin percentage of 4.0% was experienced in management services
due to some fixed fee contracts which experienced store location
growth during the year. Finally, the recycling division
experienced a 11.9% gross profit decrease due to the new mix of
non-ferrous products and narrowing spreads on the ferrous
products, and lower volume of corrugated scrap processing. The
equipment business had 8.6% higher gross margin percentage, due
to a favorable mix of higher rental and leasing business relative
to equipment sales.
The selling, general, and administrative expenses decreased
$35,070 as compared to 1996. As a percent of revenue, the
selling, general, and administrative expenses dropped from 10.8%
of revenue to 8.1%.
FINANCIAL CONDITION AT DECEMBER 31, 1997 COMPARED TO DECEMBER 31,
1996
Trade accounts receivable increased $1,728,041 to $5,028,769
at December 31, 1997. Last year the Registrant received a
December receivable payment of $1,264,920 at year end, and as a
result of this timing difference, trade receivables decreased
from $4,565,648 to $3,300,728. Therefore, the adjusted increase
as of December 31, 1997 was $463,121, which represented a 10%
increase in 1997. This increase is significantly less than the
32% increase in revenue, reflecting management focus on working
capital through the liquidation of accounts receivable.
Inventory increased $2,078,723 or 480% to $2,511,826. Of
the total increase, equipment increased $667,241 and the non-
ferrous scrap inventory increased $960,117 due primarily to the
new non-ferrous operation. The remaining increase was due to the
purchase of a major ferrous scrap plant rework, which occurred at
the end of the year, resulting in a temporary increase in ferrous
unprocessed scrap inventory.
Accounts payable trade increased $1,385,723 from December
31, 1996 to $6,176,433 as of December 31, 1997. This increase
was due to higher volumes in all areas of the Registrant's
operations except corrugated paper.
As of December 31, 1997, the Registrant's working capital
was a deficit of $495,550, which represents a $1,463,614 decrease
from 1996. The total current assets increased $1,875,835 due to
the $2,078,723 increase in inventory, and the increase in total
receivables of $623,185 offset by impact of the lower cash of
$875,601. The current liabilities increased $3,321,449 affected
primarily by total accounts payable increases of $1,228,945 and
additional short-term bank borrowings of $1,200,000.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not and is not expected to have a
significant impact on the Registrant's operation in the near
term. The Registrant has no long-term fixed-price contracts and
the Registrant believes it will be able to pass through most cost
increases resulting from inflation to its customers. The global
economy, due to the devaluation of currency in various foreign
nations and the limited commodity export opportunities, has
created a weak domestic and international commodity market. The
Registrant is susceptible to the cyclical nature of the commodity
business. In response to these economic conditions, the
Registrant has focused on the management consulting area of the
business and is working to liquidate inventories while efforts
are made to enhance gross margins.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related
Information," in June 1997. The Registrant adopted SFAS 131
effective with the 1998 consolidated financial statements.
The FASB also issued Statement of Financial Accounting
Standards No. 132 ("SFAS 132"), "Employers' Disclosures about
Pensions and Other Postretirement Benefits," in February 1998.
The statement will not have an impact on the Registrant's
financial position or results of operations.
The FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities," in June 1998. SFAS 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition
of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If
certain conditions are met, a derivative may be designed
specifically as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized
firm commitment referred to as a fair value hedge, (b) a hedge of
the exposure to variability in cash flows of a forecasted
transaction (a cash flow hedge), or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or
a forecasted transaction. The statement will not have an impact
on the Registrant's financial position or results of operations.
YEAR 2000 RISK FACTORS
In February 1997, the Registrant implemented its "Year 2000
Project" to address the potential problem with which
substantially all users of automated data processing and
information systems must deal. This problem is mainly with older
systems with only two digits to represent the year, rather than
the full four digits. Older computer systems may not operate
when the two digit year becomes "00" as will happen in the year
2000.
The Registrant uses primarily "Microsoft" software, which is
already year 2000 compliant. The Registrant's accounting system
is a DOS based system, which could create the problem with "00".
The Registrant in its endeavor to alleviate this DOS-based
problem has contracted with the programmer of the Registrant to
write software to prevent this potential problem. The software
upgrade was completed in February 1999 and the Registrant is
testing the program to verify all is in working order. By having
the upgrade this far in advance it will enable the Registrant to
run a test system to avert any future problem.
The only software that the Registrant uses that is beyond
its control is "EDI" or "Electronic Data Interchange". The
vendor of this software used by the Registrant and many Fortune
500 Companies, has promised a fix for this problem with its
Spring 1999 Release Software Upgrade. This area is the one over
which the Registrant has the least control. If EDI completes its
upgrade as promised the Registrant does not anticipate a Year
2000 problem with this software.
In summary, the Registrant's Year 2000 Project's goal and
expectation are that all necessary modifications and upgrades
will be in place, with the exception of EDI that is promised by
the vendor in spring 1999. The Registrant currently has no
reason to believe and does not anticipate the cost of Year-2000
compliance to be a significant expense or problem.
Notwithstanding the foregoing, the Registrant will bear some
minimal risk due to customers who fail to address the issues
appropriately; or should the one vendor fail to meet the spring
1999 deadline. Presently, the Registrant has no reason to
believe that any of its customers are failing to take appropriate
action to effect Year-2000 compliance or that its software will
be unable to perform as before with the upgrades. The Registrant
believes that the "worst case" risk is a loss of its power source
due to local utility Year 2000 problems, resulting in computer
malfunctions. However, as a matter of corporate policy, the
Registrant nightly backs-up all information systems. Historical
records are maintained in hard copy and current and future
transactions could be manually undertaken until restoration of
the information systems occurs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not Applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Registrant required
to be included in this Item 8 are set forth in Item 14 of this report.
The quarterly results of operations are included in the Notes to
Consolidated Financial Statements under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
(a)(1)(i) On July 15, 1997, the Registrant dismissed Mather,
Hamilton and Company ("Mather, Hamilton") as its
independent accountants.
(a)(1)(ii) Not applicable.
(a)(1)(iii) The decision to change accountants was approved by
the Board of Directors.
(a)(1)(iv) During the interim periods from December 31, 1996
through July 15, 1997 there were no disagreements
between Mather, Hamilton and the Registrant, on
any matter of accounting principles or practices,
financial statement disclosure, or auditing scope
or procedure, which, if not resolved to the former
accountant's satisfaction, would have caused it to
make reference to the subject matter of the
disagreement in connection with its reports.
(a)(1)(v)(A) Not applicable.
(a)(1)(v)(B) Not applicable.
(a)(1)(v)(C) Not applicable.
(a)(1)(v)(D) Not applicable.
(a)(2) The Registrant engaged Crowe, Chizek and Company,
LLP as the auditor for the year ending December
31, 1997, on July 29, 1997. Crowe, Chizek and
Company, LLP continues to serve as the auditor for
the Registrant.
(a)(3) Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. *
The information in Item 4a. in this report is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION *
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. *
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. *
- ---------------
* The information required by Items 10, 11, 12 and 13 is or
will be set forth in the definitive proxy statement relating
to the 1999 Annual Meeting of Shareholders of the Registrant
which is to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. Such definitive proxy
statement relates to an annual meeting of shareholders and
the portions therefrom required to be set forth in this Form
10-K by Items 10, 11, 12 and 13 are incorporated herein by
reference pursuant to General Instruction G(3) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of
Industrial Services of America, Inc. are filed as a part of
this report:
Page
----
Report of Independent Auditors F-1(a)
Report of Independent Auditors F-1(b)
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-2
Consolidated Statements of Operations
for the years ended December 31, 1998,
1997 and 1996 F-3
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1998,
1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Consolidated Financial Statement Schedules.
Schedule II - Valuation and Qualifying
Accounts for the Year ended
December 31, 1998 F-21
(a)(3) List of Exhibits.
Exhibits filed with, or incorporated by reference herein,
this report are identified in the Index to Exhibits appearing in
this report. The Management Agreement and the Consulting
Agreement required to be filed as exhibits to this Form 10-K
pursuant to Item 14(c) are noted by an asterisk (*) in the Index
to Exhibits.
(b) Reports on Form 8-K.
The Registrant filed two Reports on Form 8-K during the last
quarter of the fiscal year of the Registrant ended December 31,
1998. The Registrant's Form 8-K dated October 29, 1998 reported
the resignation of R. Michael Devereaux from the Board of
Directors and from his positions on all committees thereof. The
Registrant's Form 8-K dated November 18, 1998 reported the
reinstatement of Mr. Devereaux to the Board of Directors and to
his positions on the Compensation and Audit Committees of the
Board of Directors.
(c) Exhibits.
The exhibits listed on the Index to Exhibits are filed as a
part of this report.
(d) Consolidated Financial Statement Schedules.
Schedule II -Valuation and Qualifying Accounts for the year
ended December 31, 1998 is incorporated by reference at page F-21
of the Consolidated Financial Statements of the Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INDUSTRIAL SERVICES OF AMERICA, INC.
Dated: April 14, 1999 By : /s/ Harry Kletter
---------------------------------
Harry Kletter, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Harry Kletter Chairman of the Board and Chief April 14, 1999
- ----------------------- Executive Officer (Principal
Harry Kletter Executive Officer)
/s/ Sean M. Garber Director, President, Chief April 14, 1999
- ----------------------- Operating Officer and
Sean M. Garber Treasurer
/s/ John O. Tietjen Chief Financial Officer April 14, 1999
- ----------------------- (Principal Financial Officer)
John O. Tietjen
/s/ Joseph H. Cohen Director April 14, 1999
- -----------------------
Joseph H. Cohen
/s/ R. Michael Devereaux Director April 14, 1999
- -----------------------
R. Michael Devereaux
/s/ Dr. Barry N. Naft Director April 14, 1999
- -----------------------
Dr. Barry N. Naft
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Certificate of Incorporation of the Registrant is
incorporated by reference to Exhibit 3.1 of the
Registrant's report of Form 10-KSB for the year ended
December 31, 1995.
3.2 Bylaws of the Registrant are incorporated by reference
to Exhibit 3.2 of the Registrant's report on Form 10-
KSB for the year ended December 31, 1995.
10.1 Independent Consulting Services Agreement - Maxwell,
dated as of March 31, 1995, and executed on June 25,
1996, by and between the Registrant and Douglas I.
Maxwell, III ("Maxwell"), is incorporated by reference
to Exhibit 4(a) of Registration Statement on Form S-8
of the Registrant, filed on June 26, 1996 (File No. 333-
06915).
10.2 Confidential Information and Non-Competition Agreement
Independent Contractor - Maxwell, dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Maxwell, is incorporated by reference to
Exhibit 10.1 of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06915).
10.3 Stock Option Agreement - Maxwell, dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Maxwell, is incorporated by reference to
Exhibit 4(b) of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06915).
10.4 Independent Consulting Services Agreement - Sullivan,
dated as of March 31, 1995, and executed on June 26,
1996, by and between the Registrant and Neil C.
Sullivan ("Sullivan"), is incorporated by reference to
Exhibit 4(a) of Registration Statement on Form S-8 of
the Registrant, filed on June 26, 1996 (File No. 333-
06909).
10.5 Confidential Information and Non-Competition Agreement
Independent Contractor - Sullivan, dated as of March
31, 1995, and executed on June 26, 1996, by and between
the Registrant and Sullivan, is incorporated by
reference to Exhibit 10.1 of Registration Statement on
Form S-8 of the Registrant, filed on June 26, 1996
(File No. 333-06909).
10.6 Stock Option Agreement - Sullivan dated as of March 31,
1995, and executed on June 26, 1996, by and between the
Registrant and Sullivan, is incorporated by reference
to Exhibit 4(b) of Registration Statement on Form S-8
of the Registrant, filed on June 26, 1996 (File No. 333-
06909).
10.7 Acquisition of Assets Agreement - TMG known as "The
Metal Center" dated as of July 1, 1997, by and between
the Registrant and The Metal Center set forth in an
Asset Purchase Agreement, is incorporated by reference,
as the sole Exhibit on Form 8-K of the Registrant,
filed July 15, 1997 (File No. 0-20979).
10.8 Assignment of Contracts - MGM Assignment dated
September 4, 1997, by and between the Registrant and
MGM Services, Inc. is incorporated by reference to
Exhibit 10.11 of the Registrant's report on Form 10-K
for the year ended December 31, 1997.
10.9 Employment Agreement - Garber dated as of October 15,
1997, by and between the Registrant and Garber is
incorporated by reference to Exhibit 10.12 of the
Registrant's report on Form 10-K for the year ended
December 31, 1997.
10.10 Lease Agreement - K&R Lease dated January 1, 1998, by
and between the Registrant and K&R, is incorporated by
reference herein, to Exhibit 10.10 on Form 8-K of the
Registrant, filed March 3, 1998 (File No. 0-20979).*
10.11 Consulting Agreement - K&R Consulting Agreement dated
as of January 2, 1998, by and between the Registrant
and K&R, is incorporated by reference herein, to
Exhibit 10.11 on Form 8-K of the Registrant, filed
March 3, 1998 (File No. 0-20979).*
10.12 Amendment to Employment Agreement - Garber dated as of
February 5, 1998, by and between the Registrant and
Garber, amending original agreement dated October 15,
1997 is incorporated by reference to Exhibit 10.15 of
the Registrant's report on Form 10-K for the year ended
December 31, 1997.
10.13 Stock Option Agreement, effective as of October 31,
1997, by and between the Registrant and Glenn Bierman
10.14 Stock Option Agreement, effective as of October 27,
1997, by and between the Registrant and Sean Garber.
10.15 Stock Option Agreement, effective as of October 31,
1997, by and between the Registrant and Sean Garber.
10.16 Amendment No. 1 to Option Agreement, effective as of
February 5, 1998, by and between the Registrant and
Sean Garber.
10.17 Stock Option Agreement, effective as of February 16,
1998, by and between the Registrant and Harry Kletter.
10.18 Consulting Agreement - Lassak, dated as of June 2,
1998, by and between the Registrant and Andrew M.
Lassak.
10.19 Consulting Agreement - JCA/AML, dated as of June 2,
1998, by and among the Registrant, Joseph Charles &
Associates, Inc. and Andrew M. Lassak.
10.20 Asset Purchase Agreement, effective as of June 1, 1998,
by and among the Registrant, ISA Indiana, Inc., R.J.
Fitzpatrick Smelters, Inc.; and R.K. Fitzpatrick and
Cheryl Fitzpatrick.
10.21 Lease Agreement, effective June 1, 1998, by and between
R.K. Fitzpatrick and Cheryl Fitzpatrick, R.J.
Fitzpatrick Smelters, Inc., and ISA Indiana, Inc.
10.22 Environmental Indemnity Agreement, effective as of June
1, 1998, by and between R.K. Fitzpatrick and Cheryl
Fitzpatrick, R.J. Fitzpatrick Smelters, Inc., and ISA
Indiana, Inc.
11 Statement of Computation of Earnings Per Share (See
Note 11 to Notes to Consolidated Financial Statements).
27 Financial Data Schedule (for SEC use only).
*Denotes a management contract of the Registrant required to be
filed as an exhibit pursuant to Item 601(10)(iii) of Regulation S-
K under the Securities Act of 1933, as amended.
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
Louisville, Kentucky
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
CONTENTS
REPORT OF INDEPENDENT AUDITORS 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
SUPPLEMENTARY INFORMATION
VALUATION AND QUALIFYING ACCOUNTS 21
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Industrial Services of America, Inc. and Subsidiary
Louisville, Kentucky
We have audited the accompanying consolidated balance sheets of
Industrial Services of America, Inc. and Subsidiary as of
December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The
consolidated statements of operations, shareholders' equity and
cash flows of Industrial Services of America, Inc. for the year
ended December 31, 1996 were audited by other auditors whose
report dated March 10, 1997, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with general accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 1998 and 1997 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Industrial Services of
America, Inc. and Subsidiary at December 31, 1998 and 1997, and
the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
Our audit of the foregoing 1998 and 1997 consolidated financial
statements also included the schedule listed under item 14(a)(2).
In our opinion, such schedule presents fairly the information
required to be set forth therein.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Indianapolis, Indiana
March 16, 1999, except for
note 3 as to which the date
is April 12, 1999.
1(a)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Industrial Services of America, Inc. and Subsidiary
We have audited the accompanying consolidated statements of
operations, shareholders' equity, and cash flows of Industrial
Services of America, Inc. and Subsidiary for the year ended
December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and cash flows of Industrial Services of America, Inc.
and Subsidiary for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Mather, Hamilton, & Co.
MATHER, HAMILTON, & CO.
Louisville, Kentucky
March 10, 1997
1(b)
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
- -----------------------------------------------------------------
1998 1997
---- ----
ASSETS
Current assets
Cash $ 1,014,068 $ 495,834
Accounts receivable - trade (after
allowance for doubtful accounts
of $116,000 and $16,000 in 1998
and 1997, respectively) (Note 2) 7,474,473 5,028,769
Accounts receivable - related party
(Note 6) 26,259 34,667
Income tax refund receivable 113,000 164,737
Net investment in sales-type leases 35,270 40,154
Inventories (Notes 1 and 2) 2,515,352 2,511,826
Deferred income taxes (Note 4) 52,000 18,200
Other 309,692 195,993
---------- ----------
Total current assets 11,540,114 8,490,180
Net property and equipment
(Notes 1, 2 and 3) 5,063,576 3,642,712
Other assets
Non-compete agreements, net (Note 8) 810,604 450,000
Intangibles (net of accumulated
amortization of $80,000 and
$26,667 in 1998 and 1997,
respectively (Note 8) 720,000 773,333
Deferred income taxes (Note 4) 359,800 -
Other assets 153,439 344,645
---------- ----------
2,043,843 1,760,132
---------- ----------
$18,647,533 $13,893,024
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to bank (Note 2) $ 1,850,000 $ 1,800,000
Notes payable (Note 8) - 800,000
Current maturities of long-term
debt (Note 3) 460,654 45,479
Accounts payable 9,746,536 6,176,433
Affiliated companies payable (Note 6) 22,000 23,000
Other current liabilities 120,921 140,818
---------- ----------
Total current liabilities 12,200,111 8,985,730
Long-term liabilities
Long-term debt (Note 3) 2,612,519 759,877
Deferred income taxes (Note 4) 411,800 257,700
---------- ----------
3,024,319 1,017,577
Shareholders' equity
Common stock, $.01 par value:
10,000,000 shares authorized and
1,957,500 shares issued and
1,929,600 shares outstanding 19,575 19,575
Additional paid-in capital 1,589,155 1,548,750
Retained earnings 1,822,373 2,329,392
Treasury stock, 27,900 shares at cost (8,000) (8,000)
---------- ----------
3,423,103 3,889,717
---------- ----------
$18,647,533 $13,893,024
========== ==========
See accompanying notes to consolidated financial statements.
2
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
- -----------------------------------------------------------------
1998 1997 1996
---- ---- ----
Revenue
Recycling $19,167,893 $11,513,600 $ 5,091,550
Equipment sales, service and leasing 1,930,869 1,633,756 1,830,273
Management services 44,106,218 32,064,237 27,355,393
---------- ---------- ----------
Total revenue 65,204,980 45,211,593 34,277,216
Cost of goods sold
Recycling 18,204,999 10,141,882 3,880,577
Equipment sales, service and leasing 1,380,946 953,463 1,226,739
Management services 41,871,945 30,235,253 24,727,047
---------- ---------- ----------
Total cost of goods sold 61,457,890 41,330,598 29,834,363
---------- ---------- ----------
GROSS MARGIN 3,747,090 3,880,995 4,442,853
Selling, general and administrative 4,290,368 3,666,176 3,701,246
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (543,278) 214,819 741,607
Other income (expense)
Interest expense (215,144) (78,810) (53,268)
Interest income 67,993 64,549 43,339
Gain (loss) on sale of assets (367) 4,496 31,229
Other income (expense) (5,650) 17,372 (23,471)
---------- ---------- ----------
(153,168) 7,607 (2,171)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (696,446) 222,426 739,436
Provision for income taxes (Note 4) 189,427 (85,290) (278,600)
---------- ---------- ----------
NET INCOME (LOSS) $ (507,019) $ 137,136 $ 460,836
========== ========== ==========
Earnings (loss) per share $ (.26) $ .07 $ .25
========== ========== ==========
Earnings (loss) per share,
assuming dilution $ (.26) $ .07 $ .24
========== ========== ==========
See accompanying notes to consolidated financial statements.
3
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
- ---------------------------------------------------------------------
Common Stock Additional Treasury Stock
------------ Paid-in Retained --------------
Shares Amount Capital Earnings Shares Cost Total
------ ------ ------- -------- ------ ---- -----
BALANCE AS OF JANUARY 1, 1996 1,757,500 $17,575 $ 27,000 $1,731,420 27,900 $8,000 $1,767,995
Fair value of stock options
issued for consulting services
provided to the Company (Note 9) - - 117,500 - - - 117,500
Common stock issued upon exercise
of non employee stock options
(Note 9) 200,000 2,000 248,000 - - - 250,000
Income tax benefit related to
exercise of non-employee
stock options (Note 9) - - 970,000 - - - 970,000
Stock transferred by Company's
principal shareholder for
services to be provided to
the Company (Note 6) - - 42,500 - - - 42,500
Net income - - - 460,836 - - 460,836
--------- ------- ---------- ---------- ------ ------ ----------
BALANCE AS OF DECEMBER 31, 1996 1,957,500 19,575 1,405,000 2,192,256 27,900 $8,000 3,608,831
Fair value of stock options
issued for employee stock
option plan (Note 9) - - 143,750 - - - 143,750
Net income - - - 137,136 - - 137,136
--------- ------- ---------- ---------- ------ ------ ----------
BALANCE AS OF DECEMBER 31, 1997 1,957,500 19,575 1,548,750 2,329,392 27,900 8,000 3,889,717
Fair value of stock options
issued for consulting services
provided to the Company (Note 9) - - 40,405 - - - 40,405
Net loss - - - (507,019) - - (507,019)
--------- ------- ---------- ---------- ------ ------ ----------
BALANCE AS OF DECEMBER 31, 1998 1,957,500 $19,575 $1,589,155 $1,822,373 27,900 $8,000 $3,423,103
========= ======= ========== ========== ====== ====== ==========
See accompanying notes to consolidated financial statements.
4
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
- ---------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (507,019) $ 137,136 $ 460,836
Adjustments to reconcile net income
(loss) to net cash from operating
activities
(Gain) loss on equity investment - (29,142) 29,142
Stock options granted for services 112,270 14,974 100,625
Depreciation and amortization 1,173,448 730,227 465,838
Provision for doubtful accounts 100,580 37,983 2,255
Deferred income taxes (239,500) 123,900 55,400
Loss (gain) on sale of property
and equipment 367 (4,496) (31,229)
Change in assets and liabilities
Receivables (2,486,139) (661,168) (404,297)
Inventories (3,526) (2,078,723) (294,600)
Other current assets (108,815) (27,009) (52,715)
Accounts payable 3,569,103 1,228,945 1,193,376
Other current liabilities (19,897) 58,802 (28,407)
---------- ---------- ----------
Net cash from operating
activities 1,590,872 (468,571) 1,496,224
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property
and equipment - 86,028 59,603
Proceeds from sale of joint venture - 44,826 -
Purchases of sales-type leases - (226,517) (2,369)
Proceeds from sales-type leases - 13,807 39,388
Investment in joint venture - - (44,826)
Purchases of property and equipment (2,140,168) (1,373,610) (1,156,839)
Other 283,699 (139,787) (7,537)
---------- ---------- ----------
Net cash from investing activities (1,856,469) (1,595,253) (1,112,580)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from note payable
to bank 50,000 1,200,000 600,000
Proceeds from issuance of
long-term debt 900,000 - -
Payments on long-term debt (166,169) (11,777) (370,098)
Proceeds from exercise of
nonemployee stock options - - 250,000
---------- ---------- ----------
Net cash from financing activities 783,831 1,188,223 479,902
---------- ---------- ----------
Net change in cash 518,234 (875,601) 863,546
Cash at beginning of year 495,834 1,371,435 507,889
---------- ---------- ----------
CASH AT END OF YEAR $ 1,014,068 $ 495,834 $ 1,371,435
========== ========== ==========
Supplemental disclosure of
cash flow information
Cash paid for interest $ 215,144 $ 78,810 $ 48,748
Cash paid (refunded) for taxes $ (1,614) $(1,077,773) $ 641,226
See accompanying notes to consolidated financial statements.
5
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Industrial Services of America, Inc. (the
- ------------------
Company) provides products and services to meet the waste
management needs of its customers related to ferrous, non-ferrous
and corrugated scrap recycling, management services and waste
equipment sales and rental. Management services represents
contracts with retail businesses to handle their waste disposal
needs, primarily by subcontracting with commercial waste hauling
and disposal companies. The Company's customers are located
throughout the United States and Canada. The Company's wholly-
owned subsidiary, ISA Indiana, Inc., provides services related to
ferrous and non-ferrous scrap recycling.
Principles of Consolidation: The consolidated financial
- ---------------------------
statements include the accounts of the Company and its wholly
owned subsidiary ISA Indiana, Inc. Upon consolidation, all
intercompany accounts, transactions and profits have been
eliminated.
Common Control: The Company conducts significant levels of
- --------------
business (see Note 6) with K & R Corporation, Inc. (K&R) which is
owned by the Company's principal shareholder. Because these
entities are under common control, operating results or financial
position of the Company may be materially different from those
that would have been obtained if the entities were autonomous.
Estimates: In preparing the consolidated financial statements in
- ---------
conformity with generally accepted accounting principles,
management must make estimates and assumptions. These estimates
and assumptions affect the amounts reported for assets,
liabilities, revenues and expenses, as well as affecting the
disclosures provided. Future results could differ from the
current estimates.
Inventories: Inventories consist principally of waste equipment
- -----------
machinery and parts and scrap materials held for resale and are
stated at the lower of cost (first-in, first-out method) or
market. Inventories as of December 31, 1998 and 1997 consist of
the following:
1998 1997
---- ----
Equipment and parts $ 761,780 $ 752,099
Ferrous materials 1,131,045 756,940
Non-ferrous materials 622,527 1,002,787
---------- ----------
$2,515,352 $2,511,826
========== ==========
Property and Equipment: Property and equipment are stated at
- ----------------------
cost and depreciated on a straight-line basis over the estimated
useful lives of the related property.
(Continued)
6
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and equipment as of December 31, 1998 and 1997 consist
of the following:
Life 1998 1997
Equipment and vehicles 3-10 years $5,025,719 $3,373,097
Office equipment 3-5 years 486,449 402,186
Rental equipment 5 years 1,799,017 1,202,207
Leasehold improvements 10-20 years 330,244 296,308
---------- ----------
7,641,429 5,273,798
Accumulated depreciation
and amortization 2,577,853 1,631,086
---------- ----------
$5,063,576 $3,642,712
========== ==========
Depreciation expense for the years ended December 31, 1998, 1997
and 1996 was $968,937, $653,561 and $465,838, respectively.
Intangible Assets: The excess of cost over fair value of assets
- -----------------
acquired is being amortized over a period of 15 years using the
straight-line method. Non-compete agreements are being amortized
using the straight-line method over the benefit period of 5
years.
Income Taxes: The Company records income tax expense based on
- ------------
the amount of taxes due on its tax returns plus deferred taxes
computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax basis
of assets and liabilities, using enacted tax rates.
Statement of Cash Flows: The statement of cash flows has been
- -----------------------
prepared using a definition of cash that includes deposits with
original maturities of 3 months or less.
(Continued)
7
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share: Amounts reported as Earnings per
- -------------------------
Common Share for each of the three years ended December 31, 1998
reflect the earnings available to common shareholders for the
year divided by the weighted average number of common shares
outstanding during the year. The weighted average common shares
outstanding for the years ended December 31, 1998, 1997 and 1996
were 1,929,600, 1,929,600 and 1,837,933, respectively.
Stock-Based Compensation and Transactions: Expense for employee
- -----------------------------------------
compensation under stock option plans is reported only if options
are granted below the market price at the grant date. Pro forma
disclosures of net income and earnings per share are provided as
if the fair value method of Financial Accounting Standard No. 123
was used for stock-based compensation.
Fair Values of Financial Instruments: Fair value of financial
- ------------------------------------
instruments are estimated using relevant market information and
other assumptions. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates,
prepayments and other factors. Changes in assumptions or market
conditions could significantly affect the estimates. As of
December 31, 1998 and 1997, the estimated fair value of financial
instruments approximated book value.
NOTE 2 - NOTES PAYABLE TO BANK
At December 31, 1998, the Company has a $2,000,000 operating line
of credit collateralized by eligible accounts receivable,
inventories, equipment and the personal guarantee of the principal
shareholder. Interest is payable monthly on the outstanding
principal balance at the current bank's prime rate. The note
matures in June 2000.
(Continued)
8
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 3 - LONG-TERM DEBT
Long term debt as of December 31, 1998 and 1997 consists of the
following:
1998 1997
---- ----
Notes payable to a bank in monthly
installments of $10,000 including
interest at 8.5% through April 2003;
secured by virtually all company
assets and a personal guarantee of the
principal shareholder; refinanced in
1998. $ - $800,000
Notes payable to a bank in monthly
installments of $20,017 including
interest at 8.5% through July 2003;
secured by virtually all company
assets and a personal guarantee of the
principal shareholder. 1,542,449 -
Notes payable to a bank in monthly
installments of $18,141 including
interest at 7.5% through August 2003;
secured by virtually all company
assets and a personal guarantee of the
principal shareholder. 850,542 -
Notes payable to R.J. Fitzpatrick for
covenant not to compete payable in
monthly installments of $10,500
including interest at 8.5% through
June 2003; secured by virtually all
company assets. 469,795 -
Notes payable to a related party
payable in monthly installments of
$5,000 through 2003; secured by
virtually all company assets. 210,000 -
Notes payable; interest rates ranging
from 8.75% to 11%; due in monthly
installments of principal and interest
totaling $909 with various maturity
dates through January 1999; secured by
vehicles. 387 5,356
---------- --------
3,073,173 805,356
Current maturities 460,654 45,479
---------- --------
$2,612,519 $759,877
========== ========
(Continued)
9
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 3 - LONG-TERM DEBT (Continued)
The long-term debt requires annual principal payments as follows:
1999 $ 460,654
2000 500,841
2001 424,015
2002 460,011
2003 1,227,652
NOTE 4 - INCOME TAXES
The provision for income taxes consists of the following for the
years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Federal
Current $ 21,213 $(32,800) $177,900
Deferred (219,280) 105,300 48,500
(198,067) 72,500 226,400
State
Current 28,860 (5,810) 45,300
Deferred (20,220) 18,600 6,900
---------- -------- --------
8,640 12,790 52,200
---------- -------- --------
$ (189,427) $ 85,290 $278,600
========== ======== ========
A reconciliation of income taxes at the statutory rate to the
Company's effective rate is as follows:
1998 1997 1996
---- ---- ----
Federal income tax (benefit)
at statutory rate $(236,792) $75,600 $251,400
State and local income
taxes, net of federal
income tax affect 5,700 8,400 25,100
Valuation allowance 7,900 - -
Other differences, net 33,765 1,290 2,100
---------- ------- --------
$(189,427) $85,290 $278,600
========== ======= ========
(Continued)
10
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 4 - INCOME TAXES (Continued)
Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Deferred tax liabilities
Tax depreciation in excess of book $411,800 $277,000
Deferred tax assets
Allowance for doubtful accounts 48,400 18,200
Book amortization in excess of tax 56,000 13,300
Stock options 53,200 6,000
Net operating loss 226,100 -
Inventory capitalization 11,500 -
State income taxes 24,500 -
-------- --------
419,700 37,500
Valuation allowance (7,900) -
-------- --------
411,800 37,500
-------- --------
Net deferred tax liabilities $ - $239,500
======== ========
The Company's tax operating carryforward is approximately
$542,000 and expires in 2018.
NOTE 5 - COMMITMENTS
The Company leases its facility from a related party (see Note 6)
under an operating lease expiring December 2007. This agreement
provides for monthly payments of $37,500 through December 2002,
increasing at the beginning of the second five years based on the
change in the Consumer Price Index.
The Company leases real estate from R.J. Fitzpatrick under an
operating lease expiring June 2008. This agreement provides for
monthly payments of $13,000.
The following is a schedule by year of future minimum lease
payments at December 31, 1998:
1999 $ 612,171
2000 610,481
2001 606,000
2002 606,000
2003 606,000
Thereafter 2,502,000
Total rent expense for the years ending December 31, 1998, 1997
and 1996 was $605,021, $381,884 and $242,372, respectively.
(Continued)
11
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company enters into various transactions with related parties
including the Company's principal shareholder and an affiliated
company wholly owned by the Company's principal shareholder (K&R).
A summary of these transactions is as follows:
1998 1997 1996
---- ---- ----
Accounts receivable $26,259 $ 34,667 $100,360
======== ======== ========
Accounts payable $ 22,000 $ 23,000 $179,778
======== ======== ========
Notes payable $210,000 $ - $ -
======== ======== ========
Sales $ - $ - $204,386
======== ======== ========
Rent expense $450,000 $261,000 $184,000
======== ======== ========
Commission expense $ - $114,000 $177,000
======== ======== ========
Consulting fees $240,000 $ 15,473 $ 53,000
======== ======== ========
Legal expenses $ - $ 9,100 $ 16,000
======== ======== ========
Equipment acquisition $250,000 $ - $ -
======== ======== ========
In November 1996, the Company entered into a one year consulting
agreement for certain marketing expertise. The Company's
principal shareholder agreed to transfer 5,000 shares of his
stock on behalf of the Company to the consultant as payment for
these future services. The Company recorded deferred consulting
fees and additional paid-in-capital of $42,500 in 1996 resulting
from the stock's quoted market value as of the date of the
agreement. This was recognized in expense in 1997.
The Company's principal shareholder and Chief Executive Officer
is compensated through consulting fees pursuant to a consulting
agreement with K&R.
The Company had an agreement with K&R to manage all aspects of
K&R's scrap recycling operations. The agreement provided that
the Company pay a commission equal to 20% of the profits from
K&R's scrap recycling operations. The Company included all
revenue from the scrap recycling operations and the related
commission fee in the consolidated statements of operations. The
Company incurred commission expenses to K&R totaling $114,000 and
$177,000 for the years ended December 31, 1997 and 1996
respectively. This agreement was canceled on July 1, 1997.
(Continued)
12
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)
In January 1998, the Company entered into an agreement with K&R
for consulting services related to the scrap metal and paper
recycling operations and related equipment sales and services.
The agreement is for a 10 year period and requires payments of
$240,000 annually.
In September 1998, the Company purchased equipment from K&R for
$250,000. The purchase was financed with a note from K&R. (Note
3)
NOTE 7 - EMPLOYEE RETIREMENT PLAN
The Company maintains a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code which covers
substantially all employees. Eligible employees may contribute a
maximum of 15% of their annual salary. Under the plan, the
Company matches 10% of each employee's voluntary contributions.
The Company's contributions to the plan for 1998, 1997 and 1996
were $11,126, $11,448 and $13,856, respectively.
NOTE 8 - ACQUISITIONS
On July 1, 1997, the Company entered an agreement with the
principles of TMG Enterprises (TMG) d/b/a The Metal Center to
purchase equipment for $1,100,000. The purchase price of
$1,100,000 exceeded the fair value of the net assets acquired by
$800,000. The excess is being amortized on the straight-line
method over 15 years. Non-compete agreements of $500,000
represent the portion of the purchase price allocated to the
arrangement whereby TMG's principals agreed not to compete with
the Company for a period of five years. The cost is being
amortized on the straight-line method over the term of the
arrangement. The amount charged to expense in 1998 and 1997 was
$100,000 and $50,000, respectively. The results of operations
include the acquired operations from the date of acquisition.
The pro forma disclosures required by APB No. 16 are not
material.
On June 1, 1998, the Company entered an agreement with R.J.
Fitzpatrick's Smelters to purchase equipment for $900,000, which
approximated fair market value. Non-compete agreements of
$511,782 represent the portion of the purchase price allocated to
the agreement whereby the principal of R.J. Fitzpatrick's agreed
not to compete with the company for a period of five years. The
cost is being amortized on the straight-line method over the term
of the arrangement. The amount charged to expense in 1998 was
$51,178. The results of operations include the required
operations from the date of acquisition. The pro forma
disclosures required by APB No. 16 are not material.
(Continued)
13
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 9 - STOCK OPTION PLANS
During the years ended December 31, 1998, 1997 and 1996, the
Company entered into various consulting agreements for certain
strategic and advisory services. In conjunction with these
agreements, the Company granted stock options to the consultants.
For 1998 and 1997, the estimated fair value of these stock
options at the date of grant was based on the Black-Scholes
option pricing method with the following weighted average
assumptions: risk free interest rate of 4.0%, dividend yield of
0%, volatility factor of the expected market price of the
Company's common stock of .60, and a weighted average expected
life of the options of 4 years. For 1996, the option price was
based on the quoted market price of the Company's common stock at
the date of grant. Due to the limited trading of the Company's
stock, the quoted market price of the Company's common stock less
the exercise price of the related stock option was used as the
best estimate of each stock option's fair value at the date of
grant. Because exercise prices of the stock options issued in
1998, 1997 and 1996 were below the market price of the Company's
common stock at the dates of grant, consulting costs of $40,405,
$16,875 and $100,625 were recorded for the years ended
December 31, 1998, 1997 and 1996, respectively. Because the
stock options issued in 1998, 1997 and 1996 in conjunction with
these consulting agreements were valued at fair value as would
have been determined in accordance with SFAS No. 123, no pro
forma disclosures related to net income and earnings per share
for these years are necessary.
During 1997, the Company adopted an employee stock option plan
under which the Company may grant options for up to 400,000
shares of common stock, 300,000 of which are reserved by the
board of directors. The exercise price of each option is equal
to the market price of the Company's stock on the date of grant.
The maximum term of the option is five years.
The Company applies APB Opinion 25 in accounting for its employee
stock option plan. Accordingly, no compensation cost has been
recognized for the plan in 1998 or 1997.
The Company also issued options to purchase 25,000 shares of
common stock to its president as a component of a two year
employment agreement beginning in October 1997. The exercise
price of each option is $1 per share and is exercisable over a
five year period. Compensation cost charged to operations in
1988 and 1997 related to this option was $71,875 and $14,974
respectively.
During 1997, the Company issued options to purchase 100,000
shares of common stock to its acting Chief Executive Officer.
The exercise price is $5 per share and is exercisable through
October 1999. Because the exercise price of these options was in
excess of the market value of the Company's common stock on the
date of grant, there were no compensation costs recorded in 1998
or 1997 related to these options.
(Continued)
14
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 9 - STOCK OPTION PLANS (Continued)
Had compensation costs been recorded on the employee stock
options on the basis of fair market value pursuant to FASB
Statement No. 123, net income and earnings per share would have
been reduced as follows:
1998 1997
---- ----
Net income
----------
As reported $(507,019) $137,136
========= ========
Pro forma $(551,944) $(145,684)
========= =========
Basic Earnings Per Share
------------------------
As reported $ (.26) $ .07
========= ========
Pro forma $ (.29) $ (.08)
========= ========
Diluted Earnings Per Share
--------------------------
As reported $ (.26) $ .07
========= ========
Pro forma $ (.28) $ (.07)
========= ========
The above pro forma information is based on an estimated fair
value of these stock options as of the date of grant using a
Black-Scholes option pricing method with the following weighted
average assumptions for 1998 and 1997: risk free interest rate of
4.0%, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .60, and a weighted
average expected life of the options of 4 years.
(Continued)
15
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 9 - STOCK OPTION PLANS (Continued)
Following is a summary of stock option activity and number of
shares reserved for outstanding options for the years ended
December 31, 1998, 1997 and 1996:
Weighted Weighted
Average Option Maximum Average
Number Option Price Term of Grant Date
of Price Per Options Fair Value
Shares Per Share Share Granted of Options
------ --------- ----- ------- ----------
BALANCE AS OF
JANUARY 1, 1996 200,000 1.25 $ .50 2 years -
to $2.00
Granted 70,000 5.00 $5.00 2 to 10 $2.93
years
Exercised (200,000) 1.25 $ .50 2 years $ -
-------- to $2.00
BALANCE AS OF
DECEMBER 31, 1996 70,000 5.00 $5.00 2 to 10 $2.93
years
Granted 225,000 4.55 $1.00 2 to 5 $5.19
to $5.00 years
Expired (50,000) 5.00 $5.00 2 years
-------
BALANCE AS OF
DECEMBER 31, 1997 245,000 4.59 $1.00 2 to 10 $5.19
to $5.00 years
Granted 185,000 6.38 $6.00 2 to5 $2.19
to $8.00 years
-------
BALANCE AS OF $1.00 2 to 10
DECEMBER 31, 1998 430,000 5.36 to $8.00 years $3.90
=======
As of December 31, 1998, the 430,000 options outstanding have
exercise prices between $1 to $8 and a weighted-average remaining
contractual life of 3.3 years.
The tax effect of income tax deductions for the year ended
December 31, 1996 related to the 1996 exercise of the non-
employee stock options issued during the year ended December 31,
1995 was credited to additional paid-in capital.
(Continued)
16
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 10 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
The following noncash investing and financing activities occurred
during the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996
Reclassification of deposits
on operating equipment $ - $ - $125,000
Transfer of restricted investment
in lieu of cash for payment of
accounts payable to K&R - - 100,000
Fair value of stock options
issued for employee and
non-employee services - 128,776 117,500
Income tax benefit related to
exercise of nonemployee stock
options - - 970,000
Stock transferred by Company's
principal shareholder for future
consulting services to be provided
to the Company - - 42,500
Acquisition of equipment from
K&R by issuing note payable 250,000 - -
Acquisition of TMG Enterprises
by issuing note payable - 1,600,000 -
Acquisition of RJ Fitzpatrick
Smelters by issuing note payable 511,782 - -
(Continued)
17
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 11 - PER SHARE DATA
The following illustrates the computation for earnings per share
and earning per share assuming dilution.
1998 1997 1996
---- ---- ----
EARNINGS PER SHARE
Net income (loss) $ (507,019) $ 137,136 $ 460,836
Weighted average shares
outstanding 1,929,600 1,929,600 1,837,933
---------- ---------- ----------
Basic earnings per share $ (.26) $ .07 $ .25
========== ========== ==========
EARNINGS PER SHARE ASSUMING DILUTION
Net income (loss) $ (507,019) $ 137,136 $ 460,836
Weighted average shares outstanding 1,929,600 1,929,600 1,837,933
Add dilutive effect of assumed
exercising of stock options 31,717 28,595 106,522
---------- ---------- ----------
Diluted average shares
outstanding 1,961,317 1,958,195 1,944,455
---------- ---------- ----------
Earnings per share assuming
dilution $ (.26) $ .07 $ .24
========== ========== ==========
NOTE 12 - SEGMENT INFORMATION
The Company's operations include three primary segments: ISA
Recycling, Computerized Waste Systems (CWS), and Waste Equipment
Sales & Service (WESSCO). ISA recycling provides products and
services to meet the needs of its customers related to ferrous
and non-ferrous recycling at two locations in the Midwest. CWS
provides waste disposal services including contract negotiations
with vendors, centralized billing, invoice auditing, and
centralized dispatching. WESSCO sells, leases, and services waste
handling and recycling equipment.
The Company's three reportable segments are determined by the
products and services that each offers. The recycling segment
generates its revenues based on buying and selling of ferrous and
non-ferrous scrap, CWS's revenues consist of management fees
charged to customers at a percentage of the total service
provided, and WESSCO sales and lease income comprise the primary
source of revenue for this segment.
The accounting policies of the three segments are the same as
those described in the summary of significant accounting policies
(Note 1). The Company evaluates segment performance based on
profit or loss before income taxes and the evaluation process for
each segment includes only direct expenses omitting any selling,
general and administrative costs.
Revenue from two CWS customers in 1998, 1997 and 1996 represents
approximately 65%, 80% and 73% of CWS revenues, respectively. At
December 31, 1998 and 1997, amounts due from these customers
included in CWS accounts receivable were $2,337,266 and
$2,102,934, respectively.
(Continued)
18
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 12 - SEGMENT INFORMATION (Continued)
Waste
Computerized Equipment
ISA Waste Sales & Segment
1998 Recycling Systems Services Other Totals
- ---- --------- ------- -------- ----- ------
Recycling revenues $19,167,893 $ - $ - $ - $19,167,893
Equipment sales, services
and leasing revenues - - 1,930,869 - 1,930,869
Management fees - 44,106,218 - - 44,106,218
Cost of goods sold (18,204,999) (41,871,945) (1,380,946) - (61,457,890)
---------- ---------- ---------- ---------- ----------
Segment profit $ 962,894 $ 2,234,273 $ 549,923 $ - $ 3,747,090
========== ========== ========== ========== ==========
Cash $ 999,748 $ 14,320 $ - $ - $ 1,014,068
Accounts receivable 3,574,150 3,849,081 - 51,242 7,474,473
Inventory 1,753,572 - 761,780 - 2,515,352
Net property and equipment 4,123,053 66,667 873,856 - 5,053,576
Non-compete agreements, net 810,604 - - - 810,604
Intangibles 720,000 - - - 720,000
Income tax refund receivable - - - 113,000 113,000
Other assets 36,325 114,227 - 785,908 1,049,460
---------- ---------- ---------- ---------- ----------
Segment assets $12,017,452 $ 4,044,295 $ 1,635,636 $ 950,150 $18,647,533
1997
- ----
Recycling revenues $11,513,600 $ - $ - $ - $11,513,600
Equipment sales, services
and leasing revenues - - 1,633,756 - 1,633,756
Management fees - 32,064,237 - - 32,064,237
Cost of goods sold (10,141,882) (30,235,253) (953,463) - (41,330,598)
---------- ---------- ---------- ---------- ----------
Segment profit $ 1,371,718 $ 1,828,984 $ 680,293 $ - $ 3,880,995
========== ========== ========== ========== ==========
Cash $ 424,297 $ 71,537 $ - $ - $ 495,834
Accounts receivable 2,374,804 2,601,646 - 52,319 5,028,769
Inventory 1,759,727 - 752,099 - 2,511,826
Net property and equipment 2,959,309 116,667 566,736 - 3,642,712
Non-compete agreements, net 450,000 - - - 450,000
Intangibles 773,333 - - - 773,333
Income tax refund receivable - - - 164,737 164,373
Other assets 108,720 - - 717,093 825,813
---------- ---------- ---------- ---------- ----------
Segment assets $ 8,850,190 $ 2,789,850 $ 1,318,835 $ 934,149 $13,893,024
========== ========== ========== ========== ==========
(Continued)
19
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 12 - SEGMENT INFORMATION (Continued)
Waste
Computerized Equipment
ISA Waste Sales & Segment
1998 Recycling Systems Services Other Totals
- ---- --------- ------- -------- ----- ------
Recycling revenues $5,091,550 $ - $ - $ - $ 5,091,550
Equipment sales, services
and leasing revenues - - 1,830,273 - 1,830,273
Management fees - 27,355,393 - - 27,355,393
Cost of goods sold (3,880,577) (24,727,047) (1,226,739) - (29,834,363)
---------- ---------- ---------- ---------- ----------
Segment profit $ 1,210,973 $ 2,628,346 $ 603,534 $ - $ 4,442,853
SUPPLEMENTARY INFORMATION
INDUSTRIAL SERVICES OF AMERICA, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Year ended December 31, 1998
- -----------------------------------------------------------------
Balance Charged
at to Charged Balance
Beginning Costs to at End
of and Other of
Year Expenses Accounts Deductions Year
---- -------- -------- ---------- ----
Description
- -----------
Allowance for doubtful
accounts (deducted from
accounts receivable) $16,000 $100,000 $ - $ - $116,000
====== ======= ======= ======= =======
Allowance for doubtful
accounts (deducted from
notes receivable) $29,455 $ - $ - $(29,455) $ -
====== ======= ======= ======= =======
EXHIBIT 10.13
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS OPTION UNDER THE ACT OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
100,000 Shares Exercise Price: $5.00
- -------------- ----------------------
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Option Agreement") made
and effective as of the 31st day of October, 1997 (the "Effective
Date"), between INDUSTRIAL SERVICES OF AMERICA, INC., (the
"Corporation"), being incorporated under the laws of the State of
Florida, maintaining its principal place of business at 7100
Grade Lane, Louisville, Kentucky 40213; and GLENN BIERMAN
("Consultant") located at 725 Fifth Avenue, New York, New York
10022.
WITNESSETH:
WHEREAS, the variety of services rendered by Consultant,
including general business opportunity evaluation, merger and
acquisition "finder" services, represents an important and
valuable aid to the conduct of the Corporation's business
enterprise, and as such Corporation deems it to be in the best
interests of the Corporation to secure the services of
Consultant; and
WHEREAS, the Corporation desires to enter into this Option
Agreement with the Consultant containing the terms and conditions
hereinafter set forth, and to grant to Consultant an option to
purchase shares of the Common Stock of the Corporation (the
"Common Stock").
NOW, THEREFORE, in consideration of the promises and mutual
agreements of the parties herein contained, and for other good
and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing,
the Corporation hereby grants and issues to Consultant the right
at his option (hereinafter referred to as the "Option") to
purchase up to an aggregate of
100,000 Shares of Common Stock ($.01 par value) of the
Corporation at a price of $5.00 per share all of which Option
shall be exercisable, in whole or in part at any time prior to
October 31, 1999 (the "Expiration Date").
2. METHOD OF EXERCISING OPTION. The Option may be
exercised, in whole or in part at any time prior to 3:00 p.m.
Louisville, Kentucky Time on the Expiration Date, by giving
written notice to the Corporation to that effect. The Option
evidenced hereby shall be exercisable by the delivery to and
receipt by the Corporation of (a) this original Option Agreement
(b) a written Notice of Election to Exercise (the "Notice of
Election") in the form set forth on the Schedule 1 to Option
Agreement, to this option, attached hereto and incorporated
herein by reference, specifying the number of Shares to be
purchased in not less than one thousand (1,000) share
denominations (c) payment of the full purchase price, either by
federal funds wire transfer to the bank depository to be
specified by the Corporation or by certified check, U.S. funds,
payable to the order of the Corporation. If the Notice of
Exercise is for less than the total of 100,000 Shares, and the
time for exercise has not expired, the Corporation shall provide
the Consultant with a new or revised Option Agreement for the
balance of the Shares then remaining unexercised, upon the same
terms and conditions as herein.
3. CORPORATION'S REPRESENTATION. The Corporation
represents that it will use its best efforts to prepare, file,
and maintain with the appropriate regulatory authorities an
effective Registration Statement on Form S-8, or other applicable
form (the "Registration Statement"), for the shares of its Common
Stock underlying the Option granted by the Option Agreement, such
Registration Statement to allow for the immediate resale of the
shares subject to the Option Agreement. In addition, in
connection with any registration statement of the Corporation to
be used to offer and sell Common Stock ($.01 par value) for cash,
Consultant may serve written notice upon the Corporation and
request that all or part of the underlying Shares be included in
the first such Registration Statement which the Corporation shall
prepare and file with the Securities and Exchange Commission
subsequent to the date hereof satisfying the prior conditions
hereof. The number of Shares subject to the Option that may be
included in any such Registration Statement shall be the sole
decision of any underwriter selected by the Corporation for the
offer and sale of the Shares included in any such Registration
Statement of the Corporation for which the Consultant has
piggyback registration rights. All expenses associated with the
registration of the Option and the underlying Shares shall be
borne by the Corporation.
2
4. NON-ASSIGNMENT; INVESTMENT PURPOSE
4.1 Except as otherwise expressly provided above,
Consultant agrees on behalf of himself and of any other person or
persons claiming any benefits by virtue of this Option Agreement,
that this Option Agreement and the rights, interests and benefits
under it shall not be assigned, transferred, pledged, or
hypothecated in any way by Consultant or any other person
claiming under Consultant by virtue hereof. Such rights,
interests or benefits shall not be subject to execution,
attachment, or similar process. Any attempted assignment,
transfer, pledge, or hypothecation, or other disposition of this
Option Agreement or of such rights, interests, and benefits
contrary to the preceding provisions, or the levy or any
attachment or similar process thereupon, shall be null and void
and without any legal effect.
4.2 The purchaser represents and warrants that it is
purchasing the Shares for investment and not with a view to
distribution thereof and understands and acknowledges that in the
absence of an effective Registration Statement as to the Shares
underlying this Option the Stock Certificate(s) representing the
Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EXEMPTION FROM REGISTRATION OR QUALIFICATION
THEREUNDER. THE CORPORATION MAY REQUIRE, AS A
CONDITION TO THE TRANSFER OF THIS CERTIFICATE, AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION TO
THE EFFECT THAT SUCH TRANSFER WILL NOT BE IN VIOLATION
OF THE ACT OR ANY SUCH LAWS.
5. NOTICES. All notices required to be given by either
party shall be in writing and delivered by registered, certified
or overnight express mail, return receipt requested, to the party
being noticed at the address set forth in the first paragraph of
this Option Agreement. Any notice to the Corporation shall be
addressed to the attention of the President. Either party may
effect a change in such address by a prior written notice.
6. BINDING ACCEPTANCE. By acceptance of this signed
Option Agreement, the Consultant does hereby agree to be bound by
all of the terms and conditioned set forth herein.
-3-
7. GOVERNING LAW. This Option Agreement shall be
construed under the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflict of laws thereof.
8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. This
Option Agreement has been entered into in the Commonwealth of
Kentucky and validity, interpretation and legal effect of this
Option Agreement will be governed by the laws of the Commonwealth
of Kentucky applicable to contracts entered into within the
Commonwealth of Kentucky. Any dispute under this Option
Agreement shall be resolved by arbitration conducted in the City
of Louisville and the Commonwealth of Kentucky by the American
Arbitration Association. Any action or other proceeding which
involves such a controversy will be brought only in said
jurisdiction, and not elsewhere, and the parties hereto waive any
objections on the grounds of lack of jurisdiction, lack of venue,
or forum non-conveniens or any similar grounds. Any process
including, without limitation, any summons or subpoena in any
such action or proceeding may, among other methods, be served
upon you by delivering it or mailing it, be registered or
certified mail, directed to the address on page one (1) of this
Option Agreement. Any such delivery or mail service will be
deemed to have the same force and effect as personal service
within the Commonwealth of Kentucky. Notwithstanding the
foregoing, if we become a party in any action or proceeding,
including without limitation, any arbitration instituted by any
third party in any court or forum or in any matter as to which we
may be entitled to indemnification by you under this Option
Agreement or otherwise, you hereby irrevocably consent to the
jurisdiction of each such court or other forum, wherever located,
and you agree not to raise the defense of lack of jurisdiction,
lack of venue or forum non-conveniens or any similar grounds.
The grant of options hereunder shall be subject to (i) any and
all applicable state and federal laws; (ii) the guidance and
advise of ISA's independent auditors; and (iii) the guidance and
advise of ISA's securities counsel and auditors. This Agreement,
including the attached schedule, sets forth the entire agreement
of the parties with respect to the compensation to which
Consultant is entitled with respect to services he has rendered
or is rendering to the Corporation, supersedes all prior
agreements between the Corporation, or its affiliates, and
Consultant concerning that subject matter, and may be modified or
amended only by a written instrument signed by each party. By
execution of this Agreement, Consultant agrees to accept the
Option in full and complete satisfaction of any right to purchase
shares of Common Stock to which he might be entitled from the
Corporation or its affiliates as compensation for consulting
services. You agree to hold the Corporation and its affiliates
harmless from any claims or liabilities that might arise as a
result of the services you have rendered for or on behalf of the
Corporation.
4
IN WITNESS WHEREOF, the Corporation has executed this Option
Agreement by its duly authorized corporate officer on the 31st
day of October, 1997.
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
----------------------------------
Title: Harry Kletter
President
Accepted By:
/s/ Glenn Bierman
--------------------------------------
Glenn Bierman
SCHEDULE 1 TO STOCK OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: Industrial Services of America, Inc.
7100 Grade Lane
Louisville, Kentucky 40213
The Undersigned Purchaser hereby elects to purchase
-------
shares (the "Shares") of the Common Stock ($.01 par value) of
Industrial Services of America, Inc. (the "Corporation") pursuant
to the terms of the Stock Option Agreement (the "Option"), dated
as of , 199 , by and between the
--------------------- --
undersigned and the Corporation, (which Option must be
surrendered with this Notice of Election to Exercise).
Payment in Full (U.S. Funds) is hereby tendered in the
aggregate sum of $ which sum represents the Shares
-----------
(maximum 100,000) time the per Share purchase price of $5.00 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer
-- --
to the Corporation's depository bank in accordance
with your prior written instructions.
( ) By Delivery vs. Payment at:
-- -------------------------
or Account #:
-------------------------
You are hereby requested to issue a certificate representing the
Shares in the name(s), and to the address(es) as specified below:
Name:
-----------------------------------------------------------
Street: Number of Shares:
--------------------------------- -------
City: State: Zip:
----------------------------------- --------- -----
Social Security or Tax I.D. Number:
-----------------------------
Purchaser acknowledges that no formal memorandum, prospectus
or offering document of any kind has been delivered by the
Corporation with specific regard to this option exercise.
However, by virtue of the Purchaser's
6
sufficient business and other information has been made available
by the Corporation to enable Purchaser to fully evaluate the
investment potential of the Shares being acquired. The
Corporation's representatives have provided information and
answered all material questions.
Date: , 19
--------------- -- ---------------------------------
If no registration statement as to the Option and the Shares
is effective as of the date of exercise, include the following
paragraph:
The purchaser represents and warrants that it is purchasing
the Shares for investment and not with a view to distribution
thereof and understands and acknowledges that the Stock
Certificates(s) representing the Shares shall bear the following
legend:
The shares represented by this certificate have not
been registered or qualified for sale under the
Securities Act of 1933, as amended (the "Act"), or any
state securities or blue sky laws, and may not be sold,
transferred or otherwise disposed of except pursuant to
an exemption from registration or qualification
thereunder. The Corporation may require, as a
condition to transfer of this certificate, an opinion
of counsel satisfactory to the Corporation to the
effect that such transfer will not be in violation of
the Act or any such laws.
7
EXHIBIT 10.14
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS OPTION UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
25,000 Shares Exercise Price: $1.00
- ------------- ----------------------
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Option Agreement") made
and effective as of the 27th day of October 1997 (the "Effective
Date"), between INDUSTRIAL SERVICES OF AMERICA, INC., (the
"Corporation"), being incorporated under the laws of the State of
Florida, maintaining its principal place of business at 7100
Grade Lane, Louisville, Kentucky 40213; and SEAN GARBER
(Employee).
WITNESSETH:
WHEREAS, as set forth in the Employment Agreement dated
October 15, 1997, between the Company and the Employee; and
WHEREAS, the Corporation desires to enter into this Option
Agreement with the Employee containing the terms and conditions
hereinafter set forth, and to grant to Employee an option to
purchase shares of the Common Stock of the Corporation (the
"Common Stock").
NOW, THEREFORE, in consideration of the promises and mutual
agreements of the parties herein contained, and for other good
and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing,
the Corporation hereby grants and issues to Employee the right at
his option (hereinafter referred to as the "Option") to purchase
up to an aggregate of 25,000 Shares of Common Stock ($.01 par
value) of the Corporation at a price of $1.00 per share all of
which Option shall be exercisable, in whole or in part at any
time prior to October 26, 2002 (the "Expiration Date").
1
1. ANTI-DILUTION PROVISION. The number of shares of
Common Stock (the "Shares") underlying the option shall be
proportionately increased in the event that the Corporation
causes to be issued additional Shares in the form of a stock
dividend, stock splits, option exercise at less than book value,
or other such reclassification; or conversely, proportionately
decreased in the event of a split or reclassification.
2. METHOD OF EXERCISING OPTION. The Option may be
exercised, in whole, or in part at any time prior to 3:00 p.m.
Louisville, Kentucky Time on the Expiration Date, by giving
written notice to the Corporation to that effect. The Option
evidenced hereby shall be exercisable by the delivery to and
receipt by the Corporation of (a) this original Option Agreement
(b) a written Notice of Election to Exercise (the "Notice of
Election") in the form set forth on the Schedule 1 to Option
Agreement, to this option, attached hereto and incorporated
herein by reference, specifying the number of Shares to be
purchased in not less than one thousand (1,000) share
denominations (c) payment of the full purchase price, either by
federal funds wire transfer to the bank depository to be
specified by the Corporation, or on such other terms as may be
acceptable to the Corporation. If the Notice of Exercise is for
less than the total of 25,000 Shares, and the time for exercise
has not expired, the Corporation shall provide the Employee with
a new or revised Option Agreement for the balance of the Shares
then remaining unexercised, upon the same terms and conditions as
herein.
3. CORPORATION'S REPRESENTATION. The Corporation
represents that it will use its best efforts to prepare, file,
and maintain with the appropriate regulatory authorities an
effective Registration Statement on Form S-8, or other applicable
form (the "Registration Statement"), for the shares of its Common
Stock underlying the Option granted by this Option Agreement,
such Registration Statement to allow for the immediate resale of
the shares subject to the Option Agreement. In addition, in
connection with any registration statement of the Corporation to
be used to offer and sell Common Stock ($.01 par value) for cash,
Employee may serve written notice upon the Corporation and
request that all or part of the underlying Shares be included in
the first such Registration Statement which the corporation shall
prepare and file with the Securities and Exchange Commission
subsequent to the date hereof satisfying the prior conditions
hereof. The number of Shares subject to the Option that may be
included in any such Registration Statement shall be the sole
decision of any underwriter selected by the Corporation for the
offer and sale of the Shares included in any such Registration
Statement of the Corporation for which the Employee has piggyback
registration rights. All expenses associated with the
2
registration of the Option and the underlying Shares shall be
borne by the Corporation.
4. NON-ASSIGNMENT; INVESTMENT PURPOSE
4.1 Except as otherwise expressly provided above,
Employee agrees on behalf of himself and of any other person or
persons claiming any benefits by virtue of this Option Agreement,
that this Option Agreement and the rights, interests and benefits
under it shall not be assigned, transferred, pledged, or
hypothecated in any way by Employee or any other person claiming
under Employee by virtue hereof. Such rights, interests or
benefits shall not be subject to execution, attachment, or
similar process. Any attempted assignment, transfer, pledge, or
hypothecation, or other disposition of this Option Agreement or
of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process
thereupon, shall be null and void and without any legal effect.
4.2 The purchaser represents and warrants that it is
purchasing the Shares for investment and not with a view to
distribution thereof and understands and acknowledges that in the
absence of an effective Registration Statement as to the Shares
underlying this Option the Stock Certificate(s) representing the
Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EXEMPTION FROM REGISTRATION OR QUALIFICATION
THEREUNDER. THE CORPORATION MAY REQUIRE, AS A
CONDITION TO THE TRANSFER OF THIS CERTIFICATE, AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION TO
THE EFFECT THAT SUCH TRANSFER WILL NOT BE IN VIOLATION
OF THE ACT OR ANY SUCH LAWS.
5. NOTICES. All notices required to be given by either
party shall be in writing and delivered by registered, certified
or overnight mail, return receipt requested, to the party being
noticed at the address set forth in the first paragraph of this
Option Agreement. Any notice to the Corporation shall be
addressed to the attention of the President. Either party may
effect a change in such address by prior written notice.
3
6. BINDING ACCEPTANCE. By acceptance of this signed
Option Agreement, the Employee does hereby agree to be bound by
all of the terms and conditioned set forth herein.
7. GOVERNING LAW. This Option Agreement shall be
construed under the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflict of laws thereof.
8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. This
Option Agreement has been entered into in the Commonwealth of
Kentucky and validity, interpretation and legal effect of this
Option Agreement will be governed by the laws of the Commonwealth
of Kentucky applicable to contracts entered into within the
Commonwealth of Kentucky. Any dispute under this Option
Agreement shall be resolved by arbitration conducted in the City
of Louisville and the Commonwealth of Kentucky by the American
Arbitration Association. Any action or other proceeding which
involves such a controversy will be brought only in said
jurisdiction, and not elsewhere, and the parties hereto waive any
objections on the grounds of lack of jurisdiction, lack of venue,
or forum non-conveniens or any similar grounds. Any process
including, without limitation, any summons or subpoena in any
such action or proceeding may, among other methods, be served
upon you by delivering it or mailing it, by registered or
certified mail, directed to the address on page one (1) of this
Option Agreement. Any such delivery or mail service will be
deemed to have the same force and effect as personal service
within the Commonwealth of Kentucky. Notwithstanding the
foregoing, if we become a party in any action or proceeding,
including without limitation, any arbitration instituted by any
third party in any court or forum or in any matter as to which we
may be entitled to indemnification by you under this Option
Agreement or otherwise, you hereby irrevocably consent to the
jurisdiction of each such court or other forum, wherever located,
and you agree not to raise the defense of lack of jurisdiction,
lack of venue or forum non-conveniens or any similar grounds.
4
IN WITNESS WHEREOF, the Corporation has executed this Option
Agreement by its duly authorized corporate officer on the 27th
day of October, 1997.
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
---------------------------------
Title: Harry Kletter
President
Accepted By:
/s/ Sean Garber
------------------------------------
Sean Garber
5
SCHEDULE 1 TO STOCK OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: Industrial Services of America, Inc.
7100 Grade Lane
Louisville, Kentucky 40213
The Undersigned Purchaser hereby elects to purchase
-------
shares (the "Shares") of the Common Stock ($.01 par value) of
Industrial Services of America, Inc. (the "Corporation") pursuant
to the terms of the Stock Option Agreement (the "Option"), dated
as of , 1997, by and between the
---------------------
undersigned and the Corporation, (which Option must be
surrendered with this Notice of Election to Exercise).
Payment in Full (U.S. Funds) is hereby tendered in the
aggregate sum of $ which sum represents the Shares
-----------
(maximum 25,000) times the per Share purchase price of $1.00 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer
-- --
to the Corporation's depository bank in accordance
with your prior written instructions.
( ) By Delivery vs. Payment at:
-- -------------------------
or Account #:
-------------------------
You are hereby requested to issue a certificate representing the
Shares in the name(s), and to the address(es) as specified below:
Name:
-----------------------------------------------------------
Street: Number of Shares:
--------------------------------- -------
City: State: Zip:
----------------------------------- --------- -----
Social Security or Tax I.D. Number:
-----------------------------
Purchaser acknowledges that no formal memorandum, prospectus
or offering document of any kind has been delivered by the
Corporation with specific regard to this option exercise.
However, by virtue of the Purchaser's
6
consulting relationship with, and activities on behalf of the
Corporation, sufficient business and other information has been
made available by the Corporation to enable Purchaser to fully
evaluate the investment potential of the Shares being acquired.
The Corporation's representatives have provided information and
answered all material questions.
Date: , 19
--------------- -- ---------------------------------
If no registration statement as to the Option and the Shares
is effective as of the date of exercise, include the following
paragraph:
The purchaser represents and warrants that it is purchasing
the Shares for investment and not with a view to distribution
thereof and understands and acknowledges that the Stock
Certificates(s) representing the Shares shall bear the following
legend:
The shares represented by this certificate have not
been registered or qualified for sale under the
Securities Act of 1933, as amended (the "Act"), or any
state securities or blue sky laws, and may not be sold,
transferred or otherwise disposed of except pursuant to
an exemption from registration or qualification
thereunder. The Corporation may require, as a
condition to transfer of this certificate, an opinion
of counsel satisfactory to the Corporation to the
effect that such transfer will not be in violation of
the Act or any such laws.
7
EXHIBIT 10.15
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS OPTION UNDER THE ACT OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
100,000 Shares Exercise Price: $5.00
- -------------- ----------------------
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Option Agreement") made
and effective as of the 31st day of October, 1997 (the "Effective
Date"), between INDUSTRIAL SERVICES OF AMERICA, INC. (the
"Corporation"), being incorporated under the laws of the State of
Florida, maintaining its principal place of business at 7100
Grade Lane, Louisville, Kentucky 40213; and SEAN GARBER
("Employee").
WITNESSETH:
WHEREAS, the variety of services rendered by Employee,
including general business, management and business opportunity
evaluation, merger and acquisition "finder" services, represents
an important valuable aid to the conduct of the Corporation's
business enterprise, and as such Corporation deems it to be in
the best interests of the Corporation to secure the services of
the Employee; and
WHEREAS, the Corporation desires to enter into this Option
Agreement with the Employee containing the terms and conditions
hereinafter set forth, and to grant to Employee an option to
purchase shares of the Common Stock of the Corporation (the
"Common Stock").
NOW, THEREFORE, in consideration of the promises and mutual
agreements of the parties herein contained, and for other good
and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing,
the Corporation hereby grants and issues to Employee the right at
his option (hereinafter referred to as the "Option") to purchase
up to an aggregate of 100,000 Shares of Common Stock ($.01 par
value) of the Corporation at a price
1
of $5.00 per share all of which Option shall be exercisable, in
whole or in part at any time prior to October 31, 20002 (the
"Expiration Date").
2. METHOD OF EXERCISING OPTION. The Option may be
exercised, in whole, or in part at any time prior to 3:00 p.m.
Louisville, Kentucky Time on the Expiration Date, by giving
written notice to the Corporation to that effect. The Option
evidenced hereby shall be exercisable by the delivery to and
receipt by the Corporation of (a) this original Option Agreement
(b) a written Notice of Election to Exercise (the "Notice of
Election") in the form set forth on the Schedule 1 to Option
Agreement, to this option, attached hereto and incorporated
herein by reference, specifying the number of Shares to be
purchased in not less than one thousand (1,000) share
denominations (c) payment of the full purchase price, either by
federal funds wire transfer to the bank depository to be
specified by the Corporation or by certified check, U.S. funds,
payable to the order of the Corporation. If the Notice of
Exercise is for less than the total of 100,000 Shares, and the
time for exercise has not expired, the Corporation shall provide
the Employee with a new or revised Option Agreement for the
balance of the Shares then remaining unexercised, upon the same
terms and conditions as herein.
3. CORPORATION'S REPRESENTATION. The Corporation
represents that it will use its best efforts to prepare, file,
and maintain with the appropriate regulatory authorities an
effective Registration Statement on Form S-8, or other applicable
form (the "Registration Statement"), for the shares of its Common
Stock underlying the Option granted by this Option Agreement,
such Registration Statement to allow for the immediate resale of
the shares subject to the Option Agreement. In addition, in
connection with any registration statement of the Corporation to
be used to offer and sell Common Stock ($.01 par value) for cash,
Employee may serve written notice upon the Corporation and
request that all or part of the underlying Shares be included in
the first such Registration Statement which the Corporation shall
prepare and file with the Securities and Exchange Commission
subsequent to the date hereof satisfying the prior conditions
hereof. The number of Shares subject to the Option that may be
included in any such Registration Statement shall be the sole
decision of any underwriter selected by the Corporation for the
offer and sale of the Shares included in any such Registration
Statement of the Corporation for which the Employee has piggyback
registration rights. All expenses associated with the
registration of the Option and the underlying Shares shall be
borne by the Corporation.
2
4. NON-ASSIGNMENT; INVESTMENT PURPOSE
4.1 Except as otherwise expressly provided above,
Employee agrees on behalf of himself and of any other person or
persons claiming any benefits by virtue of this Option Agreement,
that this Option Agreement and the rights, interests and benefits
under it shall not be assigned, transferred, pledged, or
hypothecated in any way by Employee or any other person claiming
under Employee by virtue hereof. Such rights, interests or
benefits shall not be subject to execution, attachment, or
similar process. Any attempted assignment, transfer, pledge, or
hypothecation, or other disposition of this Option Agreement or
of such rights, interests, and benefits contrary to the preceding
provisions, or the levy or any attachment or similar process
thereupon shall be null and void and without any legal effect.
4.2 The purchaser represents and warrants that it is
purchasing the Shares for investment and not with a view to
distribution thereof and understands and acknowledges that in the
absence of an effective Registration Statement as to the Shares
underlying this Option the Stock Certificate(s) representing the
Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EXEMPTION FROM REGISTRATION OR QUALIFICATION
THEREUNDER. THE CORPORATION MAY REQUIRE, AS A
CONDITION TO THE TRANSFER OF THIS CERTIFICATE, AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION TO
THE EFFECT THAT SUCH TRANSFER WILL NOT BE IN VIOLATION
OF THE ACT OR ANY SUCH LAWS.
5. NOTICES. All notices required to be given by either
party shall be in writing and delivered by registered, certified
or overnight express mail, return receipt requested, to the party
being noticed at the address set forth in the first paragraph of
this Option Agreement. Any notice to the Corporation shall be
addressed to the attention of the President. Either party may
effect a change in such address by a prior written notice.
3
7. GOVERNING LAW. This Option Agreement shall be
construed under the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflict of laws thereof.
8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. This
Option Agreement has been entered into in the Commonwealth of
Kentucky and validity, interpretation and legal effect of this
Option Agreement will be governed by the laws of the Commonwealth
of Kentucky applicable to contracts entered into within the
Commonwealth of Kentucky. Any dispute under this Option
Agreement shall be resolved by arbitration conducted in the City
of Louisville and the Commonwealth of Kentucky by the American
Arbitration Association. Any action or other proceeding which
involves such a controversy will be brought only in said
jurisdiction, and not elsewhere, and the parties hereto waive any
objections on the grounds of lack of jurisdiction, lack of venue,
or forum non-conveniens or any similar grounds. Any process
including, without limitation, any summons or subpoena in any
such action or proceeding may, among other methods, be served
upon you by delivering it or mailing it, by registered or
certified mail, directed to the address on page one (1) of this
Option Agreement. Any such delivery or mail service will be
deemed to have the same force and effect as personal service
within the Commonwealth of Kentucky. Notwithstanding the
foregoing, if we become a party in any action or proceeding,
including without limitation, any arbitration instituted by any
third party in any court or forum or in any matter as to which we
may be entitled to indemnification by you under this Option
Agreement or otherwise, you hereby irrevocably consent to the
jurisdiction of each such court or other forum, wherever located,
and you agree not to raise the defense of lack of jurisdiction,
lack of venue or forum non-conveniens or any similar grounds.
The grant of options hereunder shall be subject to (i) any and
all applicable state and federal laws; (ii) the guidance and
advise of ISA's independent auditors; and (iii) the guidance and
advise of ISA's securities counsel and auditors. This Agreement,
including the attached schedule, sets forth the entire agreement
of the parties with respect to the compensation to which Employee
is entitled with respect to services he has rendered or is
rendering to the Corporation, supersedes all prior agreements
between the Corporation, or its affiliates, and Employee
concerning that subject matter, and may be modified or amended
only by a written instrument signed by each party. By execution
of this Agreement, Employee agrees to accept the Option in full
and complete satisfaction of any right to purchase shares of
Common Stock to which he might be entitled from the Corporation
or its affiliates as compensation for consulting services. You
agree to hold the Corporation and its affiliates harmless from
any claims or liabilities that might arise as a result of the
services you have rendered for or on behalf of the Corporation.
4
IN WITNESS WHEREOF, the Corporation has executed this Option
Agreement by its duly authorized corporate officer on the 31st
day of October, 1997.
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
---------------------------------
Title: Harry Kletter
President
Accepted By:
/s/ Sean Garber
------------------------------------
Sean Garber
5
SCHEDULE 1 TO STOCK OPTION AGREEMENT
NOTICE OF ELECTION TO EXERCISE
TO: Industrial Services of America, Inc.
7100 Grade Lane
Louisville, Kentucky 40213
The Undersigned Purchaser hereby elects to purchase
-------
shares (the "Shares") of the Common Stock ($.01 par value) of
Industrial Services of America, Inc. (the "Corporation") pursuant
to the terms of the Stock Option Agreement (the "Option"), dated
as of , 199 , by and between the
--------------------- --
undersigned and the Corporation, (which Option must be
surrendered with this Notice of Election to Exercise).
Payment in Full (U.S. Funds) is hereby tendered in the
aggregate sum of $ which sum represents the Shares
-----------
(maximum 25,000) times the per Share purchase price of $1.00 by:
( ) Certified Check or ( ) Federal Funds Wire Transfer
to the Corporation's depository bank in accordance
with your prior written instructions.
( ) By Delivery vs. Payment at:
-------------------------
or Account #:
-------------------------
You are hereby requested to issue a certificate representing the
Shares in the name(s), and to the address(es) as specified below:
Name:
-----------------------------------------------------------
Street: Number of Shares:
--------------------------------- -------
City: State: Zip:
----------------------------------- --------- -----
Social Security or Tax I.D. Number:
-----------------------------
Purchaser acknowledges that no formal memorandum, prospectus
or offering document of any kind has been delivered by the
Corporation with specific regard to this option exercise.
However, by virtue of the Purchaser's
6
consulting relationship with, and activities on behalf of the
Corporation, sufficient business and other information has been
made available by the Corporation to enable Purchaser to fully
evaluate the investment potential of the Shares being acquired.
The Corporation's representatives have provided information and
answered all material questions.
Date: , 19
--------------- -- ---------------------------------
If no registration statement as to the Option and the Shares
is effective as of the date of exercise, include the following
paragraph:
The purchaser represents and warrants that it is purchasing
the Shares for investment and not with a view to distribution
thereof and understands and acknowledges that the Stock
Certificates(s) representing the Shares shall bear the following
legend:
The shares represented by this certificate have not
been registered or qualified for sale under the
Securities Act of 1933, as amended (the "Act"), or any
state securities or blue sky laws, and may not be sold,
transferred or otherwise disposed of except pursuant to
an exemption from registration or qualification
thereunder. The Corporation may require, as a
condition to transfer of this certificate, an opinion
of counsel satisfactory to the Corporation to the
effect that such transfer will not be in violation of
the Act or any such laws.
7
EXHIBIT 10.16
AMENDMENT NO. 1 TO OPTION AGREEMENT
This Amendment No. 1 to Stock Option Agreement dated October
15, 1997, made and effective as of the 5th day of February, 1998
(the "Amendment"), between INDUSTRIAL SERVICES OF AMERICA, INC.
(the "Corporation"), maintaining its principal place of business
at 7100 Grade Lane, Bldg. #2, Louisville, Kentucky 40213; and
SEAN GARBER ("Employee"), residing at 4403 Water Crest Court,
Louisville, Kentucky 40241.
WITNESSETH:
WHEREAS the Corporation and Employee entered into a Stock
Option Agreement dated October 15, 1997 ("Stock Option
Agreement"); and
WHEREAS under the Stock Option Agreement both the
Corporation and Employee desire to amend the Stock Option
Agreement with respect to certain provisions contained therein;
NOW THEREFORE in consideration of the above recitals and the
mutual agreements herein contained and for other good and
valuable consideration, the parties hereby agree as follows:
1. Section1 of the Stock Option Agreement is hereby
amended to read in its entirety as follows:
1. GRANT OF OPTION. In consideration of
the foregoing, the Corporation hereby grants
and issues to Employee the right at his
option (hereinafter referred to as the
"Option") to purchase up to an aggregate of
100,000 Shares of Common Stock ($.01 par
value) of the Corporation at a price of $5.00
per share all of which Option shall be
exercisable, in whole or in part at any time
prior to October 31, 2002 (the "Expiration
Date").
2. Other than is set forth in this Amendment, all the
terms, conditions, rights, duties, responsibilities and
obligations set forth in the Stock Option Agreement remain in
full force and effect.
IN WITNESS WHEREOF, the Corporation has executed this
Amendment by its duly authorized corporate officer as of the date
set forth above.
"Corporation"
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
-------------------------------------
Harry Kletter, Chairman of the Board
Of Directors
Accepted by:
"Employee"
/s/ Sean Garber
----------------------------------------
-2-
EXHIBIT 10.17
THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). IT MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE OPTION UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE INDUSTRIAL SERVICES OF
AMERICA, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
500,000 Shares Exercise Price: $5.00
- -------------- ----------------------
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") made and
effective as of the 16th day of February, 1998 (the "Effective
Date"), between INDUSTRIAL SERVICES OF AMERICA, INC. ("ISA"),
being a Florida corporation, maintaining its principal place of
business at 7100 Grade Lane, Louisville, Kentucky 40213; and
HARRY KLETTER ("Kletter"), a Kentucky resident of 1208 Park Hills
Court, Louisville, Kentucky 40207.
WITNESSETH:
Kletter has provided valuable services to ISA, and ISA
desires to award Kletter and provide additional incentives to
Kletter as provided herein. Additionally, the variety of
services rendered by Kletter, including services requested by
ISA, including those services to be delivered by Kletter in the
future represents an important and valuable aid to the conduct of
ISA's business and as such ISA deems it to be in its best
interest to secure the services of Kletter. ISA desires to enter
into this Option Agreement with Kletter containing the terms and
conditions hereinafter set forth, and to grant to Kletter an
option to purchase shares of the Common Stock of ISA ("the
Shares").
NOW, THEREFORE, in consideration of the promises and mutual
agreements of the parties herein contained, and for other good
and valuable consideration, the parties agree as follows:
1. GRANT OF OPTION. In consideration of the foregoing,
ISA hereby grants and issues to Kletter the right at his option
(hereinafter referred to as the "Option") to purchase up to an
aggregate of 500,000 Shares of Common Stock ($.01 par value) of
ISA at a price of $5.00 per share, which Option shall be
exercisable, after the vesting dates herein provided (herein "the
Vesting Dates") prior to January 16, 2003 (the "Expiration Date")
as follows:
(i) Following July 1, 1998, 200,000 Shares may be
purchased;
(ii) Following October 1, 1998, an additional 200,000
Shares may be purchased; and
(iii) Following January 1, 1999, an additional 100,000
Shares may be purchased.
2. METHOD OF EXERCISING OPTION. The Option may be
exercised, in whole or in part following the Vesting Dates prior
to 3:00 p.m., Louisville, Kentucky Time on the Expiration Date,
by giving written notice to ISA to that effect. The Option
evidenced hereby shall be exercisable by the delivery to and
receipt by ISA of (a) this original Option Agreement and (b) a
written Notice of Election to Exercise (the "Notice of Election")
in the form set forth on the Schedule 1 to this Stock Option
Agreement, attached hereto
1
and incorporated herein by reference, specifying the number of
Shares to be purchased in not less than one thousand (1,000)
share denominations. If the Notice of Exercise is for less than
the total of 500,000 Shares, and the time for exercise has not
expired, ISA shall provide Kletter with a new or revised Stock
Option Agreement for the balance of the Shares then remaining
unexercised, upon the same terms and conditions as provided
herein.
3. ISA'S REPRESENTATION. ISA represents that it will use
its best efforts to prepare, file, and maintain with the
appropriate regulatory authorities an effective Registration
Statement on Form S-8, or other applicable form (the
"Registration Statement"), for the shares of its Common Stock
underlying the Option granted herein within three months of the
date hereof. All expenses associated with the registration of
the Option and the underlying Shares shall be borne by ISA.
4. NOTICES. All notices required to be given by either
party shall be in writing and delivered by registered, certified
or overnight express mail, return receipt requested, to the party
being noticed at the address set forth in the first paragraph of
this Stock Option Agreement. Any notice to ISA shall be
addressed to the attention of the President. Either party may
effect a change in such address by a prior written notice.
5. BINDING ACCEPTANCE. By acceptance of this Stock Option
Agreement, Kletter does hereby agree to be bound by all of the
terms and conditions set forth herein. This Agreement shall
inure to the benefit of, and shall be binding upon, the parties
hereto and their respective heirs, personal representatives,
legal representatives, successors and assigns. Whenever the name
"Kletter" is used in any provision of this Agreement under any
circumstance when the provision should logically be construed to
apply to Kletter's guardian, legal representative, executor,
administrator, or the person or persons to whom the Option may be
transferred by any means, including testimentary will or by the
laws of descent and distribution, the name "Kletter" shall be
deemed to include such person or persons.
6. GOVERNING LAW. This Stock Option Agreement shall be
construed under the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflict of laws thereof.
7. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. This
Stock Option Agreement has been entered into in the Commonwealth
of Kentucky and the validity, interpretation and legal effect of
this Stock Option Agreement will be governed by the laws of the
Commonwealth of Kentucky applicable to contracts entered into
within the Commonwealth of Kentucky. Any dispute under this
Stock Option Agreement shall be resolved by arbitration conducted
in Louisville, Kentucky, by the American Arbitration Association.
Any action or other proceeding which involves such a controversy
will be brought only in said jurisdiction, and not elsewhere, and
the parties hereto waive any objections on the grounds of lack of
jurisdiction, lack of venue, or forum non-conveniens or any
similar grounds. Any process including, without limitation, any
summons or subpoena in any such action or proceeding may, among
other methods, be served upon either party by delivering it or
mailing it, by registered or certified mail, directed to the
address on page one of this Stock Option Agreement. Any such
delivery or mail service will be deemed to have the same force
and effect as personal service within the Commonwealth of
Kentucky.
2
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Sean Garber
---------------------------------
Sean Garber, President
Accepted by:
/s/ Harry Kletter
-------------------------------------
HARRY KLETTER
3
SCHEDULE 1 TO STOCK OPTION AGREEMENT
NOTICE OF ELECTION OF EXERCISE
TO: Industrial Services of America, Inc.
7100 Grade Lane
Louisville, Kentucky 40213
The Undersigned Purchaser hereby elects to purchase
-------
shares (the "Shares") of the Common Stock ($.01 par value) of
Industrial Services of America, Inc. ("ISA") pursuant to the
terms of the Stock Option Agreement (the "Option"), dated as of
February 16, 1998, by and between the undersigned and ISA (which
Option must be surrendered with this Notice of Election to
Exercise). ISA agrees that upon exercise of option, the
appropriate documentation to issue these shares will be sent to
the transfer agent within five (5) business days.
Payment in Full (U.S. Funds) is hereby tendered in the
aggregate sum of $ which sum represents the Shares
-----------
(maximum 500,000) in accordance with the Vesting Dates times the
per Share purchase price of $5.00 by
( ) Certified Check or ( ) Federal Funds Wire
----- -----
Transfer to ISA's depository bank in accordance
with ISA's prior written instructions
( ) By Delivery of Payment at:
----- -------------------------
to ISA's Account #:
-------------------------
You are hereby requested to issue a certificate representing the
Shares in the name(s), and to the address(es) as specified below:
Name:
-----------------------------------------------------------
Street: Number of Shares:
--------------------------------- -------
City: State: Zip:
----------------------------------- --------- -----
Social Security or Tax I.D. Number:
-----------------------------
1. The Purchaser acknowledges the prior receipt and review
of copies of ISA's most recent Form 10-K, Form 10-Q, and Form 8-K
filings with the United States Securities and Exchange
Commission. Purchaser further acknowledges being fully aware of
the "Risk Factors" regarding the purchase of ISA Shares as such
matters are and have been described in federal regulatory
filings.
4
2. The Purchaser has sufficient knowledge and experience
in financial and business matters, including the purchase and
ownership of unregistered corporate securities and options, to be
able to evaluate the risks and merits of the investment
represented by the Purchaser's exercise of the Option and
purchase of the Shares, and the Purchaser's net worth and
available assets are such that Purchaser is able to bear the
economic risk of exercise of the Option and purchase of the
Shares.
3. The Purchaser acknowledges that the Purchaser has
either been supplied with or has had access to information to
which a reasonable investor would attach significance in making
investment decisions, and has had an opportunity to ask questions
of and receive answers from knowledgeable individuals concerning
ISA, so that, as a reasonable investor, Purchaser has been able
to make a decision to exercise the Option and purchase the
Shares.
4. Because of the experience in financial and business
matters of the Purchaser, the Purchaser is qualified to make the
inquiry and analysis described in paragraph 2.
5. The Purchaser understands that neither the Option nor
the Shares are being registered under the Securities Act of 1933,
as amended in reliance upon exemptions thereunder for
transactions not involving any public offering and are not being
registered or otherwise qualified for sale under the "Blue Sky"
laws and regulations of any state.
6. The Purchaser is exercising the Option and purchasing
the Shares for investment and not with a view to the sale or
other distribution thereof, in whole or in part.
- ---------------------- ---------------------------------
DATE HARRY KLETTER
5
EXHIBIT 10.18
CONSULTING AGREEMENT - LASSAK
-----------------------------
THIS CONSULTING AGREEMENT - LASSAK (the "Agreement") is made
and entered into as of this 2nd day of June, 1998, by and between
INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation (the
"Company") and ANDREW M. LASSAK (the "Consultant").
W I T N E S S E T H :
WHEREAS, the Company desires to engage the Consultant as a
consultant and to have the benefit of his experience, efforts,
abilities and business connections with respect to financial
advisory and related services (collectively, the "Financial
Advisory Services"); and
WHEREAS, the Consultant desires to serve as a consultant to
the Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in accordance with the foregoing preliminary
statements, and in exchange for the mutual covenants and
agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. Term. The term of this Agreement is for a period of up
----
to five years from the date first written above subject to
earlier termination by either party as described in Section 5
below.
2. Services. The Consultant agrees to perform Financial
--------
Advisory Services for the Company during the term of this
Agreement.
3. Compensation.
------------
INVESTMENTS BY INSTITUTIONS SOLICITED BY CONSULTANT.
The Company grants to the Consultant and/or his designee (for the
Financial Advisory Services rendered as more specifically
described in this Section 3. but only with the prior written
approval of the Company) options to purchase 25,000 up to a
maximum of 250,000 shares of the Company's .01 Par Value Common
Stock (the "Common Stock") on the basis of 25,000 shares for each
$10,000,000 in additional capitalization of the Company measured
from June 2, 1998 that vests upon maintenance for three (3)
consecutive months after achieving the increase in each
$10,000,000 in capitalization for which each 25,000 shares of
Common Stock subject to options are granted. The exercise price
for the shares subject to options earned on account of the
capitalization increase will equal the fair market value of the
Common Stock on the date the $10,000,000 in increased
capitalization for which each 25,000 shares of Common Stock
subject to options will be granted. From the date of vesting of
shares subject to options, the Consultant has (i) five (5) years
to exercise with respect to shares subject to option vesting in
Years one (1) and two (2), (ii) four (4) years to exercise with
respect to shares subject to option in Year three (3), (iii)
three (3) years to exercise with respect to shares subject to
option vesting in Year four (4), and (iv) two (2) years to
exercise with respect to shares subject to option vesting in Year
five (5). "Years" for purposes of this Agreement shall mean the
365/366 day period from June 2, 1998 through June 1, 1999, and
each 365/366 day period thereafter. If as a result of any
merger, consolidation or other acquisition effected solely
through the efforts of the Company, and without the participation
of the Consultant, an increase in the capitalization of the
Company occurs, the Consultant is not entitled to any options as
outlined in this Section 3.
4. Registration Rights:
-------------------
(a) PIGGYBACK REGISTRATION RIGHTS. Whenever the
Company proposes to register any Common Stock for its own account
under the Securities Act of 1933, as amended (the "Securities
Act") for an underwritten public offering for cash, other than a
registration relating to the offering or issuance of shares in
connection with (i) employee compensation or benefit plans or
(ii) one or more acquisition transactions under a Registration
Statement on Form S-4 or Form S-1 under the Securities Act (or a
successor to Form S-4 or Form S-1) (any such offering or issuance
being an "Exempt Offering"), the Company will give the Consultant
written notice of its intent to do so (a "Registration Notice").
Such notice shall specify the approximate date on which the
Company proposes to file such registration statement and shall
contain a statement that the Consultant is entitled to
participate in such offering and shall set forth the number of
shares of Common Stock that represent the best estimate of the
lead managing underwriter (or if not known, the Company) that
will be available for sale by the Consultant in the proposed
offering. If the Company shall have delivered a Registration
Notice, the Consultant shall be entitled to participate on the
same terms and conditions as the Company in the public offering
to which the Registration Notice relates and to offer and sell
shares of Common Stock therein only to the extent provided
herein. If the Consultant desires to participate in such
offering the Consultant shall notify the Company no later than
five days following receipt of the Registration Notice of the
aggregate number of shares of Common Stock that the Consultant
then desires to sell in the public offering. If the Consultant
desires to participate in the public offering the Consultant may
include shares of Common Stock in the registration statement
relating to such offering, to the extent that the inclusion of
such shares shall not reduce the number of shares of Common Stock
to be offered and sold by the Company to be included
-2-
therein. If the lead managing underwriter selected by the
Company for a public offering determines that marketing factors
require a limitation on the number of shares of Common Stock to
be offered and sold in such offering, there shall be included in
the offering only that number of shares of Common Stock, if any,
requested to be included in the offering that such lead managing
underwriter reasonably and in good faith believes will not
jeopardize the success of the offering.
(b) DEMAND REGISTRATION RIGHTS. At any time during
the term of this Agreement, the Consultant (the "Requesting
Holder") may request in writing that the Company file a
registration statement under the Securities Act covering the
registration of all of the shares of Common Stock then held by
the Consultant that are not then presently saleable under Rule
144 of the Securities Act (a "Demand Registration"). The Company
shall use its best efforts to effect the registration under the
Securities Act of all such shares of Common Stock which the
Consultant requests to be registered, provided, however, that the
Company shall be obligated to effect only one Demand Registration
pursuant to this Section 4. In connection with a Demand
Registration, the Consultant shall determine whether (a) to
proceed with, withdraw from or terminate such offering, (b) to
select subject to the approval of the Company (which approval
shall not be unreasonably withheld), a managing underwriter or
underwriters to administer such offering, (c) to enter into an
underwriting agreement for such offering, and (d) to take such
actions as may be necessary to close the sale of the Common Stock
contemplated by such offering, including waiving any conditions
to closing such sale that may not have been fulfilled. A
decision to terminate the offering shall constitute the Demand
Registration described herein.
If the Company shall furnish to the Requesting Holder a
certificate signed by the President of the Company stating that,
in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its
stockholders if such registration statement were to be filed and
it is therefore beneficial to defer the filing of such
registration statement, the Company shall have the right to defer
such filing.
If at the time of any request by the Requesting Holder
for a Demand Registration, the Company has fixed plans to file
for the sale of any of its securities in a public offering under
the Securities Act, no Demand Registration shall be initiated
until 180 days after the effective date of such registration.
(c) REGISTRATION EXPENSES. All expenses incurred in
connection with any registration described in 4(a) or (b) above
shall be shared equally by the Company and the Consultant. All
underwriting commissions and discounts applicable to shares of
Common Stock included in the registrations shall be borne by the
Consultant pro rata with the Company on the basis of the number
of shares
-3-
registered for the Consultant in comparison to the total number
of shares so registered.
5. Termination of Agreement. This Agreement is terminable
------------------------
at the election of either party upon written notice provided to
the other party no later than 60 days before the end of each
Year. This Agreement then terminates at the end of such Year,
otherwise this Agreement continues through the following Year.
Although this Agreement terminates, any Common Stock subject to
options that have vested will be exercisable according to the
terms of this Agreement.
6. Miscellaneous.
-------------
(a) EXPENSES. The Company agrees to reimburse the
Consultant for any expenses that the Company pre-approves that
the Consultant incurs in connection with the enhancement of the
Company capitalization.
(b) ANTI-DILUTION. The Company agrees to provide anti-
dilution protection to the Consultant for his options. Such anti-
dilution protection shall be in the form of a proportional
increase in the number of shares subject to unexercised options
to reflect (i) future grants of options by the Company the
exercise prices of which at the time of their grants are below
the median of the closing bid and ask price of the Common Stock
on the date of their grants, and (ii) stock splits or stock
dividends.
(c) BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their
respective executors, personal representatives, heirs, successors
and assigns.
(d) GOVERNING LAW. This Agreement shall be deemed to
be made in, and in all respects shall be interpreted, construed
and governed by and in accordance with, the law of the
Commonwealth of Kentucky.
(e) ENTIRE AGREEMENT. This Agreement is intended by
the parties hereto to be the final expression of their agreement
with respect to the subject matter hereof and is the complete and
exclusive statement of the terms thereof notwithstanding any
representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a
written instrument signed by each of the parties hereto.
(f) NOTICE PROVISION. All notices, requests or other
communications hereunder shall be in writing and shall be deemed
to be sufficiently given when mailed by registered or certified
mail, postage prepaid:
-4-
If to Consultant, at: 4179 South East Old Saint Lucie
Stuart, FL 34996
Attention: Andrew M. Lassak
If to the Company, at: 7100 Grade Lane
Louisville, KY
Attention: Sean Garber
-5-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
------------------------------------
Title: Chairman and CEO
----------------------------------
/s/ Andrew M. Lassak
---------------------------------------
ANDREW M. LASSAK, CONSULTANT
-6-
EXHIBIT 10.19
CONSULTING AGREEMENT - JCA/AML
------------------------------
THIS CONSULTING AGREEMENT - JCA/AML (the "Agreement") is
made and entered into as of this 2nd day of June, 1998, by and
among INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation
(the "Company"), JOSEPH CHARLES & ASSOCIATES, INC., a Florida
Corporation ("JCA") and ANDREW M. LASSAK ("AML", which together
with JCA will hereinafter be referred to as the "Consultants").
W I T N E S S E T H :
WHEREAS, the Company desires to engage the Consultants as
consultants and to have the benefit of their experience, efforts,
abilities and business connections in the arranging for
candidates to be acquired by the Company (the "Acquisition
Services"); and
WHEREAS, the Consultants desire to serve as consultants to
the Company upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in accordance with the foregoing preliminary
statements, and in exchange for the mutual covenants and
agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. Term. The term of this Agreement is for a period of up
----
to five years from the date first written above subject to
earlier termination by either party as described in Section 5
below.
2. Services. The Consultant agrees to perform Acquisition
--------
Services for the Company during the term of this Agreement.
3. Compensation.
------------
MERGERS AND ACQUISITIONS: The Company agrees to grant
to the Consultants options to purchase the Company's .01 Par
Value Common Stock (the "Common Stock"), on the basis of 65% of
the shares of the Common Stock subject to options being granted
to AML and 35% to JCA, at (a) $6.00 per share for the first
150,000 shares that vest, and (b) $8.00 per share for the
remaining 35,000 shares that vest. The number of shares of the
Common Stock that vest is determined based upon the following
schedule:
Company Shares Subject to Vesting
Options Vesting Schedule Date(1) Year
- ------------------------ ---- ----
45,000 From June 2, 1998 to, but not 1
including First Anniversary
Date of Term Sheet
("Anniversary Date")
35,000 From Anniversary Date to but 2
not including Second
Anniversary Date
35,000 From Second Anniversary Date 3
to but not including Third
Anniversary Date
35,000 From Third Anniversary Date 4
to but not including Fourth
Anniversary Date
35,000 From Fourth Anniversary Date 5
to but not including Fifth
Anniversary Date
From the date of vesting of shares subject to options, the
Consultants have (i) five (5) years to exercise with respect to
shares subject to option vesting in Vesting Years one (1) and two
(2), (ii) four (4) years to exercise with respect to shares
subject to option in Vesting Year three (3), (iii) three (3)
years to exercise with respect to shares subject to option
vesting in Vesting Year four (4), and (iv) two (2) years to
exercise with respect to shares subject to option vesting in
Vesting Year five (5).
4. Registration Rights:
-------------------
(a) PIGGYBACK REGISTRATION RIGHTS. Whenever the
Company proposes to register any Common Stock for its own account
under the Securities Act of 1933, as amended (the "Securities
Act") for an underwritten public offering for cash, other than a
registration relating to the offering or issuance of shares in
connection with (i) employee compensation or benefit plans or
(ii) one or more acquisition transactions under a Registration
Statement on Form S-4 or Form S-1 under the Securities Act (or a
successor to Form S-4 or Form S-1) (any such offering
- ---------------
(1) Shares subject to option vest on first date of each
Vesting Year described in the schedule.
-2-
or issuance being an "Exempt Offering"), the Company will give
the Consultants written notice of its intent to do so (a
"Registration Notice"). Such notice shall specify the
approximate date on which the Company proposes to file such
registration statement and shall contain a statement that the
Consultants are entitled to participate in such offering and
shall set forth the number of shares of Common Stock that
represent the best estimate of the lead managing underwriter (or
if not known, the Company) that will be available for sale by the
Consultants in the proposed offering. If the Company shall have
delivered a Registration Notice, each Consultant shall be
entitled to participate on the same terms and conditions as the
Company in the public offering to which the Registration Notice
relates and to offer and sell shares of Common Stock therein only
to the extent provided herein. Each Consultant desiring to
participate in such offering shall notify the Company no later
than five days following receipt of the Registration Notice of
the aggregate number of shares of Common Stock that such
Consultant then desires to sell in the public offering. Each
Consultant desiring to participate in the public offering may
include shares of Common Stock in the registration statement
relating to such offering, to the extent that the inclusion of
such shares shall not reduce the number of shares of Common Stock
to be offered and sold by the Company to be included therein. If
the lead managing underwriter selected by the Company for a
public offering determines that marketing factors require a
limitation on the number of shares of Common Stock to be offered
and sold in such offering, there shall be included in the
offering only that number of shares of Common Stock, if any,
requested to be included in the offering that such lead managing
underwriter reasonably and in good faith believes will not
jeopardize the success of the offering.
(b) DEMAND REGISTRATION RIGHTS-S-8. At any time
during the term of this Agreement, both Consultants jointly may
request in writing that the Company file a registration statement
on Form S-8 under the Securities Act covering the registration of
all the vested options and related shares of Common Stock then
held by the Consultants, which shares are not then presently
saleable under Rule 144 of the Securities Act (a "Demand
Registration"). The Company shall use its best efforts to effect
the registration under the Securities Act of all such shares (and
options to which the shares are subject, if applicable) of Common
Stock which the Consultants jointly request be registered;
provided however, that the Company shall be obligated to effect
only one Demand Registration per calendar year during the term of
this Agreement.
If the Company shall furnish to the Consultants a
certificate signed by the President of the Company stating that,
in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its
stockholders if such registration statement were to be filed and
it is therefore beneficial to defer the filing of such
registration statement on Form S-8, the Company shall have the
right to defer such filing. If at the time of any joint request
by the Consultants for a Demand Registration, the Company has
fixed plans for the sale of
-3-
any of its securities in a public offering under the Securities
Act, no Demand Registration shall be initiated until 180 days
after the effective date of such registration.
(c) REGISTRATION EXPENSES. All expenses incurred in
connection with any registration described in 4(a) or (b) above
shall be shared equally by (a) the Company and (b) the
Consultants.
5. Termination of Agreement. This Agreement is terminable
------------------------
at the election of either party upon written notice provided to
the other party no later than 60 days before the end of each
Vesting Year. This Agreement then terminates at the end of such
Vesting Year, otherwise the Agreement continues through the
following Vesting Year. Although the Agreement terminates, any
Common Stock subject to options that has vested will be
exercisable according to the terms of this Agreement.
6. Miscellaneous.
-------------
(a) EXPENSES. The Company agrees to reimburse the
Consultants for any expenses that the Company pre-approves that
the Consultants incur in connection with the merger and
acquisition work.
(b) ANTI-DILUTION. The Company agrees to provide anti-
dilution protection to the Consultants for their options. Such
anti-dilution protection shall be in the form of a proportional
increase in the number of shares subject to unexercised options
to reflect (i) future grants of options by the Company the
exercise prices of which at the time of their grants are below
the median of the closing bid and ask price of the Common Stock
on the date of their grants, and (ii) stock splits or stock
dividends.
(c) BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their
respective executors, personal representatives, heirs, successors
and assigns.
(d) GOVERNING LAW. This Agreement shall be deemed to
be made in, and in all respects shall be interpreted, construed
and governed by and in accordance with, the law of the
Commonwealth of Kentucky.
(e) ENTIRE AGREEMENT. This Agreement is intended by
the parties hereto to be the final expression of their agreement
with respect to the subject matter hereof and is the complete and
exclusive statement of the terms thereof notwithstanding any
representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a
written instrument signed by each of the parties hereto.
-4-
(f) NOTICE PROVISION. All notices, requests or other
communications hereunder shall be in writing and shall be deemed
to be sufficiently given when mailed by registered or certified
mail, postage prepaid:
If to JCA, at: 2500 North Military Trail
Suite 300
Boaca Raton, FL 33431
Attention: Andrew M. Lassak
If to AML, at: 4179 South East Old Saint Lucie
Stuart, FL 34996
Attention: Andrew M. Lassak
If to the Company, at: 7100 Grade Lane
Louisville, KY 40213
Attention: Sean Garber
-5-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INDUSTRIAL SERVICES OF AMERICA, INC.
By: /s/ Harry Kletter
-----------------------------------
Title: Chairman and CEO
--------------------------------
JOSEPH CHARLES & ASSOCIATES, INC.
By: /s/ Frank Salvatore
-----------------------------------
Title: Senior Vice President
--------------------------------
/s/ Andrew M. Lassak
--------------------------------------
ANDREW M. LASSAK, CONSULTANT
-6-
EXHIBIT 10.20
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement"), although
executed on July 31, 1998, is made effective as of the 1st day of
June, 1998, by and between R.J. FITZPATRICK SMELTERS, INC., an
Indiana corporation (the "Corporation"), ISA INDIANA, INC., an
Indiana corporation (the "Purchaser"), and R.K. FITZPATRICK and
CHERYL FITZPATRICK, each an Indiana resident (the "Guarantors").
WITNESSETH:
WHEREAS, upon the conditions expressed herein, the
Corporation desires to sell and herewith sells, and Purchaser
desires to purchase and herewith purchases, the assets employed
by the Corporation in the operation of R.J. FITZPATRICK SMELTERS,
as a going concern (the "Business"), in accordance with and
subject to the terms and provisions of this Agreement, and one of
the Guarantors being the sole shareholder of the Corporation,
NOW, THEREFORE, in consideration of the mutual agreements
contained in this Agreement, and intending to be legally bound
and to consummate the transactions described herein, the
Corporation, Purchaser, and Guarantors agree as follows:
(A) Purchase and Sale of Assets. The Corporation herewith
---------------------------
sells to Purchaser, and Purchaser herewith purchases from the
Corporation, all of the business, property, rights, and assets of
the Corporation employed in the Business (the "Assets")
including, but not limited to the following and subject only to
the liabilities specified in section (B) of this Agreement:
(1) The governmental authorizations listed on Schedule
1 to this Agreement, together with any renewals, extensions, or
modifications thereof and applications therefor;
(2) A lease of certain real property ("the Demised
Premises") from the Guarantors for an original term of ten (10)
years with options for ten (10) successive terms of ten (10)
years each at a rental of $13,000 per month for the original term
and the option term at $13,000 per month adjusted by increases in
the cost of living on an all net basis containing an exclusive
option to purchase, as described on Schedule 2 to this Agreement;
(3) The personal property consisting of furniture,
fixtures and equipment (including machinery) ("FF&E") and
supplies described on Schedule 3 to this Agreement;
(4) All of the written contracts, agreements,
commitments (including benefits relating or payable to employees
of the Business), understandings, or instruments relating to the
Business (collectively, the "contracts") to which the Corporation
is a party or by which it is bound, including without limitation
the contracts listed in Schedule 4 to this Agreement, except for
those contracts listed on Schedule 5 to this Agreement
(collectively, the "Excluded Contracts"), which are specifically
excluded from the Assets;
(5) All trademarks, service marks, and trade names
relating to the Business;
(6) All books and records of the Corporation relating
to the Assets and the Business, except as excluded below in this
section (A) with the Purchaser agreeing that for ten (10) years
the Corporation and Guarantors shall have full right and access
to these books and records at any time during ordinary business
hours for any reasonable purpose;
(7) All goodwill associated with the Business (and
accordingly, the Corporation shall not hereafter engage in any
business which competes with the business of Purchaser or the
business operated by Corporation as conducted at any time prior
hereto except for the orderly liquidation and sale of
Corporation's current inventory on hand at the Demised Premises);
and
(8) The Commission Agreement and Covenant Not to
Compete for five (5) years between the Purchaser and Guarantors
containing such terms and conditions as recited and detailed on
Schedule 6 which shall recognize the Corporation's right to
liquidate and sell its current inventory on hand at the Demised
Premises.
The Assets shall not include the following Assets of the
Corporation:
(1) All cash and cash equivalents, accounts and notes
receivable, securities and investments;
(2) The Corporation's current inventory on hand at the
Demised Premises which the Corporation shall sell or remove from
the Business premises within six (6) months of this Agreement or
such additional period as reasonably required to extinguish such
inventory, unless the parties agree otherwise in writing;
(3) Any and all insurance claims made by the
Corporation with respect to insured casualty losses relating to
the Business prior to June 1, 1998;
(4) The Corporation's minute books, corporate seals,
and stock transfer records;
(5) The Excluded Contracts listed on Schedule 5;
(6) Any and all life insurance contracts; and
(7) In addition, the Guarantors' personal property
listed on Schedule 7 attached hereto identified as
"Guarantors' Personal Property".
-------------------------------
(B) No Assumption of Liabilities. Purchaser shall not pay,
----------------------------
perform, assume, or discharge, any liabilities, debts, or
obligations of the Corporation except for those set forth in
Schedule 4 to this Agreement; and Purchaser shall not pay,
perform, assume, or discharge (1) any liability or obligation of
the Corporation under the Excluded Contracts, (2) any liability
or obligation
2
incurred by the Corporation in connection with the negotiation,
execution, and performance of this Agreement, including, without
limitation, the Corporation's liability for any legal,
accounting, actuarial, brokerage, finder's, and other
professional fees and expenses; or (3) any other liability, debt,
or obligation of the Corporation or of the Guarantors including,
but not limited to, any environmental, health or safety
liabilities and the costs, damages, expenses, liability,
obligation, or other responsibility arising from or under
environmental laws or occupational safety and health laws and
consisting of or relating to (i) any environmental, health, or
safety matters or conditions (including on-site or off-site
contamination, occupational safety and health, and regulation of
chemical substances or products); (ii) fines, penalties,
judgments, awards, settlements, legal or administrative
proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising
under environmental law or occupational safety and health law;
(iii) financial responsibility under environmental law or
occupational safety and health law for clean up costs or
corrective action, including any investigation, clean up,
removal, containment, or other remediation or response actions
required by applicable environmental law or occupational safety
and health law (whether or not such clean up has been required or
requested by any governmental body or any other person) and for
any natural resource damages; or (iv) any other compliance,
corrective, investigative, or remedial measures required under
environmental law or occupational safety and health law. The
terms "removal", "remedial", and "response action" include the
types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 96.01 et seq., as amended ("CERCLA"). For all
purposes herein, the term "environmental law" means any legal
requirement designed to minimize, prevent, punish, or remedy the
consequences of actions that damage or threaten the environment
or public health and safety. The Corporation and Guarantors
shall be jointly and severally responsible for making any filings
with governmental agencies regarding any environmental
contamination and for filing and implementation of any clean up
plan. In addition, the Corporation and Guarantors hereby jointly
and severally assume all responsibility and liability with
respect to any hazardous activity which was conducted at the
Demised Premises prior to June 1, 1998, with "hazardous activity"
meaning the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use
(including any withdrawal or other use of groundwater) of
hazardous materials in, on, under, about, or from the Demised
Premises or any part thereof into the environment, and any other
act, business, operation, or thing which increases the danger, or
risk of danger, or poses any unreasonable risk of harm to persons
or property on or off the Demised Premises, or that may affect
the value of the Demised Premises or the Assets. For purposes
herein, the term "hazardous materials" means any waste or other
substance that is listed, defined, designated, or classified as,
or otherwise determined to be, hazardous, radioactive, or toxic
or a pollutant or a contaminant under or pursuant to any
environmental law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof
or synthetic substitutes therefor, and asbestos and asbestos
containing materials. The Corporation and Guarantors remain
specifically responsible for all conditions reflected by the
Phase I and Phase II Environmental Assessments described in
(D)(10) below and attached as Schedule 8. The parties have
agreed that as between the Corporation and Guarantors on the one
hand and the Purchaser on the other hand, the Corporation and the
Guarantors shall not be directly liable to Purchaser for any sum
in excess of $500,000 for environmental matters.
3
(C) Purchase Price. The aggregate purchase price for the
--------------
Assets is Nine Hundred Thousand ($900,000) Dollars (the "Purchase
Price"), of which Two Hundred Fifty Thousand ($250,000) Dollars
has been previously paid by Purchaser's parent corporation of
which the Corporation acknowledges receipt, and the balance of
Six Hundred Fifty Thousand ($650,000) Dollars payable
concurrently herewith. The Purchase Price is allocated among the
Assets in the manner set forth in Schedule 9 to this Agreement.
Any adjustments required by the prorations made under section (M)
of this Agreement shall be paid at the times provided in section
(M). In addition to the Purchase Price, Purchaser shall pay,
perform, assume, and discharge only those liabilities of the
Corporation provided in section (B) of this Agreement.
(D) Closing. The closing of the transactions provided by
-------
this Agreement (the "closing") takes place at the offices of
counsel for the Corporation in Seymour, Indiana concurrently with
the execution of this Agreement, and concurrently with the
discharge of the other party's respective closing obligations:
(1) Corporation's and Guarantors' Closing Items. The
-------------------------------------------
Corporation and Guarantors, respectively, herewith deliver to
Purchaser:
(a) A Lease of the Demised Premises in the form
(with appropriate insertions) attached as Schedule 10 to this
Agreement;
(b) A Bill of Sale in the form (with appropriate
insertions) attached as Schedule 11 to this Agreement;
(c) An Assignment or Assignments in the form
(with appropriate insertions) attached as Schedule 12 to this
Agreement, to effect the sale, conveyance, and transfer of good
and marketable title to the Assets from the Corporation to
Purchaser, free and clear of all liens, mortgages, security
interests, pledges, charges, and encumbrances;
(d) A Commission Agreement and Covenant Not to
Compete in the form (with appropriate insertions) attached as
Schedule 6;
(e) An opinion of counsel and certificates
required by sections (H)(1), (H)(2), and (H)(3) of this Agreement
in the forms attached as Schedule 13 and Schedule 21,
respectively;
(f) A Subordination, Non-Disturbance and
Attornment Agreement executed by the Guarantors' mortgage lender
in the form attached as Schedule 14 with the original only to be
recorded of public record; and
(g) An Environmental Indemnity Agreement executed
by the Guarantors in the form attached as Schedule 15.
4
(2) Purchaser's Closing Items. Purchaser, with
-------------------------
its parent corporation having previously paid to Corporation the
amount of $250,000 herewith delivers to the Corporation:
(a) Immediately available funds in the amount of
Six Hundred Fifty Thousand Dollars ($650,000) payable either (i)
to Corporation's counsel's escrow account for distribution to
Corporation's secured creditors to satisfy those security
interests and indebtedness reflected on Schedule 16 with the
balance to Corporation, or (ii) by bank checks jointly payable to
Corporation and secured creditors shown on Schedule 16 with the
balance to Corporation; and
(b) An instrument or instruments of assumption in
the form (with appropriate insertions) attached as Schedule 17 to
this Agreement to evidence Purchaser's assumption of the
liabilities set forth on Schedule 4 to be assumed by Purchaser in
accordance with section (B) of this Agreement.
(E) Representations and Warranties of the Corporation and
-----------------------------------------------------
the Guarantors. The Corporation and the Guarantors jointly and
- --------------
severally represent and warrant to Purchaser, and acknowledge
that Purchaser relies on such representations and warranties in
entering into and proceeding under this Agreement, that:
(1) Corporate Standing. The Corporation is a
------------------
corporation, duly organized, validly existing, and in good
standing under the laws of Indiana with full corporate power and
authority to own or hold under lease the properties it now owns
or holds under lease and employed in the Business, to carry on
the Business presently being conducted by it, to enter into this
Agreement and all other agreements provided and contemplated by
this Agreement, and to consummate the transactions contemplated
hereunder and thereunder.
(2) Authorization, Execution, and Delivery of this
----------------------------------------------
Agreement. This Agreement has been duly authorized by all
- ---------
necessary corporate action of the Corporation and has been duly
executed and delivered by the Corporation. The execution and
delivery by the Corporation of this Agreement and the
consummation by the Corporation of the transactions provided and
contemplated hereby do not and will not conflict with or
constitute a violation of the articles of incorporation or bylaws
of the Corporation or conflict with or constitute a violation,
breach, or default under any material contract, trust agreement,
mortgage, indenture, or other agreement or instrument to which
the Corporation is a party or by which it is bound or to which
the Corporation or any of its properties is subject.
(3) Consents. No provision of the articles of
--------
incorporation or bylaws of the Corporation or of any material
contract, trust agreement, mortgage, indenture, or other
agreement or instrument to which the Corporation is a party or by
which it is bound or to which the Corporation or any of its
properties is subject requires the consent or authorization of
any other person or entity as a condition precedent to the
consummation of the transactions provided and contemplated by
this Agreement.
5
(4) Financial Statements. Attached hereto as Schedule
--------------------
18 are Corporation's unaudited financial statements for the
period ended December 31, 1996 and December 31, 1997 ("Financial
Statements"). The Financial Statements are in accordance with
the books and records of Corporation and are true, correct, and
complete; fairly present financial conditions of Corporation at
the dates of such Financial Statements and the results of its
operations for the periods then ended; and were prepared in
accordance with generally accepted accounting principles applied
on a basis consistent with prior accounting periods. Except as
described in this Agreement, since December 31, 1997 there has
been no material adverse change in the financial condition of the
Corporation.
(5) Title to Assets. Except as described in Schedule
---------------
16 of this Agreement, the Corporation holds good and marketable
title to the Assets, free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of
debts, obligations, liens, pledges, charges, or encumbrances.
(6) Transfer Not Subject to Encumbrances or Third-
----------------------------------------------
Party Approval. The execution and delivery of this Agreement by
- --------------
the Corporation and the Guarantors as the sole shareholders of
the Corporation, and the provision and consummation of the
transactions described herein, do not and will not result in the
creation or imposition of any valid lien, charge, or encumbrance
on any of the Assets, and do not and will not require the
authorization, consent, or approval of any third party, including
any governmental subdivision or regulatory agency.
(7) Labor Agreement and Disputes. The Corporation is
----------------------------
neither a party to, nor otherwise subject to any collective
bargaining or other agreement governing the wages, hours, and
terms of employment of the Corporation's employees. Neither the
Corporation nor Guarantors is aware of any labor dispute or labor
trouble involving employees of the Corporation, nor has there
been any such dispute or trouble during the two years preceding
the date of this Agreement.
(8) ERISA and Related Matters. Schedule 19 sets forth
-------------------------
a description of all "Employee Welfare Benefit Plans" and
"Employee Pension Benefit Plans" (as defined in Sections 3(1) and
3(2), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) existing on the date hereof
that are or have been maintained or contributed to by the
Corporation. Except as listed on Schedule 19, the Corporation
does not maintain any retirement or deferred compensation plan,
savings, incentive, stock option or stock purchase plan,
unemployment compensation plan, vacation pay, severance pay,
bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangement for any employee,
consultant or agent of the Corporation, whether pursuant to
contract, arrangement, custom or informal understanding, which
constitutes an "Employee Benefit Plan" (as defined in Section
3(3) of ERISA), for which the Corporation may have any ongoing
material liability after closing. The Corporation does not
maintain nor has it ever contributed to any Multiemployer Plan as
defined by Section 3(37) of ERISA. The Corporation does not
currently maintain any Employee Pension Benefit Plan subject to
Title IV of ERISA. There have been no "prohibited transactions"
(as described in Section 406 of ERISA or Section 4975 of the
Code) with respect to any Employee Pension Benefit Plan or
Employee Welfare Benefit Plan maintained by the Corporation as to
which the Corporation has been a party. As to any employee
6
pension benefit plan listed on Schedule 19 and subject to Title
IV of ERISA, there have been no reportable events (as such term
is defined in Section 4043 of ERISA).
(9) Noncancelable Contracts. There are no material
-----------------------
leases, employment contracts, contracts for services or
maintenance, or other similar contracts existing or relating to
or connected with the operation of the Corporation's Business not
cancelable upon thirty (30) days, except those Agreements listed
on Schedule 20.
(10) Compliance with Environmental Laws, Codes and
---------------------------------------------
Regulations. The Corporation and Guarantors have no knowledge of
- -----------
any violation of any provisions of applicable federal, state or
local environmental laws, building codes, fire regulations,
building restrictions, or other ordinances, orders, or
regulations with respect to the Business or the Demised Premises
described on Schedule 2 including leasehold improvements and the
condition of any soil, air, or water, except for those matters
reflected in that Phase I Environmental Assessment prepared by
NSS Environmental, Inc. dated June 2, 1998, and that Phase II
Environmental Assessment prepared by NSS Environmental, Inc.
dated July 14, 1998, copies of which are attached jointly as
Schedule 8. The Corporation and Guarantors jointly and severally
agree to and shall indemnify Purchaser and hold it harmless from
any liability regarding the condition of the Demised Premises as
more fully provided in the Environmental Indemnity Agreement in
the form attached as Schedule 15 as the same existed on June 1,
1998 which the parties stipulate is reflected by Schedule 8.
Corporation and Guarantors represent that they are in full
compliance with the non-conforming status of the Demised Premises
regarding the use of the same as presently operated as a scrap
and recycling facility.
(11) Litigation. The Corporation and Guarantors have
----------
no knowledge of any claim, litigation, proceeding, or
investigation pending or threatened against the Corporation or
the Demised Premises that might result in any material adverse
change in the Business or condition of the Assets hereby conveyed
under and pursuant to this Agreement.
(12) Brokers. No person or entity is entitled to any
-------
brokerage or finder's fee or commission or other like payment in
connection with the negotiations relating to or the transactions
provided and contemplated by this Agreement, based on any
agreement, arrangement, or understanding with the Corporation,
the Guarantors or any of the Corporation's respective officers,
directors, agents, or employees.
(13) Accuracy of Representations and Warranties. None
------------------------------------------
of the representations or warranties of the Corporation or
Guarantors contain any untrue statement of a material fact or
omit or misstate a material fact necessary in order to make
statements in this Agreement not misleading. The Corporation and
the Guarantors know of no fact that has resulted, or that in the
reasonable judgment of the Guarantors will result in a material
change in the Business, Demised Premises, operations, or assets
of Corporation that has not been set forth in this Agreement or
otherwise disclosed to Purchaser.
7
(F) Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to the Corporation and the Guarantors,
and acknowledges that the Corporation and Guarantors each rely on
such representations and warranties in entering into and
proceeding under this Agreement, that:
(1) Corporate Standing. Purchaser is a Corporation,
------------------
duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full power and
authority to enter into this Agreement and all other agreements
provided for and contemplated by this Agreement and to consummate
the transactions provided for and contemplated hereunder and
thereunder.
(2) Authorization, execution, and delivery of this
----------------------------------------------
Agreement. This Agreement has been duly authorized by all
- ---------
necessary corporate action of Purchaser and has been duly
executed and delivered by Purchaser. The execution and delivery
of this Agreement by Purchaser and the consummation of the
transactions provided hereunder do not and will not conflict with
or constitute a violation of any provisions of the articles of
incorporation or bylaws of Purchaser or conflict with or
constitute a violation, breach, or default under any material
contract, trust agreement, mortgage, indenture, or other
agreement or instrument to which Purchaser is a party or by which
Purchaser is bound or to which Purchaser or any of its properties
is subject.
(3) Consents. No provision of the articles of
--------
incorporation or bylaws of Purchaser or of any material contract,
trust agreement, mortgage, indenture, or other agreement or
instrument to which Purchaser is a party or by which it is bound
or to which Purchaser or any of its properties is subject
requires the consent or authorization of any other person or
entity as a condition precedent to the consummation of the
transactions provided and contemplated hereby.
(4) Brokers. No person or entity is entitled to any
-------
finder's or brokerage fee or commission or other like payment in
connection with the transactions provided and contemplated by
this Agreement based on agreements, arrangements, or
understandings with Purchaser, or any of Purchaser's respective
officers, directors, agents, or employees.
(G) Bulk Sales Law. The Corporation and Purchaser agree
--------------
that the sale and transfer of the Assets to Purchaser does not
constitute a bulk transfer within the meaning of Article 6 of the
Uniform Commercial Code of Indiana, and that the Corporation is
not required to comply with the provisions of such statute
applicable to bulk transfers.
(H) Conditions to Purchaser's Obligation. The obligation
------------------------------------
of Purchaser to consummate the transactions provided and
contemplated by this Agreement are subject to the satisfaction of
each of the following conditions and deliveries concurrently with
the execution of this Agreement unless specifically provided
herein otherwise as to conditions subsequent:
(1) Opinion of Counsel for the Corporation. Purchaser
--------------------------------------
has received the written opinion of counsel for the Corporation,
of even date in the form attached as Schedule 13 to this
Agreement.
8
(2) Representations and Warranties. The
------------------------------
representations and warranties of the Corporation and Guarantors
contained in section (E) of this Agreement are true and correct
in all material respects on and as of the date hereof, and the
Corporation and the Guarantors have delivered to Purchaser a
certificate, in the form attached as Schedule 21 to this
Agreement, signed by the Guarantors respectively as the chief
executive officer of the Corporation and individually and dated
of even date.
(3) Performance of this Agreement. The Corporation
-----------------------------
and Guarantors have performed and observed in all material
respects their covenants and obligations as set forth in this
Agreement, and the Corporation and Guarantors have delivered to
Purchaser a certificate, in the form attached as Schedule 21 to
this Agreement, signed by the Guarantors respectively as the
chief executive officer of the Corporation and individually and
dated of even date.
(4) Litigation. There is no injunction, decree, or
----------
order issued by any court, governmental agency, or authority, or
any litigation instituted by any governmental agency or authority
challenging or seeking to prohibit or enjoin any of the
transactions provided and contemplated by this Agreement.
(5) Condition of Assets. None of the Assets have been
-------------------
damaged or destroyed by fire, flood, or other casualty which is
not covered by the Corporation's insurance.
(6) Material Claims. No material claim has arisen, of
---------------
which the Corporation is aware, that is not adequately covered by
insurance policies maintained by the Corporation, and the
Corporation has delivered a certificate to that effect signed by
the chief executive officer of the Corporation and dated of even
date.
(I) Conditions to the Corporation's and Guarantors'
-----------------------------------------------
Obligation. The obligation of the Corporation and the Guarantors
- ----------
to consummate the transactions provided and by this Agreement are
subject to the satisfaction of each of the following conditions
and deliveries concurrently with the execution of this Agreement:
(1) Representations and Warranties. The
------------------------------
representations and warranties of Purchaser contained in section
(F) of this Agreement are true and correct on and as of the date
hereof, and Purchaser has delivered to the Corporation a
certificate, in the form attached as Schedule 22 to this
Agreement, signed by the president of Purchaser and dated of even
date.
(2) Performance of this Agreement. Purchaser has
-----------------------------
performed and observed in all material respects its covenants and
obligations under this Agreement and Purchaser has delivered to
the Corporation a certificate, in the form attached as Schedule
22 to this Agreement, signed by the president of Purchaser and
dated of even date.
(3) Litigation. There is no injunction, decree, or
----------
order issued by any court, governmental agency, or authority, or
any litigation instituted by any governmental agency or
9
authority, challenging or seeking to prohibit or enjoin any of
the transactions provided or contemplated by this Agreement.
(J) Tax Returns. The Corporation and Purchaser agree to
-----------
file all federal, state, and local tax returns, and to pay all
taxes, interest, and penalties in a manner consistent with the
allocation of the Purchase Price set forth in Schedule 9 to this
Agreement.
(K) Survival of Representations, Warranties, and Covenants.
------------------------------------------------------
All representations, warranties, and covenants contained in this
Agreement by any party to this Agreement and any certificate or
other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the
closing hereof for a period of ten (10) years following the date
of the Agreement.
(L) Indemnification.
---------------
(1) Indemnification by the Corporation and Guarantors.
-------------------------------------------------
After the date hereof, the Corporation and Guarantors shall
jointly and severally indemnify and hold harmless Purchaser
against and in respect of:
(a) Any damage, deficiency, or costs resulting
from any misrepresentation or breach of warranty or any
nonfulfillment of any covenant or agreement on the part of the
Corporation or Guarantors under this Agreement;
(b) Any damage, deficiency, or costs resulting
from claims regarding the Business, the Assets, or the Demised
Premises accruing or existing as a condition prior to the date
hereof by a person, firm, corporation, other than a party to this
Agreement or governmental entity; and
(c) Any claim, action, suit, proceeding, demand,
judgment, assessment, cost, and expense, including reasonable
counsel fees, incident to any of the foregoing.
The Corporation and Guarantors shall reimburse Purchaser for
all liabilities, damages, deficiencies, claims, actions, suits,
proceedings, demands, judgments, assessments, costs, and expenses
to which this section (L)(1) relates only if a claim for
indemnification is made by Purchaser within the period ending ten
(10) years after the date hereof except the assumption of
liabilities by Purchaser under section (B) of this Agreement
shall not be subject to any limitation on survival, other than as
contained in the terms of any liability assumed under section
(B). Such indemnification shall apply only to all claims of any
amount made under this section (L)(1) from and after the point a
single claim or an aggregate of several claims equals One
Thousand ($1,000) Dollars. The Guarantors have additionally
executed and delivered to Purchaser an Environmental Indemnity
Agreement, the form of which is attached as Schedule 15.
10
(2) Indemnification by Purchaser. After date hereof,
----------------------------
Purchaser shall indemnify and hold harmless the Corporation and
Guarantors against and in respect of:
(a) Any damage, deficiency, or costs resulting
from any misrepresentation or breach of warranty or any
nonfulfillment of any covenant or agreement on the part of
Purchaser under this Agreement;
(b) Any damage, deficiency, or costs resulting
from claims regarding the Assets or the Demised Premises accruing
after the date hereof by a person, firm, or corporation other
than a party to this Agreement; and
(c) Any claim, action, suit, proceeding, demand,
judgment, assessment, cost, and expense, including reasonable
counsel fees, incident to any of the foregoing.
Purchaser shall reimburse the Corporation for any
liabilities, damages, deficiencies, claims, actions, suits,
proceedings, demands, judgments, assessments, costs, and expenses
to which this section (L)(2) relates only if a claim for
indemnification is made by the Corporation and/or the Guarantors
within the period ending ten (10) years after the date hereof.
Such indemnification shall apply only to all claims of any amount
made hereunder from and after the point a single claim or an
aggregate of several claims exceeds One Thousand ($1,000)
Dollars.
(3) Indemnification Procedure. A party seeking
-------------------------
indemnification (the "indemnitee") shall use its best efforts to
minimize any liabilities, damages, deficiencies, claims,
judgments, assessments, costs, and expenses in respect of which
indemnity may be sought under this Agreement. The indemnitee
shall give prompt written notice to the party from whom
indemnification is sought (the "indemnitor") of the assertion of
a claim for indemnification, but in no event longer than (a) 15
days after service of process in the event litigation is
commenced against the indemnitee by a third party, or (b) 30 days
after the indemnitee becomes aware of circumstances, not
involving the commencement of litigation by a third party, which
may give rise to a claim for indemnification. No such notice of
assertion of a claim shall satisfy the requirements of this
section (L)(3) unless it describes in reasonable detail and in
good faith the facts and circumstances upon which the asserted
claim for indemnification is based. The indemnitee shall consult
with the indemnitor with respect to the payment, settlement, or
defense of any claim, action, suit, proceeding, or demand. If any
action or proceeding shall be brought in connection with any
liability or claim to be indemnified hereunder, the indemnitee
shall provide the indemnitor a period of 30 days to decide
whether to defend such liability or claim. During such period the
indemnitee shall take all necessary steps to protect the
interests of itself and the indemnitor, including the filing of
necessary responsive pleadings, the seeking of emergency relief,
or other action necessary to maintain the status quo, subject to
reimbursement from the indemnitor of its expenses in doing so. If
the indemnitor determines that it shall defend such action or
proceeding, the indemnitor shall defend such action or proceeding
at its expense, using counsel selected by any insurance company
insuring against any such claim and undertaking to defend such
claim, or by other counsel selected by it and approved by the
indemnitee, which approval shall not be unreasonably withheld or
delayed. The indemnitor shall keep the
11
indemnitee fully apprised at all times as to the status of the
defense and shall consult with the indemnitee prior to settlement
of any indemnified matter. In the event the indemnitee has a
claim or claims against any third party growing out of or
connected with the indemnified matter, then upon receipt of
indemnification, the indemnitee shall fully assign to the
indemnitor the entire claim or claims and the indemnitor shall
thereupon be subrogated with respect to such claim or claims of
the indemnitee.
(M) Prorations and Adjustments.
--------------------------
(1) Expenses. All current rents, security deposits,
--------
contract deposits, or advance payments, property and payroll
taxes, assessments, utility charges, insurance premiums on any
policy acquired by Purchaser, and any other prepaid or deferred
expenses relating to the operation of the Business shall be
prorated or reimbursed, as the case may be, as of June 1, 1998.
The Corporation shall retain all revenues and shall be
responsible for all expenses and liabilities allocable to the
period prior to June 1, 1998, including payments due prior to
June 1, 1998 under such prorated contracts, and Purchaser shall
receive all revenues and shall, to the extent agreed hereunder,
be responsible for all expenses and liabilities allocable to the
period subsequent to June 1, 1998.
(2) Time of Prorations and Adjustments. The
----------------------------------
prorations and adjustments contemplated by this section, to the
extent practicable, shall be made on the date hereof. As to those
prorations and adjustments not capable of being ascertained on
June 1, 1998, any adjustment and proration shall be made within
90 calendar days of the date hereof.
(3) Disputes. In the event of any disputes between
--------
the parties as to such adjustments, the amounts not in dispute
shall nonetheless be paid at the time provided in section (M)(2),
and such disputes shall be determined by an independent certified
public accountant mutually acceptable to the parties, and the
fees and expenses of such accountant shall be paid one-half by
the Corporation and one-half by Purchaser. If the parties are
unable to agree upon the selection of an independent certified
public accountant, then they shall promptly submit such dispute
to binding arbitration through the American Arbitration
Association.
(N) Records and Further Assurances. After the date hereof,
------------------------------
the Corporation and Purchaser shall make available to the other
on reasonable request such books and records of that party as may
be appropriate for use in connection with their respective tax
returns, including any review thereof, and for any other
reasonable purpose. Such books and records shall be retained for
a period of 10 years; provided, however, that after 3 years any
portion of such books and records may be destroyed in whole or in
part, by the party in possession thereof upon 30 days' notice to
the other party, unless the party to whom such notice is given
shall object, in which event the objecting party shall be given
such records in lieu of destruction thereof. Either party shall,
at the other party's request, execute and deliver such other
instruments of conveyance and transfer and take such other
actions as may be reasonably requested to effectively carry out
the terms and provisions of this Agreement.
12
(O) Public Statements. Except for such disclosure and
-----------------
reporting obligations of the Purchaser required as a result of
Purchaser's parent corporation being a listed publicly traded
corporation which disclosure and reporting obligations the
Purchaser intends to satisfy through Coffins Communications
Group, neither the Corporation, nor the Guarantors, nor Purchaser
shall, without the prior written approval of each other party
hereto, make any press release or other public announcement
concerning the transactions provided by this Agreement.
(P) Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall
be mailed by first class, registered, or certified mail, postage
prepaid, or sent via overnight courier service:
If to Purchaser, to:
Attention: Sean Garber, President
ISA Indiana, Inc.
P.O. Box 32428
Louisville, Kentucky 40232
with copy to:
Joseph H. Cohen, Esq.
Morris, Garlove, Waterman & Johnson PLLC
One Riverfront Plaza, Suite 1000
Louisville, Kentucky 40202
If to the Corporation or Guarantors, to:
Mr. R.K. Fitzpatrick, President
R.J. FITZPATRICK SMELTERS, INC.
P.O. Box 387
Seymour, Indiana 47274
with copy to:
Edward P. Elsner, Jr., Esq.
Montgomery, Elsner & Pardieck
308 West 2nd Street
Seymour, Indiana 47274
or to such other address of which the addressee shall have
notified the sender in writing. Notices mailed in accordance with
this section shall be deemed given when mailed, and notices sent
by overnight courier service shall be deemed given when placed in
the hands of a representative of such service.
13
(Q) Third Party Rights. It is the intention of the parties
------------------
that nothing in this Agreement shall be deemed to create any
right with respect to any person or entity not a party to this
Agreement.
(R) Parties in Interest; Assignment. All covenants and
-------------------------------
agreements contained in this Agreement by or on behalf of any of
the parties to this Agreement shall bind and inure to the benefit
of their respective heirs, executors, successors, and assigns,
whether so expressed or not. No party to this Agreement may
assign its rights or delegate its obligations under this
Agreement to any other person or entity without the express prior
written consent of the other party, except that Purchaser may
assign its rights and delegate its obligations to a subsidiary or
affiliated corporation of Purchaser, provided that such
assignment and delegation shall not relieve Purchaser of its
obligations under this Agreement.
(S) Construction; Governing Law. The section headings
---------------------------
contained in this Agreement are inserted as a matter of
convenience and shall not affect in any way the construction of
the terms of this Agreement. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of
Indiana.
(T) Entire Agreement; Amendment and Waiver. This
--------------------------------------
Agreement, including the schedules hereto and related instruments
referred to herein, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions
provided and contemplated hereby and supersedes any prior writing
by the parties. The parties may, by mutual agreement in writing,
amend this Agreement in any respect, and any party, as to such
party, may in writing (1) extend the time for the performance of
any obligations of any other party; (2) waive any inaccuracies in
representations and warranties by any other party; (3) waive
performance of any obligations by any other party; and (4) waive
the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations hereunder or
is a condition subsequent. No such waiver shall be deemed to
constitute the waiver of any other breach of the same or of any
other term or condition of this Agreement. Any such amendment or
waiver must be signed by an officer of the parties or party to
such amendment or waiver.
(U) Severability. The invalidity or unenforceability of
------------
any provision of this Agreement shall not affect the validity or
enforceability of the remaining provisions.
(V) Counterparts. This Agreement may be executed in one or
------------
more counterparts, any one of which need not contain the
signatures of more than one party but all of which taken together
shall constitute one and the same agreement.
(W) Expenses. Each party to this Agreement shall
--------
respectively pay any and all fees and expenses that such party
may incur in connection with the negotiation, execution, and
closing of this Agreement and the other transactions provided and
contemplated by this Agreement. Notwithstanding the foregoing,
the Corporation shall pay any local and state taxes and fees
assessed or due in connection with the sale of the Assets to
Purchaser, including any transfer and sales taxes (other than
income taxes).
14
(X) Schedules. The Schedules 1 through and including 22
---------
attached to this Agreement constitute a part of this Agreement
and are incorporated herein by reference in their entirety as if
fully set forth in this Agreement at each point mentioned.
(Y) Time of Essence. Time is of the essence to the
---------------
performance of the obligations set forth in this Agreement.
IN WITNESS WHEREOF, the Corporation, the Guarantors and
Purchaser have caused this Asset Purchase Agreement to be
executed by their duly authorized officers and by R.K.
Fitzpatrick and Cheryl Fitzpatrick, individually, on July 31,
1998, but effective as of June 1, 1998.
R.J. FITZPATRICK SMELTERS, INC.
By: /s/ R. K. Fitzpatrick
------------------------------
R.K. Fitzpatrick, President
ISA INDIANA, INC.
By: /s/ Sean Garber
------------------------------
Sean Garber, President
/s/ R.K. Fitzpatrick
----------------------------------
R.K. FITZPATRICK, Individually
/s/ Cheryl Fitzpatrick
----------------------------------
CHERYL FITZPATRICK, Individually
July 30, 1998 (4:41 pm)
15
SCHEDULES TO
ASSET PURCHASE AGREEMENT
Schedule 1 The governmental authorizations, together with any
renewals, extensions, or modifications thereof and
applications therefor
Schedule 2 The Legal Description of the Demised Premises
(13.834 acres)
Schedule 3 The personal property consisting of machinery,
equipment, furniture, and fixtures ("FF&E") and
supplies
Schedule 4 All of the written contracts, agreements,
commitments, understandings, or instruments
relating to the Business, and all written
agreements, commitments, and benefits relating or
payable to employees of the Business, whether
earned before or after the closing date
(collectively, the "contracts") to which the
Corporation is a party or by which it is bound
Schedule 5 Excluded Contracts
Schedule 6 The Commission Agreement and Covenant Not to
Compete between the Purchaser, and Guarantors
Schedule 7 Guarantors' Personal Property
Schedule 8 The Phase I and Phase II Environmental Assessment
and Supplemental Reports prepared by NSS
Environmental, Inc.
Schedule 9 Allocation of Purchase Price for Assets
Schedule 10 The Lease for the Demised Premises
Schedule 11 The Bill of Sale
Schedule 12 The Assignment or Assignments to effect the sale,
conveyance, and transfer of good and marketable
title to the Assets from the Corporation to
Purchaser, free and clear of all liens, mortgages,
security interests, pledges, charges, and
encumbrances
Schedule 13 Opinion of Counsel for Corporation and Guarantors
Schedule 14 Subordination Non-Disturbance and Attornment
Agreement
Schedule 15 The Environmental Indemnity Agreement
Schedule 16 The Exceptions to Good Title to Assets
Schedule 17 An instrument or instruments of assumption in the
form (with appropriate insertions) to evidence
Purchaser's assumption of the liabilities set
forth on Schedule 4 to be assumed by Purchaser
Schedule 18 Unaudited Financial Statements for the period
ended December 31, 1996 and December 31, 1997
Schedule 19 Employee Welfare Benefit Plans and Employee
Pension Benefit Plans
Schedule 20 Noncancelable Contracts, including material
leases, employment contracts, contracts for
services or maintenance, or other similar
contracts existing or relating to or connected
with the operation of the Corporation's Business
not cancelable within thirty (30) days
Schedule 21 Corporation's and Guarantor's Certification of
their Representations and Warranties
Schedule 22 Purchaser's Certificate of its Representations and
Warranties
Schedule 1
The governmental authorizations, together
with any renewals, extensions, or
modifications thereof and applications
therefor
NONE
Schedule 3
----------
Personal Property consisting of machinery, equipment,
furniture, and fixtures ("FF&E") and supplies
Schedule 4
All of the written contracts, agreements,
commitments, understandings, or instruments
relating to the Business, and all written
agreements, commitments, and benefits
relating or payable to employees of the
Business, whether earned before or after the
closing date (collectively, the "contracts")
to which the Corporation is a party or by
which it is bound
NONE
Schedule 5
Excluded Contracts
NONE
Schedule 9
Allocation of Purchase Price for Assets
[Entire purchase price to be allocated to Equipment listed in
Schedule 3]
Schedule 12
The Assignment or Assignments to effect the
sale, conveyance, and transfer of good and
marketable title to the Assets from the
Corporation to Purchaser, free and clear of
all liens, mortgages, security interests,
pledges, charges, and encumbrances
[Attach Certificate of Title for Vehicles and Similar Transfer
Instruments]
Schedule 16
The Exceptions to Good Title to Assets
UCC
Assets Secured Party Information
- ------ ------------- -----------
1988 Used A-1 Jon #400 Logger Jackson County Bank #278 filed
and any attachments or ancillary 9/27/93
equipment, Serial #12593 with
Detroit Diesel 453 engine,
Serial #4D-22163
Caterpillar 225 Hydraulic Jackson County Bank #1551 filed
Excavator, Serial #514 672; 9/21/95
1989 Peterbilt Semi-Tractor
Model #377, Serial
#1XPCDBPXXXKD277309;
and Industrial Metal Lift Magnet
Caterpillar 225 Hydraulic Crane Jackson County Bank #96-703 filed
7/31/96
All Equipment, Replacements and National City Bank of #96-803 filed
Additions Hereto, Now Owned and Indiana 9/17/96
Hereafter Acquired
All Equipment, Furniture and National City Bank of #97-304 filed
Fixtures Now Owned, Replacements, Indiana 4/17/97
and Additions Thereto
Roll Off Boxes: Jackson County Bank #97-137 filed
40 Yard, serial #1304; 2/25/97
40 Yard, serial #1305;
30 Yard, serial #1395;
30 Yard, serial #1396;
30 Yard, serial #1397;
20 Yard, serial #1092; and
20 Yard, serial #18149
Caterpillar Lift Truck, Model Jackson County Bank #97-19 filed
#GP25-LP, Serial #5AM03732, 1/3/97
4-way Hydraulics, 132 Duplex Mast,
OHG, Offlatch Restraint System
All Equipment Jackson County Bank #97-18 filed
1/3/97
TOTAL PAYOFF *$364,279.84
*PAYMENTS FROM PURCHASE PRICE TO BE MADE BY PURCHASER
JOINTLY AS FOLLOWS: (I) TO CORPORATION AND JACKSON
COUNTY BANK, THE SUM OF $295,277.98, AND (II) TO
CORPORATION AND NATIONAL CITY BANK OF INDIANA, THE SUM
OF $69,001.86.
Schedule 17
An instrument or instruments of assumption in
the form (with appropriate insertions) to
evidence Purchaser's assumption of the
liabilities set forth on Schedule 4 to be
assumed by Purchaser
NONE
Schedule 18
Unaudited Financial Statements
December 31, 1996 and December 31, 1997
Schedule 19
Employee Welfare Benefit Plans and Employee Pension Benefit Plans
[Provided by Seller]
Schedule 20
Noncancelable Contracts, including material
leases, employment contracts, contracts for
services or maintenance, or other similar
contracts existing or relating to or
connected with the operation of the
Corporation's Business not cancelable within
thirty (30) days
NONE
EXHIBIT 10.21
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT made and effective the 1st day of June,
1998, at Seymour, Indiana, is by and between R.K. FITZPATRICK and
CHERYL FITZPATRICK, his wife, each an Indiana resident and R.J.
FITZPATRICK SMELTERS, INC., an Indiana corporation, each of P.O.
Box 387, Seymour, Indiana 47274 (herein jointly "Landlord"); and
ISA INDIANA, INC., an Indiana corporation, of 7100 Grade Lane,
Louisville, Kentucky 40213 (herein "Tenant").
W I T N E S S E T H:
- - - - - - - - - -
IN CONSIDERATION of the rents to be paid, covenants,
condition, terms, and provisions hereinafter stated, the Landlord
does hereby lease to the Tenant and the Tenant does hereby accept
lease from the Landlord, and the Landlord, and Tenant do hereby
warrant, covenant, and agree each with the other as hereinafter
set forth.
1. DEMISED PREMISES:
----------------
The Landlord demises unto the Tenant and the Tenant leases
from the Landlord that certain 13.834 acre parcel of improved
real estate located at County Road 900 W., Jennings County,
Indiana 47274, which is outlined and cross-hatched in red on
ANNEX "A" attached hereto (herein called the "Demised Premises").
The Landlord grants to Tenant the right to fully utilize all
easements, rights, and appurtenances applicable to the Demised
Premises.
2. DELIVERY OF POSSESSION OF DEMISED PREMISES:
------------------------------------------
Possession of the Demised Premises shall be deemed delivered
to and accepted by Tenant on or about June 1, 1998.
3. RENT:
----
A. Fixed Minimum Rent During the Ten (10) Year Original
---------------------------------------------------
Term and Each of the Ten (10) Successive Ten (10) Year Renewal
- --------------------------------------------------------------
Terms. The Tenant shall pay to Landlord on or before the first
- -----
day of each consecutive calendar month in advance, the monthly
sum $13,000 as "Fixed Minimum Rent" each month during the ten
(10) year Original Term of this Lease. During each ten (10) year
Renewal Term of this Lease, Tenant shall pay to Landlord a sum
equal to $13,000 increased in direct proportion to the change in
the cost of living as reflected in the Consumer Price Index as
revised
for All Urban Consumers - U.S. City Average, published by the
Bureau of Labor Statistics, U.S. Department of Labor based on All
Items for the years 1982-84=100 as set forth below:
The Fixed Monthly Minimum Rent of $13,000
shall be multiplied by fractions, the
denominator of which is the Index figure for
June, 1998 and the numerators of which shall
be the Index figures for June, 2008, June
2018, June 2028, June 2038, June 2048, June
2058, June 2068, June, 2078, June 2088, 2098,
and June 2108, respectively. Such adjusted
amounts shall be payable in advance on the
first day of each consecutive calendar month
during each respective option period.
B. Additional Rent. In addition to the rent set forth in
---------------
this paragraph 3, Tenant shall pay to Landlord as "Additional
Rent" during the term of this Lease and any extension or renewal
thereof, any and all sums of money or charges required to be paid
by Tenant under the terms of this Lease whether designated
"Additional Rent" or not, and such amounts, if not paid when due,
shall be collectible as "Additional Rent" with the next
installment of rent thereafter falling due as provided herein and
otherwise subject to all provisions of this Lease as of law as to
default in the payment of rent; provided, nothing herein shall be
deemed to excuse or delay the obligation of Tenant to pay any
amount of money or charge at the time the same shall become due
under the terms of this Lease.
C. Allocation of Rent. The Landlord has requested that
------------------
all rent payments be made solely to R.J. Fitzpatrick Smelters,
Inc. on behalf of all Landlords and the parties stipulate that
the Fitzpatricks, individually, are entitled to $500 of each
monthly rent.
4. COMMENCEMENT DATE AND ORIGINAL AND RENEWAL TERMS OF
---------------------------------------------------
LEASE:
-----
The Commencement Date of the Original Term of this Lease
shall be the 1st day of June, 1998. The Original Term of this
Lease is for a period of ten (10) years ending at midnight the
31st day of May, 2008. However, at any time after May 31, 2003,
Tenant may cancel this Lease and terminate any further liability
to Landlord by paying to Landlord the cash sum of $156,000 as a
termination payment. Unless Tenant elects in writing to
terminate this Lease not less than six (6) months prior to the
expiration of the then current term, the terms of this Lease
shall be automatically renewed for successive periods of ten (10)
years each.
5. EXTENSION OF TERM AND RIGHT OF FIRST REFUSAL FOR
------------------------------------------------
ADDITIONAL LEASE:
----------------
If Tenant occupies the Demised Premises after the end of the
original and all renewal terms, occupancy shall in all events
during said extended period be governed by the terms and
provisions of this Lease; such continued occupancy shall be only
on a month-to-month basis. Nothing herein contained and nothing
contained above shall cause the term of this Lease to begin prior
2
to Commencement Date stated above or be extended without express
written consent of the Landlord; and without such written
consent, the Lease shall begin and terminate as provided in
paragraph 4 or elsewhere in this Lease. At and after the
expiration of the term, Tenant shall have the right of first
refusal to lease the Demised Premises upon the same terms and
conditions as proposed by Landlord and any bona fide prospective
tenant.
6. USE OF DEMISED PREMISES AND OPERATION OF BUSINESS:
-------------------------------------------------
A. Landlord represents and warrants that the Demised
Premises have been used for scrap and recycling operations
continuously since prior to January 1, 1973. If for any reason
Tenant is deprived of full use of the Demised Premises and all
facilities thereon, Tenant shall have the option to terminate the
Lease without further liability thereon. The Tenant may use the
Demised Premises for the same business uses as heretofore
operated by R.J. Fitzpatrick Smelters, Inc. being the scrap and
recycling business. In addition, Tenant may use the Demised
Premises for any lawful purpose.
B. Tenant shall use and occupy the Demised Premises in
accordance with local ordinances and the lawful directions of
proper public officials.
C. Commencing on the Commencement Date of this Lease,
Tenant shall indemnify Landlord and hold Landlord harmless from
and against all claims, actions, demands, expenses, and judgments
for loss, damage or injury to property or persons resulting or
occurring by reason of Tenant's use or occupancy of the Demised
Premises, and the Landlord shall indemnify Tenant and hold Tenant
harmless from and against all claims, actions, demands, expenses,
and judgments for loss, damage or injury to property or persons
resulting or occurring by reason of any event or condition which
occurred or existed on or prior to the Commencement Date of this
Lease, as reflected on the Phase I and Phase II Environmental
Assessments attached hereto as ANNEX "B" and "C", respectively.
D. In Tenant's use and occupancy of the Demised Premises,
Tenant shall comply with the requirements of all federal, state,
and local safety, health, environmental, and sanitation laws,
rules, regulations, and ordinances.
E. Tenant shall not install any underground tanks or
associated underground piping for the storage or transmission of
any product on the Demised Premises without the prior express
written consent of Landlord.
7. PUBLIC UTILITIES AND SERVICES:
-----------------------------
A. Tenant shall pay for all water, gas, electricity,
telephone and other utility charges as incurred at the Demised
Premises.
3
B. Interruption or cessation or impairment of any utility
and/or sewer or related service caused or necessitated by
repairs, improvements, or hazards or causes beyond the Landlord's
direct control, shall not give Tenant any claim for damages
against Landlord or any right to abate Tenant's rent or other
obligations hereunder.
8. TAXES:
-----
A. Tenant will pay all taxes on any leasehold interest,
furnishings, equipment, stock-in-trade, Tenant's own property and
improvements made by Tenant or on Tenant's behalf with respect to
the Demised Premises whether or not the same is attached to the
real estate.
B. Tenant shall pay the real estate taxes and assessments
levied and assessed against the Demised Premises. The term "real
estate taxes" shall mean all existing taxes, assessments, and
government charges and all additional and new taxes, assessments,
and governmental charges whether designated real estate taxes,
assessments, or ad valorem taxes.
9. ALTERATIONS AND REPAIRS:
-----------------------
Tenant shall keep and maintain the buildings upon the
Demised Premises and other improvements exclusively serving the
Demised Premises in as good condition as when received at the
Commencement Date less ordinary wear and tear. If Tenant refuses
or neglects to commence or complete repairs promptly and
adequately, Landlord may, following reasonable written notice to
Tenant, make or complete said repairs and Tenant shall pay the
cost thereof to Landlord upon demand as additional rental
hereunder. Tenant shall surrender the Demised Premises to
Landlord at the expiration or earlier termination of this Lease
in as good condition as when received, excepting only
deterioration caused by ordinary wear and tear considering the
nature of Tenant's business.
10. TENANT'S RIGHT TO MAKE ALTERATIONS:
----------------------------------
The Tenant shall have the right make any alterations,
improvements, or additions to the Demised Premises Property
during the term of this Lease or any extension thereof as deemed
necessary by Tenant for its operations. All such permitted
alterations, improvements, and additions made by the Tenant shall
remain upon the Demised Premises at the expiration or earlier
termination of this Lease and shall become the property of the
Landlord. In no event shall Tenant permit any statutory lien to
be filed and maintained against the Demised Premised, or Tenant's
leasehold interest as a result of labor or materials furnished to
the Demised Premises at the direction of or on behalf of Tenant,
either directly or indirectly. Notwithstanding anything
contained herein to the contrary, any changes in the Demised
Premises made by Tenant shall not reduce the fair market value of
the improvements upon the Demised Premises and shall not material
change the "business use" of such improvements.
4
11. LIABILITY OF LANDLORD:
---------------------
Unless the fault of Landlord, Landlord shall not be liable
for any damage done or occasioned by or from the electrical
system, the heating or air conditioning system, the plumbing and
sewer systems, nor for damages occasioned by water, snow or ice
being upon or coming through the roof, trap door, walls, windows,
doors, or otherwise, in, upon, or about the Demised Premises.
Unless the fault of Landlord, Landlord shall not be liable for
any damage to Tenant's fixtures, furniture, furnishings, floor
and wall coverings, special equipment and all other items of
personal property of Tenant resulting from fire or other hazards,
and Tenant hereby releases Landlord from all liability for such
damage. Landlord agrees to and shall indemnify Tenant and hold
Tenant harmless from any and all liability arising from any
condition of the Demised Premises which may be deemed
environmentally impaired as reflected by the Environmental
Assessments attached ANNEX "B" and "C", and Landlord has executed
and delivered to Tenant a separate Environmental Indemnity
Agreement, the form of which is attached as ANNEX "D". The
parties have agreed that Landlord shall be responsible to Tenant
for sums up to but not exceeding $500,000 with respect to
environmental liabilities.
12. MISCELLANEOUS ADDITIONAL AFFIRMATIVE COVENANTS OF
-------------------------------------------------
TENANT:
------
The Tenant covenants that except for Landlord's
responsibility for the Demised Premises' environmental condition
as reflected in ANNEX "B" and C, Tenant shall:
A. Comply with the terms of any state or federal statute or
local ordinance or regulation applicable to the Tenant and its
use of the Demised Premises and save the Landlord harmless from
penalties, fines, costs, expenses, or damages resulting from its
failure to do so.
B. Tenant shall have no right to and will not permit any
mechanic's or other liens against the Demised Premises or any
part thereof, by reason of work, labor, services or materials
supplied or claimed to have been supplied to Tenant or anyone
holding any portion of the Demised Premises through or under the
Tenant. No such attempted lien, even if filed or recorded, shall
be valid against the Demised Premises. If, however, any such
lien shall at any time be filed against the Tenant's interest in
the Demised Premises and/or against the Landlord's interest or
property because of any claim of any acts or omissions on the
part of the Tenant, the Tenant shall either cause the same to be
discharged of record within twenty (20) days after the date of
filing of same, or, if the Tenant, in the Tenant's discretion and
good faith, determines that such lien should be contested, the
Tenant shall furnish such security as may be necessary or
required to prevent any foreclosure proceedings against the
Tenant's or Landlord's interest in the Demised Premises during
the pendency of such contest and shall substitute a bond for the
Demised Premises if permitted by the laws of Indiana so that the
lien is removed from the Demised Premises.
5
C. Tenant agrees that should this Lease be terminated for
any reason, Tenant shall redeliver the Demised Premises in a
condition with respect to environmental matters which are not
more adverse than the condition as reflected by ANNEX B and C.
13. SIGNS:
-----
The Tenant shall have the right to install or affix any
sign, device, fixture, or attachment on or upon the Demised
Premises, including any roofs or canopies of any buildings upon
the Demised Premises as Tenant deems necessary.
14. DAMAGE TO DEMISED PREMISES:
--------------------------
In the event any portion of the Demised Premises is damaged
by any peril covered by standard policies of fire insurance with
extended coverage, the Tenant shall promptly, at Tenant's own
expense from the insurance proceeds received, cause such damage
to be repaired and the rent shall not be abated. In all events,
Tenant shall receive the entire proceeds of insurance without
claim by Landlord. At the expiration of the Lease, Tenant shall
return the Demised Premises to Landlord in the same condition as
received less any ordinary wear and tear and improvements made by
Tenant which remain.
15. INDEMNIFICATION, PUBLIC LIABILITY INSURANCE, AND FIRE
-----------------------------------------------------
AND EXTENDED COVERAGE INSURANCE:
- -------------------------------
A. Except for Landlord's own negligence, the Tenant agrees
to and shall indemnify the Landlord and save the Landlord
harmless from and against any and all claims, actions, damages,
liability, and expense in connection with loss of life, personal
injury, or damage to property occurring in or about and/or
arising out of Tenant's use of the Demised Premises. Except for
Landlord's own negligence, in case the Landlord shall be made a
party to any litigation commenced by or against the Tenant,
Tenant's agents, sub-tenants, licensees, concessionaires,
contractors, customers, or employees, then the Tenant shall
protect and hold the Landlord harmless and shall pay all costs,
expenses, and reasonable attorneys' fees incurred or paid by the
Landlord in connection with such litigation. Landlord shall
indemnify Tenant with respect to matters resulting from
landlord's intentional acts or negligence.
B. At all times during the term hereof, the Tenant agrees
to, and shall keep in force, at Tenant's own expense public
liability insurance in companies acceptable to the Landlord and
naming as the named insureds both the Landlord and Tenant, with
minimum limits of $1,000,000 on account of bodily injuries to or
death of one or more than one person as a result of any one
accident or disaster, and $100,000 on account of damage to
property.
6
C. The Tenant shall furnish to Landlord within ten (10)
days after the execution of this instrument and at all times
during the term hereof, copies of policies or certificates of
insurance evidencing continuing coverage required by this Lease.
All policies required hereunder shall contain an endorsement
providing that the insurer will not cancel or materially change
the coverage of such policies without first giving thirty (30)
days prior written notice thereof to the Landlord.
D. Tenant shall secure, maintain and keep insured during
the term hereof and any extension thereof, the Demised Premises
against loss or damage and risks covered by standard policies of
fire and extended coverage, in an amount not less than the
respective full insurable values thereof, which policy or
policies shall have Landlord as an additional named insured.
Unless otherwise provided in this Lease, in case of the
destruction of or damage to said buildings or improvements or any
part thereof, Tenant agrees to apply all such sums of money
received by virtue of any such insurance in repairing or
rebuilding such buildings or improvements. The term "full
insurable value" shall mean the actual replacement cost excluding
foundation and excavation cost less physical depreciation with
respect to the Demised Premises. Tenant shall be responsible for
the cost of any repair in excess of insurance coverage.
16. WAIVER OF CLAIMS:
----------------
In the event the building improvements upon the Demised
Premises are damaged or destroyed by fire or other insured
casualty, the rights, if any, of the Landlord and Tenant against
each other with respect to such damage or destruction are waived;
and all policies of insurance covering the Demised Premises shall
contain a clause or endorsement providing in substance that the
insurance shall not be prejudiced if the assured has waived its
right of recovery from any person or persons prior to the date
and time of loss or damage, if any, and no insurance carrier of
either Tenant or Landlord shall have any rights or subrogation
against the other.
17. TRADE FIXTURES:
--------------
All trade fixtures installed by the Tenant in the Demised
Premises shall remain the property of the Tenant and shall be
removed at the expiration or earlier termination of this Lease
provided the Tenant shall not at such time be in default under
any covenant or condition herein; and provided further, that in
the event of such removal, Tenant shall repair any damage caused
by such removal and the Tenant shall promptly restore the
premises to their order and condition as of the Commencement Date
of this Lease. Any trade fixtures not so removed shall become
the property of the Landlord.
7
18. ASSIGNMENT AND SUBLETTING:
-------------------------
The Tenant shall not assign this Lease without obtaining the
prior written consent of the Landlord which consent shall not be
unreasonably withheld. In the event that Tenant shall at any
time during the term of this Lease, sublet all or any part of the
Demised Premises, which Tenant may do without Landlord's consent,
then, and in such event, it is hereby mutually agreed that Tenant
shall nevertheless remain fully liable under all the terms,
covenants, and conditions of this Lease. If this Lease be
assigned, or if the Demised Premises or any part thereof be
subleased or occupied by anyone other than Tenant, Landlord may
collect from the assignee, sublessee or occupant any rent or
other charges payable by Tenant under this Lease, and apply the
amount collected to the rent and other charges herein reserved,
but such collection by Landlord shall not be deemed an acceptance
of the assignee, sublessee, or occupant as a tenant nor a release
of Tenant from the performance by Tenant under this Lease. Each
permitted transferee shall assume and be deemed to have assumed
this Lease and shall be and remain liable, jointly and severally,
with Tenant for the payment of all rents provided for herein and
for the due performance and compliance with all the terms,
covenants, conditions, and agreements herein contained on
Tenant's part to be performed or complied with for the term of
this Lease. No assignment shall be binding on Landlord unless
such assignee or Tenant shall deliver to Landlord a duplicate
original of the instrument of assignment which contains a
covenant of assumption by the assignee of all of the obligations
aforesaid and shall obtain from Landlord the aforesaid written
consent, prior thereto.
19. TRANSFERS BY LANDLORD
---------------------
A. Any sale of the Demised Premises is subject to this
Lease and Tenant's option to purchase.
B. Limit on Encumbrances. Landlord shall not mortgage or
---------------------
encumber the Demised Premises in an aggregate sum exceeding
$1,600,000.
C. Landlord agrees to provide to Tenant at all times when
requested a Subordination, Non-Disturbance and Attornment
Agreement executed by Landlord and Landlord's lender(s) prepared
by Tenant's counsel or reasonably acceptable to Tenant which
recognizes Tenant's rights under this Lease provided Tenant is
not in default of its terms.
20. CUSTOM, USAGE, ACCORD, AND SATISFACTION:
---------------------------------------
Any law, usage, or custom to the contrary notwithstanding
the Landlord shall have the right at all times to enforce the
covenants and conditions of this Lease in strict accordance with
the terms hereof, notwithstanding any conduct or custom on the
part of the Landlord in refraining from so doing at any time or
times. The failure of the Landlord at any time to enforce its
rights under such covenants and conditions strictly in accordance
with the same shall not be construed as having
8
created a custom in any way or manner contrary to the specific
covenants and conditions of this Lease or as having in any way or
manner modified or waived the same. Further, no payment by
Tenant or receipt by Landlord of a lesser amount than the rental
herein stipulated shall be deemed to be other than an account of
the earlier stipulated rent nor shall any endorsement or
statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue
any other remedy provided for in this Lease or available at law
or in equity.
21. EMINENT DOMAIN:
--------------
In the event the Demised Premises or any part thereof shall
be taken or condemned either permanently or temporarily for any
pubic or quasi-public use or purpose by any competent authority
in appropriation proceedings or by any right of eminent domain,
the entire compensation award therefor, including, but not
limited to, all damages as compensation for diminution in value
of the leasehold, reversion, and fee, shall belong to the parties
hereto in accordance with their respective interests. Tenant
shall have the separate right to claim and recover from the
condemning authority, such compensation as may be separately
awarded or recoverable by Tenant in Tenant's own right on account
of any and all damage to Tenant's business by reason of the
condemnation and for or on account of any cost or loss to which
Tenant may be put in removing Tenant's property.
If the whole of the Demised Premises (or so much thereof as
to render the balance unsuitable for Tenant's business in the
sole determination of Tenant reasonably exercised shall be taken
by any public authority under the power of eminent domain, this
Lease shall terminate as of the day possession shall be taken by
such public authority, and Tenant shall pay rent up to that date
with an appropriate refund by Landlord of such rent as shall have
been paid in advance for a period subsequent to the date of the
taking. If less than a significant portion of the Demised
Premises shall be so taken so that Tenant may continue to operate
reasonably, this Lease shall terminate only with respect to the
parts so taken as of the day possession shall be taken by such
public authority, and Tenant shall pay rent up to that day with
an appropriate refund by Landlord of such rent as may have been
paid in advance for a period subsequent to the date of the
taking, and, thereafter, the Fixed Minimum Rent shall be
equitably adjusted.
22. EVENTS OF DEFAULT BY TENANT AND REMEDIES OF LANDLORD:
----------------------------------------------------
This Lease is made upon the condition that the Tenant shall
punctually and faithfully perform all of the covenants and
agreements by Tenant to be performed as herein set forth, and if
any of the following events of default shall occur, to wit: (a)
any installment of Fixed Minimum Rent, Additional Rent, or any
other sums required to be paid by Tenant hereunder, or any part
thereof, shall be any time in arrears and unpaid for twenty (20)
days after written demand therefor, or (b) there be any default
on the part of Tenant in the observance or performance of any of
the other covenants, agreements, or conditions of this Lease on
the part of Tenant to be kept and performed,
9
and said default shall continue for a period following twenty
(20) days written notice by Landlord unless Tenant shall have
commenced to cure said default within twenty (20) days and
continues diligently to pursue the curing of the same, or (c)
Tenant shall file a petition in bankruptcy or be adjudicated a
bankrupt, or file any petition or answer seeking any reorganiza
tion, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future
federal, state, or other statute, law, or regulation, or make an
assignment for the benefit of creditors, or (d) any trustee,
receiver, or liquidator of Tenant or of all or any substantial
part of their properties or of the Demised Premises shall be
appointed in any action, suit, or proceeding by or against Tenant
and such proceeding or action shall not have been dismissed
within fifteen (15) days after such appointment, then and in any
of said cases, Landlord, at its option, may terminate this Lease
and re-enter upon the Premises and take possession thereof with
full right to sue for and collect all sums or amounts with
respect to which Tenant may then be in default and accrued up to
the time of such entry, including damages to Landlord by reason
of any breach or default on the part of Tenant, or Landlord may,
if it elects so to do, bring suit for the collection of such
rents and damages without entering into possession of the Demised
Premises or voiding this Lease.
If Tenant at any time shall fail to pay any taxes,
assessments, or liens, or shall fail to make any payment or
perform any act required by this Lease to be made or performed by
Tenant, then Landlord, without waiving or releasing Tenant from
any obligation or default under this Lease, may (but shall be
under no obligation to) at any time thereafter make such payment
or perform such act for the account and at the expense of Tenant.
All sums so paid by Landlord and all costs and expenses so
incurred shall accrue interest at the rate of ten (10%) percent
per annum from the date of payment or incurring thereof by
Landlord and shall constitute additional rent payable by Tenant
under this Lease and shall be paid by Tenant to Landlord upon
demand. All other sums payable by Tenant to Landlord under this
Lease, if not paid when due, shall accrue interest at the rate of
ten (10%) percent per annum or the highest lawful legal rate from
their due date until paid, said interest to be so much additional
rent under this Lease and shall be paid to Landlord by Tenant
upon demand. If Landlord retakes possession of the Demised
Premises due to default of Tenant, Landlord shall have the right
to relet the Demised Premises. If Landlord is unable to relet
the Demised Premises or releases the Demised Premises for an
amount less than Tenant is obligated to pay for the balance of
the then current term, the Tenant shall be responsible for the
amount of loss suffered by Landlord either for loss of income
suffered by Landlord for the balance of the term if Landlord is
unable to relet the Demised Premises or relets the same for less
rent.
23. SPECIAL AND MISCELLANEOUS PROVISIONS:
------------------------------------
A. Entire Agreement. This Lease and any exhibits attached
----------------
hereto and forming a part hereof, set forth all the covenants,
promises, agreements, conditions, and understandings between
Landlord and Tenant concerning the Demised Premises and other
than a certain proposed subordination, non-disturbance and
attornment agreement between Landlord, Tenant, and The Seymour
National Bank, there are no covenants, promises, agreements,
conditions, or understandings either oral or written, between the
parties other than as are herein set forth. Except as herein
otherwise provided, no
10
subsequent alteration, amendment, change or addition to this
Lease shall be binding upon Landlord or Tenant unless reduced in
writing and signed by them. Tenant agrees that Landlord and its
agents have made no representation or promises with respect to
the Demised Premises except as herein expressly set forth.
B. Lease Inures. This Lease and all the covenants,
------------
provisions, and conditions herein contained shall inure to the
benefit of and be binding upon the successors, and assigns,
respectively, of the parties hereto.
C. Access to Premises. Landlord shall have free access to
------------------
the Demised Premises at all reasonable times during business
hours after notice and accompanied by Tenant for the purpose of
examining the same.
D. Invalid Provision. If any provision of this Lease
-----------------
shall be determined to be void by any court of competent jurisdic
tion, or regulatory agency or body having jurisdiction, then such
determination shall not affect any other provision hereof, all of
which other provisions shall remain in full force and effect.
E. Paragraph Headings. Any headings preceding the text of
------------------
the several paragraphs and subparagraphs hereof are inserted
solely for convenience of reference and shall not constitute a
part of this Lease, nor shall they affect its meaning,
construction or effect.
F. Waiver. No waiver of any condition or legal right or
-----
remedy shall be implied by failure of either Landlord or Tenant
to declare a forfeiture, or for any other reason, and no waiver
of any condition or covenant shall be valid unless it be in
writing signed by the party to be charged. No waiver by either
Landlord or Tenant in respect to any tenant of adjoining property
shall constitute a waiver in favor of any other tenant including
Tenant herein, nor shall the waiver of a breach of any condition
be claimed or pleaded to excuse a future breach of the same
condition or covenant. The mention in this Lease of any specific
right or remedy shall not preclude Landlord or Tenant from
exercising any other right or from having any other remedy or
from maintaining any action to which it may be otherwise entitled
either by law or in equity; and for the purpose of any suit by
Landlord or Tenant brought or based on this Lease, this Lease
shall be construed to be a divisible contract, to the end that
successive actions may be maintained as successive periodic sums
shall mature under this Lease and it is further agreed that
failure to include in any suit or action any sum or sums then
matured shall not be a bar to the maintenance of any suit or
action for the recovery of said sum or sums so omitted.
G. Broker's Commission. The parties warrant to each other
-------------------
that there are no claims for broker's commissions or finder's
fees in connection with the execution of this Lease and each
agrees to indemnify and save the other harmless from any
liability that may arise from such claim, including reasonable
attorney fees.
11
H. No Partnership. Landlord does not, in any way or for
--------------
any purpose, become a partner of Tenant in the conduct of
Tenant's business or otherwise, or joint venturer or a member of
a joint enterprise with Tenant.
I. Exceptions to Demise. Notwithstanding anything to the
--------------------
contrary herein contained, this Lease is subject to recorded
existing utility easements.
J. Estoppel Certificate. At any time and from time to
--------------------
time, Tenant agrees, upon request, in writing from Landlord, to
execute, acknowledge, and deliver to Landlord, or to Landlord's
mortgagee or financial institution, a statement in writing in
substance satisfactory to Landlord certifying to all or any part
of the following information as Landlord shall request: (i) that
this Lease constitutes the entire Agreement between Landlord and
Tenant and is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and
effect as modified and stating the modification); (ii) the dates
to which the Fixed Minimum Rent, Additional Rent, and other
charges hereunder have been paid, and the amount of any security
deposited with Landlord; (iii) that Tenant knows of no default
under the Lease by the Landlord and that there are no default or
offsets which Tenant has against enforcement of this Lease by
Landlord; and (iv) the actual Commencement Date of the Lease.
K. Duties to Mitigate
------------------
Both Landlord and Tenant shall each use commercially
reasonable efforts to mitigate any damages resulting from a
default of the other party under this Lease.
24. NOTICES:
-------
Any notice, demand, or consent required to be given by or on
behalf of either party to the other shall be in writing and shall
be given by mailing such notice, demand, or consent by registered
or certified mail, return receipt requested, addressed to the
Landlord at the address hereinabove specified, and to the Tenant
at the address hereinabove specified, or at such other address as
may be specified from time to time in writing sent to the other
party by registered or certified mail, return receipt requested.
25. NET LEASE:
---------
It is the purpose and intent of Landlord and Tenant that
except for any expense associated with the environmental
condition of the Demised Premises as the same exists on the
Commencement Date which is the Landlord's sole responsibility,
the rent provided for herein in paragraph 3 hereof shall be
absolutely net rent year during the original term and during any
renewal term hereof, and that the costs, fees, interest charges,
expenses, repairs, replacements, reimbursements, premium costs
for insurance to be carried and separately paid by Tenant as
provided herein, real estate taxes and assessments and charges,
and obligations of every kind relating to the Demised Premises
which may be assessed or arise or become due during the term of
this Lease and any renewal thereof, shall be
12
paid or discharged by Tenant as additional rent hereunder, and
Tenant agrees to indemnify and to save harmless Landlord from and
against all such costs, taxes, repairs, replacements, premiums,
fees, interest charges, expenses, reimbursements, and
obligations.
26. AUTHORIZATION BY BOARD OF DIRECTORS.
-----------------------------------
Tenant and Landlord each certify that by resolution of their
respective Boards of Directors, this Lease Agreement has been
approved, and Tenant and Landlord have each been authorized and
directed through their respective officers to execute and deliver
this Lease Agreement, a copy of such resolutions attached in the
aggregate as ANNEX "E".
27. OPTION TO PURCHASE DEMISED PREMISES AND ADJOINING 20
----------------------------------------------------
ACRES LESS THREE (3) ACRES TO BE RETAINED BY LANDLORD.
-----------------------------------------------------
Landlord hereby grants to Tenant the exclusive right and
option during the term of this Lease to purchase the Demised
Premises for the cash sum of One Million Six Hundred Thousand
($1,600,000) Dollars during the original term adjusted by the
increase in the cost of living during each extended term in the
same manner as rent is increased as provided in this Lease (less
the cost of an environmental clean-up of the Demised Premises),
and to purchase the Landlord's adjacent 20 acres (less those
certain three (3) acres to be retained by Landlord) for the
amount equal to the fair market value established by an MAI
appraisal (independent) of such acreage as of the date of written
exercise of the option to purchase. The option to purchase shall
be in writing and the closing shall be held within thirty (30)
days of exercise. Title to the Demised Premises (and adjacent 20
acres (less the three (3) acres retained by Landlord) if
purchased) shall be conveyed by general warranty deed, with a
good and marketable title free and clear of any liens,
encumbrances, leases, or restrictions. In no event shall
Landlord be responsible to Tenant with respect to environmental
matters in excess of $500,000.
28. NON-CONFORMING USE AND ZONING.
-----------------------------
Landlord and Tenant acknowledge that the Demised Premises
have been and are currently used for the scrap and recycling
business under a non-conforming use which has not been registered
with Jennings County, Indiana. The parties agree that if for any
reason Tenant is deprived of the full use and benefit of the
Demised Premises (including all buildings and facilities) as the
same are presently utilized as a non-conforming use, Tenant shall
have the option to terminate this Lease effective as of the date
such full use of the Demised Premises becomes impaired. The
parties agree to cooperate with each other in good faith if at
any time either of them desires to rezone the Demised Premises or
take any other administrative actions regarding the zoning of the
Demised Premises.
13
IN TESTIMONY WHEREOF, witness the signatures of the parties
this 31st day of July, 1998, but effective as of June 1, 1998.
LANDLORD:
ATTEST: R.J. FITZPATRICK SMELTERS, INC.
By: /s/ R.K. Fitzpatrick
- ----------------------- ------------------------------
R.K. Fitzpatrick, President
/s/ R.K. Fitzpatrick
- ----------------------- ---------------------------------
WITNESS R.K. FITZPATRICK
/s/ Cheryl Fitzpatrick
- ----------------------- ---------------------------------
WITNESS CHERYL FITZPATRICK
TENANT:
ISA INDIANA, INC., an Indiana
corporation
ATTEST:
By: /s/ Sean Garber
- ----------------------- ------------------------------
SEAN GARBER, PRESIDENT
14
EXHIBIT 10.22
ENVIRONMENTAL INDEMNITY AGREEMENT
---------------------------------
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (the "Agreement")
executed July 31, 1998, but effective as of the 1st day of June,
1998, by R.K. FITZPATRICK and CHERYL FITZPATRICK, his wife, ("the
FITZPATRICKS"), each an Indiana Resident, and R.J. FITZPATRICK
SMELTERS, INC., an Indiana corporation ("RJF Smelters"), of P.O.
Box 387, Seymour, Indiana 47274, for the benefit of ISA INDIANA,
INC., an Indiana corporation, of P.O. Box 32428, Louisville,
Kentucky 40232 ("ISA").
RECITALS
--------
A. ISA proposes to become a party to several agreements
and contractual relationships ("the Agreements") with RJF
Smelters and the FITZPATRICKS pertaining to ISA's acquisition of
certain of the assets of RJF Smelters and the lease of certain
real estate owned by the FITZPATRICKS and RJF Smelters to ISA
("the Real Estate").
B. As a result of the Agreements, ISA conducted its due
diligence which disclosed certain adverse environmental
conditions of the Real Estate as reflected by that Phase I
Environmental Assessment prepared by NSS Environmental, Inc.
dated June 2, 1998 and that Phase II Environmental Assessment
prepared by NSS Environmental, Inc. dated July 14, 1998,
photocopies attached as ANNEX "A" and ANNEX "B", respectively.
C. As a condition precedent to executing the Agreements
prior to acquiring such assets and leasing the Real Estate, ISA
requires the execution and delivery of this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in order to induce ISA to purchase certain
assets of RJF Smelters and lease the Real Estate from the
FITZPATRICKS and RJF Smelters, for other good and valuable
consideration of the matters described in the foregoing Recitals,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the FITZPATRICKS
and RJF Smelters jointly and severally hereby agree as follows:
1. Recitals. The Recitals are incorporated herein by this
--------
reference.
2. Limit of Liability of the FITZPATRICKS and RJF
----------------------------------------------
Smelters. Anything in this Agreement or any other agreement to
- --------
the contrary notwithstanding, the FITZPATRICKS and RJF Smelters
are responsible for only the problems existing and as reflected
as of the date of the two documents attached as Annex "A" and
Annex "B". The FITZPATRICKS and RJF Smelters shall not be
responsible for any other environmental problem not so stated.
If the environmental problems as stated become worse or increase
in severity due to the action or lack of action of ISA in its
operation of the business after June 1, 1998, then, as to these
new or worsened conditions, ISA shall be solely responsible
itself for any costs, damages, losses, fines, penalties,
judgments, awards, expenses (including, without limitation,
attorney fees, costs and expenses of investigation which arise.
If the parties cannot agree as to the respective responsibility
of the FITZPATRICKS, RJF
Smelters and ISA, either party shall have the right to request
arbitration by the American Arbitration Association or some other
agreed arbiter, with each party paying one-half (1/2) of the
arbiter's fee. The parties shall be bound by the arbiter's
decision. If the duties of the FITZPATRICKS and RJF Smelters on
the one hand, or the duties of ISA on the other, as to their
respective liabilities and responsibilities hereunder, conflict
with any other paragraph of this Agreement or any other agreement
or document to this transaction, then this paragraph shall be
deemed controlling and overriding of any other provision or
language that conflicts with this paragraph 2. The duties of ISA
to pay the amount due by it under this paragraph 2 may be
enforced by the FITZPATRICKS and RJF Smelters upon the same terms
and conditions and with the same interest being due thereon
together with the payment of costs and expenses and all other
terms as set forth in this agreement as being applicable to the
FITZPATRICKS and RJF Smelters to pay.
3. Guarantees, Covenants, Representations, and Warranties
------------------------------------------------------
of the FITZPATRICKS and RJF Smelters.
------------------------------------
(a) The FITZPATRICKS and RJF Smelters jointly and
severally guarantee, covenant, represent and warrant that RJF
Smelters and the FITZPATRICKS respectively shall perform and
fully comply with the Agreements, satisfy at their sole cost and
expense all environmental conditions affecting the Real Estate
and any required investigation clean-up, removal, containment, or
remediation and agree to and shall protect, indemnify and hold
ISA harmless from any and all claims, proceedings, lawsuits,
liabilities, damages, losses, fines, penalties, judgments,
awards, costs and expenses (including, without limitation,
attorney fees and costs and expenses of investigation) which
arise out of or relate in any way to the proposed transactions
described in the Recitals, the performance of RJF Smelters and
the FITZPATRICKS under the Agreements (including, specifically,
but not limited to, those obligations regarding environmental
matters described in paragraph (B) of the Asset Purchase
Agreement), and the compliance with all environmental laws and
regulations with respect to the condition of the Real Estate in
effect on the date hereof. In no event, however, shall the
FITZPATRICKS be liable directly to ISA for any sum in excess of
$500,000.
(b) The FITZPATRICKS and RJF Smelters shall pay or
reimburse ISA for any and all loss, cost, damage, and expense
(including, without limitation, attorney fees and costs incurred
in the investigation, defense, and settlement of claims) that ISA
may incur as a result of or in connection with the assertion
against ISA of any environmental claims relating to the proposed
transactions described in the Recitals and the performance of RJF
Smelters, and the FITZPATRICKS under the Agreements respectively,
or compliance with any federal, state, or local laws, rules,
regulations, or orders relating thereto.
4. Indemnification: The FITZPATRICKS and RJF Smelters
---------------
hereby jointly and severally agree to and shall unconditionally
indemnify, defend, and hold ISA harmless against any (i) loss,
liability, damage, expense, or claim arising from or under the
Agreements, the proposed transactions described in the Recitals,
or liability to any third party in connection with the Agreements
or (ii) other loss, liability, damage, expense, or claim which
may be incurred by or
2
asserted against ISA directly or indirectly resulting from the
failure or other non-performance by RJF Smelters or the
FITZPATRICKS under the Agreements.
The FITZPATRICKS and RJF Smelters shall pay when due any
judgments or claims for damages, penalties, or otherwise against
ISA relative to the Agreements and shall assume the burden and
expenses of defending all suits, administrative proceedings, and
resolutions of any description with all persons, political
subdivisions, or government agencies arising out of performance
under the Agreements, all environmental matters relative to the
Recitals set forth in this Agreement. In the event that such
payment is not made, ISA, at its sole discretion, may either
proceed to join the FITZPATRICKS and RJF Smelters in such
proceeding, or file a separate suit against the FITZPATRICKS and
RJF Smelters to compel such payment.
The FITZPATRICKS and RJF Smelters waive any right to require
that any action be brought against any other person or that any
other remedy be initiated under the Agreements or otherwise. ISA
may, at its option, proceed against the FITZPATRICKS and RJF
Smelters in the first instance to collect monies where due or
obtain performance under this Agreement without first proceeding
against any other person and without first resorting to the
Agreements or any other remedy under the Agreements.
5. Duration of Indemnity. This Agreement shall pertain to
---------------------
a period of time commencing on the date hereof and shall apply to
any claim, demand, or charge contemplated by this Agreement made
or asserted at any time, and the FITZPATRICKS and RJF Smelters
waive all present and future statutes of limitation as a defense
to any action to enforce the provisions of this Agreement.
However, notwithstanding the foregoing, this Agreement shall
terminate one (1) year following termination of the Lease, but in
no event longer than ten (10) years following the Commencement
Date; provided, however, the provisions of Paragraph 2 which
limit the liability of FITZPATRICKS and RJF Smelters to ISA,
shall not be terminated or cancelled.
6. Claims Against ISA. If any action is brought against
------------------
ISA, ISA shall immediately give written notice of such action to
FITZPATRICKS and RJF Smelters. The parties shall mutually agree
on the counsel to represent them. No settlement shall be made
without the consent of both parties. If the parties agree as to
counsel to represent them, FITZPATRICKS and RJF Smelters shall be
responsible for the fees and costs attributable to the
environmental conditions reflected in Annex A and Annex B. ISA
shall be responsible for the balance of the fees and costs. If
ISA elects to employ its own counsel, this shall be at its sole
expense.
7. Payment of ISA's Expenses. If ISA hereafter retains
-------------------------
counsel for advice or other representation (i) with respect to
this Agreement, (ii) in any litigation, contest, dispute, suit,
or proceeding (whether instituted by ISA, the FITZPATRICKS and
RJF Smelters or any other party) in any way relating to
environmental matters under this Agreement, the Agreements, or
the indemnities described herein, or (iii) to enforce the
FITZPATRICKS' and RJF Smelters' obligations hereunder, then all
of the reasonable attorneys' fees arising from such services and
related expenses and court costs shall be payable by the non-
prevailing party on demand.
3
8. Waivers. The FITZPATRICKS and RJF Smelters hereby
-------
waive notice of, and the FITZPATRICKS' and RJF Smelters'
liability is in no way limited or impaired by: (i) ISA's
acceptance of this Agreement; (ii) any grant to ISA of a bank
letter of credit, or a security interest, lien, or encumbrance in
any of the FITZPATRICKS' assets or the assets of RJF Smelters;
(iii) ISA's release, waiver, or modification of the Agreements or
this Agreement or the FITZPATRICKS' or RJF Smelters or any other
party's obligations hereunder, or any other party's guaranty of
the Agreements or any security interest, lien, or encumbrance to
secure any other party's guaranty (iv) presentment, demand,
notice of default, non-payment, partial payment and protest, and
all other notices or formalities to which the FITZPATRICKS or RJF
Smelters may be entitled; (v) any extension of time for
performance permitted by the Agreements; and (vi) any sale or
transfer of the Agreements by the FITZPATRICKS or RJF Smelters,
whether by operation of law, voluntary acts, or otherwise. The
FITZPATRICKS and RJF Smelters agree that ISA may have or at any
time may do any or all of the foregoing actions in such manner,
upon such terms, and at such times as ISA, in its sole
discretion, deems advisable, without in any way impairing,
affecting, reducing, or releasing the FITZPATRICKS and RJF
Smelters from their joint and several obligations under this
Agreement, and the FITZPATRICKS and RJF Smelters hereby consent
to each of the foregoing actions.
9. No Waiver. The FITZPATRICKS' and RJF Smelters'
---------
obligations hereunder shall in no way be impaired, reduced, or
released by reason of (i) ISA's omission or delay to exercise any
right described herein; or (ii) any act or omission of ISA in
connection with any notice, demand, warning, or claim under the
Agreements.
10. Recourse. The FITZPATRICKS' and RJF Smelters'
--------
liability hereunder shall be joint and several, and shall not be
subject to, limited by, or affected in any way by any non-
recourse provisions contained in any documents executed and
delivered in connection with the transactions described in the
Recitals. The FITZPATRICKS and RJF Smelters agree that the
indemnifications are separate, independent of, and in addition to
the FITZPATRICKS' and RJF Smelters' undertakings under the
Agreements. The FITZPATRICKS and RJF Smelters agree that a
separate action may be brought to enforce the provisions of this
Agreement which shall in no way be deemed to be an action on the
Agreements.
11. Payments. Payments under this Agreement in respect of
--------
all expenses shall be due and payable as such expenses are
incurred. Within a reasonable time after any such expenses are
incurred, ISA shall give notice thereof to the FITZPATRICKS and
RJF Smelters; provided, however, that failure by ISA to give such
notice shall not relieve the FITZPATRICKS and RJF Smelters from
any liability, duty, or obligation hereunder. The FITZPATRICKS
and RJF Smelters will pay interest on any amount not paid from
the date that notice of such expenses is given at the rate of ten
(10%) per cent interest per annum.
12. Obligations Joint and Several. The obligations of the
-----------------------------
FITZPATRICKS and RJF Smelters hereunder are joint and several.
4
13. Proceedings. In any action or proceeding regarding
-----------
environmental matters that may be brought against ISA or to which
ISA may be a party and which relates to the subject matter of
this Agreement, the FITZPATRICKS and RJF Smelters shall be
conclusively liable for the results obtained by ISA, including,
without limitation, the amount of any judgment or any good-faith,
out-of-court settlement or compromise to which the FITZPATRICKS
and RJF Smelters have been parties. In addition, the
FITZPATRICKS and RJF Smelters shall be liable for any and all
costs and expenses, including, but not limited to, all attorneys'
fees that ISA incurs in connection with any such action or
proceeding.
13. Successors and Assigns. This Agreement, and the
----------------------
indemnities contained in this Agreement, shall be continuing,
irrevocable, and binding on the FITZPATRICKS and RJF Smelters and
their respective heirs, personal representatives, successors and
assigns and shall inure to the benefit of ISA and ISA's parent
corporation, which is Industrial Services of America, Inc., a
Florida corporation and also the benefit of ISA's successors,
affiliates, and assigns.
14. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of the FITZPATRICKS and RJF
Smelters contained in this Agreement shall survive the execution
and delivery of this Agreement.
15. Notices. Any notices which any party may be required,
-------
or may desire, to give shall, unless otherwise specified, be in
writing and shall be (i) sent by United States Express Mail or by
private overnight courier, effective upon receipt, or (ii) served
by certified mail, postage prepaid, return receipt requested and
addresses as follows:
In the case of the FITZPATRICKS and/or RJF Smelters, to:
R.K. and Cheryl Fitzpatrick
P.O. Box 387
Seymour, Indiana 47274
With copy to:
Edward P. Elsner, Jr., Esq.
MONTGOMERY, ELSNER & PARDIECK
308 West Second Street
P.O. Box 647
Seymour, Indiana 47274
In the case of ISA, to:
Sean Garber, President
ISA Indiana, Inc.
P.O. Box 32428
Louisville, Kentucky 40232
5
With copy to:
Joseph H. Cohen, Esq.
MORRIS, GARLOVE, WATERMAN & JOHNSON PLLC
One Riverfront Plaza, Suite 1000
Louisville, Kentucky 40202
or such other address(es) as the party to be served with notice
may have furnished to the other party.
16. Entire Agreement. This Agreement constitutes the
----------------
entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter contained in this Agreement.
17. FITZPATRICKS' and RJF Smelters Right to Mortgage, Sell
------------------------------------------------------
or Pledge Real Estate, Other Than the Demised Premises. Anything
- ------------------------------------------------------
in this Agreement or anything in any other agreement to this
transaction notwithstanding, FITZPATRICKS and RJF Smelters and
shall have the right to mortgage, pledge or encumber any of the
real or personal property. Any liability under this, or any
other related agreement or document to this transaction shall be
subordinate and inferior to any such mortgage, pledge or encumber
as to any real or personal property. The mortgaging and
encumbering of the Demised Premises shall be controlled by the
provisions of the Lease Agreement.
18. Amendment and Waiver. This Agreement may be amended
--------------------
and observance of any term of this Agreement may be waived only
with the written consent of ISA.
19. Governing Law. THIS ENVIRONMENTAL INDEMNITY AGREEMENT
-------------
SHALL BE GOVERNED AND CONTROLLED AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS BY THE LAWS, STATUTES, AND DECISIONS OF THE STATE OF
INDIANA. THE FITZPATRICKS AND RJF SMELTERS, IN ORDER TO INDUCE
ISA TO ACCEPT THIS INDEMNITY AGREEMENT, AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING DIRECTLY, INDIRECTLY, OR OTHERWISE IN
CONNECTION WITH THIS INDEMNITY AGREEMENT SHALL BE LITIGATED BY
EITHER PARTY ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF
FLOYD AND STATE OF INDIANA. THE FITZPATRICKS AND RJF SMELTERS
HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND STATE.
THE FITZPATRICKS AND RJF SMELTERS HEREBY WAIVE ANY RIGHT THEY MAY
HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST THEM BY ISA ON THIS INDEMNITY AGREEMENT IN ACCORDANCE
WITH THIS PARAGRAPH AND FURTHER WAIVE ANY RIGHT THE FITZPATRICKS
AND RJF SMELTERS MAY HAVE TO TRIAL BY JURY.
6
20. Counterparts. This Agreement may be executed by any
------------
number of counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute one
and the same agreement.
21. Severability. All provisions contained in this
------------
Agreement are severable, and the invalidity or unenforceability
of any provisions shall not affect or impair the validity or
enforceability of the remaining provision of this Agreement.
22. Headings. The descriptive headings of the paragraphs
--------
of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of
the date first above written.
WITNESS: /s/ R.K. Fitzpatrick
--------------- ----------------------------------
R.K. FITZPATRICK
WITNESS: /s/ Cheryl Fitzpatrick
--------------- ----------------------------------
CHERYL FITZPATRICK
R.J. FITZPATRICK SMELTERS, INC.
ATTEST:
By: /s/ R.K. Fitzpatrick
- ----------------------- ------------------------------
R.K. Fitzpatrick, President
7