SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
INDUSTRIAL SERVICES OF AMERICA, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
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applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
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<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
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Notice of Annual Meeting of Shareholders
To Be Held on May 27, 1999
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NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of INDUSTRIAL SERVICES OF AMERICA, INC. (the
"Company") will be held at Building No. 1, 7100 Grade Lane,
Louisville, Kentucky, on Thursday, May 27, 1999 at 10:00 A.M.
(Eastern Daylight Time), for the following purposes:
(1) To elect five (5) directors for a term expiring in
2000;
(2) To approve a proposed amendment to the Industrial
Services of America, Inc. 1997 Employee Stock Option
Plan to (i) increase the number of shares reserved
under the Plan (defined herein) 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;
(3) To approve a non-qualified (non-Plan) stock option to
purchase 500,000 shares of Common Stock (defined
herein) at $5.00 per share granted to Harry Kletter,
the Company's Chairman of the Board and Chief Executive
Officer;
(4) To ratify the selection of Crowe, Chizek and Company,
LLC as the Company's independent auditors for the
fiscal year ending December 31, 1999; and
(5) To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at close of business on April
20, 1999 are entitled to notice of and to vote at the Annual
Meeting. In the event the Annual Meeting should be adjourned to
a date or dates later than May 27, 1999, the Board of Directors
will establish a new record date for purposes of determining
those shareholders entitled to notice of and to vote at any such
adjournments. The transfer books will not be closed.
By Order of the Board of Directors
Joseph H. Cohen
Secretary of the Board of Directors
7100 Grade Lane
Louisville, Kentucky 40213
April 30, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ARE ABLE TO ATTEND THE
MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT
ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE>
INDUSTRIAL SERVICES OF AMERICA, INC.
7100 GRADE LANE
LOUISVILLE, KENTUCKY 40213
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Industrial
Services of America, Inc., a Florida corporation (the "Company"),
to be used at the 1999 Annual Meeting of Shareholders of the
Company to be held at 10:00 A.M. (Eastern Daylight Time) on
Thursday, May 27, 1999, and at any and all adjournments thereof,
for the purposes set forth in the accompanying Notice of the
meeting.
Shares represented by duly executed proxies in the
accompanying form received prior to the meeting and not revoked
will be voted at the meeting or at any adjournments within 120
days thereof in accordance with the choices specified on the
ballot. If no choices are specified, it is the intention of the
persons named as proxies in the accompanying form of proxy to
vote for (i) the nominees for election as directors; (ii) a
proposed amendment (as described herein) to the Industrial
Services of America, Inc. 1997 Employee Stock Option Plan; (iii)
a non-qualified (non-Plan) stock option to purchase 500,000
shares of Common Stock at $5.00 per share granted to Harry
Kletter, the Chairman of the Board and Chief Executive Officer of
the Company; and (iv) the ratification of independent auditors
for the 1999 fiscal year. Such proxy may be revoked by the
person executing it at any time before the authority thereby
granted is exercised by giving written notice to the Secretary of
the Company, by delivery of a duly executed proxy bearing a later
date or by voting in person at the meeting. Attendance at the
meeting will not have the effect of revoking a proxy unless the
shareholder so attending so notifies the secretary of the meeting
in writing prior to voting of the proxy.
The expenses of soliciting proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing this
proxy statement and the accompanying form of proxy, will be borne
by the Company. Such expenses, however, do not include any
salaries and wages of officers and employees of the Company who
participated in the preparation, assembling and mailing of the
proxy statement. In addition to the solicitation of proxies by
mail, certain officers and regular employees of the Company,
without additional compensation, may use their personal efforts,
by telephone or otherwise, to obtain proxies. The Company will
also request persons, firms and corporations holding shares in
their names, or in the names of their nominees, which shares are
beneficially owned by others, to send this proxy material to and
obtain proxies from such beneficial owners, and will reimburse
such holders for their reasonable expenses in so doing.
The presence in person or by proxy of shareholders holding a
majority of the outstanding shares of the Company's Common Stock
will constitute a quorum for the transaction of all business at
the Annual Meeting. A shareholder voting for the election of
directors may withhold authority to vote for all nominees for
directors or may withhold authority to vote for certain nominees
for directors. A shareholder may also abstain from voting on the
proposal to ratify the selection of independent auditors for the
1999 fiscal year. Votes withheld from the election of any
nominee for director and abstentions from any other proposal will
be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not be
counted in the number of votes cast on any matter. If a broker
does not receive voting instructions from the beneficial owner of
shares on a particular matter and indicates on the proxy that it
does not have discretionary authority to vote on that matter,
those shares will not be considered as present and entitled to
vote with respect to that matter.
This proxy statement and the accompanying form of proxy are
being mailed to shareholders commencing on or about April 30,
1999.
VOTING SECURITIES
Only shareholders of record at the close of business on
April 20, 1999 are entitled to vote at the Annual Meeting or any
adjournments within 120 days thereof. As of April 15, 1999 there
were 1,929,600 shares of the Company's Common Stock outstanding
and entitled to vote plus an additional 27,900 shares of Common
Stock held by the Company as Treasury Stock.
Each share of Common Stock entitles the holder to one vote
on all matters presented at the Annual Meeting.
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of April
15, 1999 for (i) each officer and director of the Company, (ii)
each person known to management to own of record or beneficially
more than five percent of the outstanding shares of the Company's
Common Stock, and (iii) all officers and directors of the Company
as a group.
<TABLE>
AMOUNT AND NATURE PERCENTAGE
OF BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP (1)(2)(3) CLASS (1)
---------------- ------------------- ---------
<S> <C> <C>
Harry Kletter 1,230,304 (4) 50.6%
1208 Park Hills Court
Louisville, Kentucky 40207
Cede & Co. 724,639 37.6%
P.O. Box 20
Bowling Green Station
New York, New York 10004
K & R Corporation 467,304 (5) 24.2%
7100 Grade Lane
Louisville, Kentucky 40213
Roberta Kletter 200,000 (6) 10.4%
1208 Park Hills Court
Louisville, Kentucky 40207
Sean Garber 127,000 (7) 6.2%
7100 Grade Lane
Louisville, Kentucky 40213
Joesph H. Cohen 20,000 (8) 1.0%
Morris, Garlove, Waterman
& Johnson
1000 One Riverfront Plaza
Louisville, Kentucky 40202
R. Michael Devereaux 20,000 (8) 1.0%
The Devereaux Company
6124 Deep Creek Drive
Prospect, Kentucky 40059
Dr. Barry N. Naft 20,000 (8) 1.0%
ARInternational, Inc.
10504 Stapleford Hall Road
Potomac, Maryland 20854-4445
All directors and officers
as a group 1,417,304 (9) 54.2%
</TABLE>
(1) The table reflects share ownership and the percentage of such
share ownership as of April 15, 1999. The percentages are
determined on the basis of 1,929,600 shares of Common Stock
outstanding (and exclusive of the additional 27,900 shares of
Common Stock held by the Company as Treasury Stock), plus,
for each individual or entity, the number of shares of Common
Stock that may be acquired upon the exercise of stock options
within sixty days of April 15, 1999.
(2) Except as otherwise indicated, each person or entity shown
has sole voting and investment power with respect to the
shares of Common Stock owned by him or it.
(3) Information with respect to beneficial ownership has been
obtained from the Company's shareholder records and from
information provided by shareholders.
(4) Includes 467,304 shares of Common Stock beneficially owned by
K & R Corporation ("K & R"), the sole shareholder of which is
Harry Kletter. Also includes 500,000 shares issuable upon
exercise of outstanding stock options. Does not include the
following shares of Common Stock, as to which Mr. Kletter
disclaims beneficial ownership: (i) 200,000 shares owned by
Roberta Kletter, the spouse of Harry Kletter; (ii) 50,000
shares owned by the Harry Kletter Family Charitable
Foundation, of which Mr. Kletter is a co-advisor; and (iii)
43,650 shares beneficially owned by three adult children of
Mr. and Mrs. Kletter.
(5) Harry Kletter as the sole shareholder, director, President
and Chief Executive Officer of K & R is deemed to have shared
voting and investment power of the shares of Common Stock
beneficially owned by K & R. Roberta Kletter, spouse of Mr.
Kletter, is a director and Vice President of K & R. Two of
Mr. Kletter's adult children are also officers of K & R.
(6) Does not include the following shares of Common Stock, as to
which Mrs. Kletter disclaims beneficial ownership: (i)
1,230,304 shares owned beneficially by Harry Kletter, the
spouse of Roberta Kletter; (ii) 467,304 shares of Common
Stock owned by K & R, of which Harry Kletter is the sole
shareholder, director, President and Chief Executive Officer;
and (iii) 43,650 shares beneficially owned by three adult
children of Mr. and Mrs. Kletter.
(7) Includes 125,000 shares issuable upon exercise of outstanding
stock options. Does not include 3,500 shares of Common Stock
owned beneficially by Lisa M. Garber, the spouse of Mr.
Garber, as to which Mr. Garber disclaims beneficial
ownership.
(8) Represents 20,000 shares issuable upon exercise of
outstanding stock options.
(9) The percentage of shares owned by all directors and officers
as a group is based on the applicable number of (i) shares
outstanding plus (ii) shares issuable upon exercise of
outstanding stock options owned by the group which vest
within sixty days of April 15, 1999.
See "ELECTION OF DIRECTORS" below for share ownership
information with respect to nominees for election as directors.
ITEM I. ELECTION OF DIRECTORS
The nominees for election as directors are Harry Kletter,
Sean M. Garber, Joseph H. Cohen, Dr. Barry N. Naft, and Ted L. Cox.
All members of the Board of Directors with the exception of
Mr. Cox were elected by the shareholders at the 1998 Annual
Meeting for a term expiring at the 1999 Annual Meeting.
If elected, all directors will hold office until the 2000 Annual
Meeting and until their respective successors have been elected
and qualified.
Shareholders voting at the Annual Meeting may not vote for
more than the number of nominees listed in this Proxy Statement.
Directors will be elected by a plurality of the total votes cast
at the Annual Meeting. That is, the five nominees receiving the
greatest number of votes for directors will be deemed elected
directors. It is the intention of the persons named as proxies
in the accompanying form of proxy (unless authority to vote
therefor is specifically withheld) to vote for the election of
the five nominees for directors. In the event that any of the
nominees becomes unavailable (which is not now anticipated by the
Company), the persons named as proxies have discretionary
authority to vote for a substitute nominee designated by the
present Board. The Board has no reason to believe that any of
said nominees will be unwilling or unable to serve if elected.
The following table contains certain information regarding
each of the nominees for election as directors at this year's
annual meeting. Each of these individuals has furnished the
respective information shown. Except as otherwise indicated,
each of the persons listed below has sole voting and investment
power with respect to the shares of Common Stock owned by him.
<TABLE>
(1)(2)(3)
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AS
NAME AND YEAR OF APRIL 15, 1999
PRINCIPAL FIRST NUMBER PERCENT
OCCUPATION BECAME OF OF
WITH COMPANY AGE DIRECTOR SHARES CLASS
------------ --- -------- ------ -----
<S> <C> <C> <C> <C>
Harry Kletter 72 1983 1,230,304 (4) 50.6%
Chairman of the
Board, and Chief
Executive Officer
Sean M. Garber 32 1997 127,000 (5) 6.2%
President and
Chief Executive
Officer
Joseph H. Cohen 53 1998 20,000 (6) 1.0%
Director
Dr. Barry N. Naft 53 1998 20,000 (6) 1.0%
Director
Ted L. Cox 58 -- 21,640 1.1%
</TABLE>
(1) The table reflects share ownership and the percentage of
such share ownership as of April 15, 1999. The percentages
are determined on the basis of 1,929,600 shares of Common
Stock outstanding (and exclusive of the additional 27,900
shares of Common Stock held by the Company as Treasury
Stock), plus, for each individual or entity, the number of
shares of Common Stock that may be acquired upon the
exercise of stock options within sixty days of April 15,
1999.
(2) Except as otherwise indicated, each person or entity shown
has sole voting and investment power with respect to the
shares of Common Stock owned by him or her.
(3) Information with respect to beneficial ownership has been
obtained from the Company's shareholder records and from
information provided by shareholders.
(4) Includes 467,304 shares of Common Stock beneficially owned
by K & R, the sole shareholder of which is Harry Kletter.
Also includes 500,000 shares issuable upon exercise of
outstanding stock options. Does not include the following
shares of Common Stock, as to which Mr. Kletter disclaims
beneficial ownership: (i) 200,000 shares owned by Roberta
Kletter, the spouse of Harry Kletter; (ii) 50,000 shares of
owned by the Harry Kletter Family Charitable Foundation, of
which Mr. Kletter is a co-advisor; and (iii) 43,650 shares
beneficially owned by three adult children of Mr. and Mrs.
Kletter.
(5) Includes 125,000 shares issuable upon exercise of
outstanding stock options. Does not include 3,500 shares of
Common Stock owned beneficially by Lisa M. Garber, the
spouse of Mr. Garber, as to which Mr. Garber disclaims
beneficial ownership.
(6) Represents 20,000 shares issuable upon exercise of
outstanding stock options.
NOMINEES FOR DIRECTORS
HARRY KLETTER has been a director of the Company since 1983. In
October, 1983 he was elected Chairman of the Board and Chief
Executive Officer. Mr. Kletter served as President and Chief
Executive officer of the Company from October 1983 until January
1988 and again from January 1990 until July 1991. Mr. Kletter
resumed the duties of President and Chief Executive Officer on
August 1, 1992 upon Edward List's resignation from this position.
Mr. Sean M. Garber became Interim President on December 1, 1997,
upon Harry Kletter's resignation from this position. Mr. Kletter
continues to serve as Chief Executive Officer of the Company.
Mr. Kletter is the sole shareholder of K & R. Prior to his
involvement with the Company, Mr. Kletter was President and Chief
Executive Officer of K & R, which is now a real estate holding
company and materials processing company. Prior thereto, Mr.
Kletter was the President of Tri-City Industrial Services, Inc.,
which corporation was involved in the transportation, disposal
and management of solid waste. From 1980 to present, Mr. Kletter
has been an investor in various other businesses including Outer
Loop Industrial Park, Outer Loop Business Park, and Outer Loop
Company, LLC., which are each real estate ventures. Mr. Kletter
is the spouse of Roberta Kletter.
SEAN M. GARBER has been a director of the Company since December,
1997, when he also became Interim President. Mr. Garber became
President effective February 5, 1998, and Chief Operating Officer
on October 16, 1997. Mr. Garber joined the Company in November,
1996 as Vice President of Recycling. From 1989 to November 1996,
Mr. Garber was an employee of, and held positions of general
manager and marketing manager with, OmniSource, Inc. of Fort
Wayne, Indiana, a waste disposal and recycling company. Mr.
Garber graduated from Indiana University with a degree in
Business Management.
JOSEPH H. COHEN has been a director of the Company since
February, 1998. He is a managing partner of the law firm of
Morris, Garlove, Waterman & Johnson PLLC, Louisville, Kentucky.
He has practiced with this firm for 29 years and has been a
practicing attorney for 29 years, specializing in Commercial Real
Estate and Zoning Law, Corporate Law (including Mergers and
Acquisitions), Health Law, Commercial Litigation, Transportation
Law, Energy Law and Financial and Estate Planning. Mr. Cohen is
a 1967 graduate of the University of Louisville School of
Business and a 1970 graduate of the University of Louisville
Brandeis College of Law. Mr. Cohen and his firm provide
continuing legal and corporate-related services to both the
Company and K & R and in addition counsel Harry Kletter on
certain personal matters.
DR. BARRY N. NAFT has been a director of the Company since
February, 1998. He is President and Chief Executive Officer of
ARInternational, Inc. ("ARI") of Potomac, Maryland. ARI provides
engineering, technology and project development services for
facilities engaged in the remanufacturing of industrial materials
from waste products. From 1989 to 1996, he was President and
Chief Executive Officer of Dow Environmental, Inc., a wholly
owned subsidiary of the Dow Chemical Company. During that time,
he led that company's expansion as a provider of environmental
services from a financially troubled start-up to $100 million in
revenues and 500 employees. Dr. Naft earned a doctorate in
Nuclear Engineering from Purdue University (1968), and a Master
of Science Degree (1966) and Bachelor of Science Degree in
Chemical Engineering, both from Clarkson University.
TED L. COX is a nominee for election as a director of the
Company. He has been President and the majority owner of Ryan
Insurance Incorporated ("Ryan") since 1988. Ryan sells and
services property casualty insurance policies for industrial and
commercial businesses, including the Company. Mr. Cox, a
licensed insurance agent for thirty years, began working with
Ryan in 1974 developing developing middle market commercial
accounts. Mr. Cox attended the University of Louisville in
Louisville, Kentucky where he took courses in business management
and insurance. In 1977, Mr. Cox completed insurance and agency
management course studies at USF&G's School of Insurance in
Baltimore, Maryland. See "EXECUTIVE COMPENSATION - Certain
Transactions."
None of the directors hold another directorship in a company
with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or subject to the requirements of Section 15(d) of the
Exchange Act or in a company registered as an investment company
under the Investment Company Act of 1940, as amended. Except as
disclosed above, none of the directors of the Company has any
family relationship with any other director or executive officer
of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998 the Board met ten times and took action on three
other occasions by unanimous written consent of the directors.
The Board has held two meetings in 1999 to date and has taken
action on one other occasion by unanimous written consent. All
incumbent directors attended at least 75% of the aggregate number
of meetings of the Board and the committees of which they were
members.
The Compensation Committee is responsible for making
recommendations to the Board regarding salaries and bonuses to be
paid to Company executive officers. During the year ended
December 31, 1998, this committee held one meeting. Messrs.
Cohen, Devereaux and Naft are presently members of this
committee. The appointment of members to this committee occurred
at the Board meeting on May 21, 1998.
The Audit Committee confers with the Corporation's
independent auditors regarding the scope and adequacy of annual
audits; reviews reports from such independent auditors; and meets
with the independent auditors to review the adequacy of the
Company's accounting principles, financial controls and policies.
The committee held no meetings during the year ended December 31,
1998. Messrs. Kletter, Cohen and Devereaux are presently members
of this committee. The appointment of members to this committee
occurred at the Board meeting on May 21, 1998.
The Nominating Committee is empowered to recommend to the
Board nominees for election as directors and persons to fill
directors' vacancies and newly created directorships; recruit
potential director candidates; recommend changes to the Board
concerning the responsibilities and composition of the Board and
committees; and review written proxy comments and shareholder
proposals (including director nominees) received from
shareholders at the Company's principal executive offices not
later than 45 days prior to the date of the Proxy Statement. The
committee held no meetings during the year ended December 31,
1998. The Nominating Committee met on April 9, 1999 to select
the director nominees listed in this Proxy Statement.
Messrs. Garber, Cohen and Devereaux currently serve as members of
this committee. The appointment of members to this committee
occurred at the Board meeting on May 21, 1998. The Nominating
Committee met on March 18, 1999. At thaat meeting, Harry Kletter,
Chairman of the Board and Chief Executive Officer of the Company,
recommended Ted L. Cox as a nominee for the 1999 Board of
Directors. Ted L. Cox is nominated to replace Michael Devereaux
as an independent director.
COMPENSATION OF DIRECTORS
Mr. Harry Kletter, Chairman of the Board and Chief Executive
Officer and Mr. Sean Garber, President and Chief Operating
Officer granted a per diem of one thousand dollars ($1,000) per
meeting for all non-employee directors (e.g., Messrs. Cohen,
Devereaux and Naft). Messrs. Kletter and Garber receive no
additional consideration for serving on the Board of Directors.
Additionally, the directors receive no additional consideration
for serving on committees of the Board of Directors.
On March 1, 1999, the Board granted to each of Messrs.
Cohen, Devereaux and Naft non-qualified stock options (the
"Outside Director Stock Options") pursuant to the Plan (defined
herein) to purchase 20,000 shares of Common Stock at $5.00 per
share for past director and director committee services rendered
to the Company. The Outside Director Stock Options vested
immediately and terminate on March 1, 2009 unless terminated
earlier pursuant to standard plan terms. The Outside Director
Stock Options may not be exercised until the requisite percentage
of the Company's shareholders approve the Amendment (defined
herein) and the Outside Director Stock Options would become null
and void and of no legal effect in the event that such
shareholder approval is not obtained in the required time period.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's
directors, certain officers and persons who own more than ten
percent (10%) of the outstanding Common Stock of the Company, to
file with the Securities and Exchange Commission reports of
changes in ownership of the Common Stock of the Company held by
such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies
of all forms they file under this regulation. To the Company's
knowledge, based solely on a review of the copies of such reports
furnished to the Company and representations from reporting
persons that no other reports including Form 5s were required,
all Section 16(a) filing requirements applicable to all of its
officers and directors were complied with during fiscal 1997 and
fiscal 1998 with the following exceptions: K & R did not timely
file a Form 4 covering one transaction in 1997; Mr. Harry Kletter
did not timely file a Form 4 covering 44 transactions in 1997 and
10 transactions in 1998; Dr. Naft did not timely file a Form 3
upon his election to the Board in 1997 and Mr. Garber did not
timely file a Form 4 covering one transaction in 1997. These
reporting persons have subsequently filed these reports.
ITEM II. PROPOSAL TO APPROVE AMENDMENT TO
THE INDUSTRIAL SERVICES OF AMERICA, INC.
1997 EMPLOYEE STOCK OPTION PLAN
Pursuant to resolutions adopted by unanimous written consent
of the Directors, the Company's Board of Directors has approved
an amendment (the "Amendment") to the Industrial Services of
America, Inc. 1997 Employee Stock Option Plan (the "Plan"), and,
subject to shareholder approval, the Amendment will become
effective 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 recommends that the shareholders of the
Company approve the Amendment. A copy of the Plan is attached
hereto as Exhibit A and a copy of the Amendment is attached
---------
hereto as Exhibit B.
---------
AMENDMENT TO THE PLAN
The Plan as originally adopted reserved 100,000 shares for
the granting of options. The Amendment would increase the number
of reserved shares from 100,000 to 400,000. Additionally, the
Plan as originally adopted did not provide for the grant of stock
options to non-employee directors of the Company. The Amendment
would allow for the grant of non-qualified stock options to any
member of the Board who is not an employee of the Company, any
future parent or subsidiary of the Company and is designated by
the Board or committee of the Board to receive non-qualified
stock options (a "director"). Such directors would not, however,
be eligible to receive incentive stock options under the Plan, as
amended. The Amendment would also change the name of the Plan to
the "Industrial Services of America, Inc. 1997 Stock Option
Plan." Additionally, the Amendment would clarify that the
definition of "key employee" under the Plan to include officers
of the Company or any subsidiary or affiliate of the Company who
are so designated by the Board or committee of the Board.
Further, the Plan as originally adopted specified that a
committee of the Board of Directors was to administer the Plan.
The Amendment designates that the Plan may be administered by the
Board of Directors or a committee of the Board of Directors.
The following discussion summarizes the principal features
of the Plan, as amended by the Amendment, and is qualified in its
entirety by reference to the Plan and the Amendment.
PURPOSE
The purpose of the Plan is to promote the interests of the
Company by attracting key employees and directors, providing its
key employees and directors with an additional incentive to work
to increase the value of the Common Stock and providing key
employees and directors with a stake in the future of the Company
which corresponds to the stake of each of the Company's
shareholders. The Plan provides for the granting of (i) either
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") or non-
qualified stock options under the Code to key employees and (ii)
non-qualified stock options to directors.
SHARES SUBJECT TO THE PLAN
The Plan as originally adopted reserved 100,000 shares for
the granting of options. The Amendment would increase the number
of reserved shares from 100,000 to 400,000 effective as of
February 11, 1998. The 400,000 reserved shares represents 20.7%
of the Common Stock issued and outstanding as of the date of this
Proxy Statement. As of the date of this Proxy Statement, 300,000
shares have been used for the granting of non-qualified options
to officers and directors under the Plan, 200,000 shares of which
underlie non-qualified options granted contingent upon approval
of the Amendment (the "Contingent Options"). The grantees may
not exercise the Contingent Options until the requisite
percentage of the Company's shareholders approve the Amendment
and the Contingent Options will become null and void and of no
legal effect in the event that such shareholder approval is not
obtained in the required time period. Option prices for option
grants under the Plan have ranged from $1.00 to $5.00 per share.
As of the date of this Proxy Statement, options to purchase
300,000 shares of Common Stock have vested and no options have
been exercised. Upon approval of the Amendment, 100,000 shares
of Common Stock will be available for future grants under the
Plan based upon the options outstanding as of the date of this
Proxy Statement.
The following table lists the amount of securities
underlying options granted under the Plan since its inception to
(i) certain executive officers of the Company, (ii) all current
executive officers as a group, (iii) all current non-employee
directors and (iv) all employees as a group (excluding the
executive officers included in (i) above).
<TABLE>
Securities Underlying
Options Granted
Name and Principal Position Under the Plan
--------------------------- --------------
<S> <C>
Sean M. Garber
President and Chief Executive Officer 125,000 (1)
Glenn Bierman
Former Acting Chief Executive Officer 100,000
Executive officers as a group 125,000 (1)
Non-employee directors as a group 60,000 (1)
Employees as a group --
</TABLE>
__________________
(1) Represents non-qualified stock options granted under the
Plan but contingent upon approval of the Amendment.
If an option granted under the Plan to purchase any shares
of Common Stock expires, is cancelled or is exchanged for a new
option before being exercised in full, the shares reserved for
the unexercised portion of such option will again be available
for use under the Plan. Any shares underlying an option that is
surrendered and any shares used to satisfy an option price or
withholding obligation shall not again become available for use
under the Plan. The Company shall reserve the shares it deems
appropriate from authorized but unissued shares of Common Stock
and from shares of Common Stock which the Company has reacquired.
The terms of any options shall be determined under the Plan and
under the related certificate between the Company and the key
employee or director.
ADMINISTRATION
The Plan will be administered by the Board of Directors or a
committee of the Board of Directors appointed by the Board of
Directors which at all times shall consist of at least three
members who are "Non-employee Directors" for purposes of Rule 16b-
3 promulgated under the Exchange Act.
PARTICIPANTS
Any (i) full-time employee or officer of (a) the Company,
(b) any affiliate of the Company or (c) any subsidiary of which
the Company owns, directly or indirectly, 50% of its outstanding
common stock, in each case who the Board or a committee thereof,
as applicable (each an "Administrator"), deems to be key,
directly or indirectly, to the success of the Company or (ii)
director may participate in the Plan. Only employees or officers
designated in (i)(a) and (b) above may be granted an incentive
stock option ("ISO") under Section 422 of the Code. The Company
estimates that approximately 100 employees of the Company and its
subsidiary and its three non-employee directors are presently
eligible to participate in the Plan.
The Administrator may grant options under the Plan to such
key employees and directors as the Administrator determines. If
the aggregate fair market value of Common Stock subject to all
ISOs and other incentive stock options granted to a key employee
under the Plan and any other stock option plan adopted by the
Company which first became exercisable in any calendar year
exceed $100,000, such options shall be treated as non-qualified
options ("NQO"s). The Administrator shall have the right to
grant new options in exchange for the cancellation of options or
under any other circumstances which the Committee deems
appropriate. The Option Certificate under which an option is
granted shall set forth whether the option is an ISO or NQO and
shall incorporate the terms and conditions which the
Administrator deems consistent with the terms of the Plan.
OPTION PRICE
The Administrator will determine the option price of options
granted under the Plan, but such option price will be no less
than the fair market value of the Common Stock on the date the
option is granted; provided, however, if an ISO is granted to a
key employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or a subsidiary (a
"Ten Percent Shareholder"), the option price for such ISO will be
no less than 110% of the fair market value of the Common Stock on
the grant date. The Option Certificate may, at the discretion of
the Administrator, provide for payment of the option price in
cash, Common Stock, or a combination thereof. Any payment made
in Common Stock shall be made either by tendering shares of
Common Stock held by the key employee or director or, to the
extent allowed by the Administrator in its sole discretion, by
having the Company withhold Common Stock (that otherwise would be
transferred to the key employee or director upon the exercise of
any option). The Company will receive no payment upon the
granting of options pursuant to the Plan.
OPTION PERIOD
Each option granted under the Plan will be exercisable in
whole or in part as set forth in the particular Option
Certificate under which such option is granted, but in no event
(i) before the date such option is granted and (ii) after the
earlier of (a) the date such option is exercised in full, (b) the
date which is the fifth anniversary of the date such option is
granted in the case of ISOs granted to a Ten Percent Shareholder
or (c) the date which is the tenth anniversary of the date an
option (other than those referred to in (b) above) is granted.
NON-TRANSFERABILITY
No option granted under the Plan shall be transferable by a
key employee or director other than by will or by the laws of
descent and distribution. Options shall be exercisable during a
key employee's or director's lifetime only by the key employee or
director. In the case of a transfer by will or by the laws of
descent and distribution, the transferee(s) shall be treated as
the transferor for purposes of the immediately preceding
sentence.
SURRENDER OF OPTIONS
The Administrator in its discretion may incorporate a
provision in an Option Certificate to allow a key employee or
director to surrender his or her option in whole or in part (in
lieu of the exercise of such option) on any date that (i) the
fair market value of the Common Stock subject to that option
exceeds the option price for such Common Stock and (ii) the
option is otherwise exercisable. In exchange for his or her
surrendered shares, a key employee or director shall (to the
extent consistent with the exemption under Rule 16b-3) receive
payment in cash or in Common Stock, or in a combination thereof,
equal to the excess of the fair market value of the surrendered
shares on the date such surrender is effective over the option
price for the surrendered shares. The Administrator in its
discretion shall determine the form and timing of such payment.
An Option Certificate which incorporates the surrender provision
will also incorporate such additional restrictions as the
Administrator deems necessary to satisfy the conditions to the
exemption under Rule 16b-3.
PLAN NOT REGISTERED UNDER SECURITIES ACT
Each Option Certificate will provide that the shares of
Common Stock received as a result of the exercise of an option
under the Plan must be held for investment and not with a view to
resale or distribution to the public. The Company has no
obligation to register the Plan or the Common Stock issued under
the Plan under the Securities Act of 1933, as amended (the
"Securities Act"). As a result, the recipients of the options
and the related Common Stock will have restricted securities for
purposes of the Securities Act.
ADJUSTMENT OF SHARES
The Plan provides for adjustments by the Board of Directors
(in an equitable manner) of (i) the number of shares of Common
Stock reserved under the Plan, (ii) the number of shares of
Common Stock subject to options granted under the Plan and (iii)
the option price, in each case, to reflect any changes in the
capitalization of the Company, including, but not limited to,
changes such as stock splits or stock dividends and in the event
of certain transactions which provide for the substitution or
assumption of such options.
SALE OR MERGER OF THE COMPANY
If the Company agrees to sell all or substantially all of
its assets or agrees to any merger, consolidation,
reorganization, division or other corporate transaction in which
Common Stock is converted into another security or into the right
to receive securities or property and such agreement does not
provide for the assumption or substitution of options granted
under the Plan on a basis that is fair and equitable to such
option holders as determined by the Board of Directors, each
option, at the direction and discretion of the Board of
Directors, may be cancelled unilaterally by the Company if (i)
the Company transfers to the key employee or director shares of
Common Stock, the number of which shall be the number of whole
shares of Common Stock, if any, which the key employee or
director would have received if he or she had the right to
surrender his or her outstanding option in full under the Plan
and exercised that right on the date set by the Board of
Directors exclusively for Common Stock, (ii) the key employee or
director is given the right to exercise his or her outstanding
option in full before the cancellation date, (iii) upon advance
written notice of cancellation to the key employee or director if
the transactions described in (i) and (ii) above would violate
Section 16 of the Exchange Act or (iv) the option price equals or
exceeds the fair market value of a share of Common Stock on a
date set by the Board of Directors.
CHANGE IN CONTROL
If there is (i) a change in control of the Company or (ii) a
tender offer or exchange offer is made for Common Stock other
than by the Company ((i) and (ii) collectively referred to as a
"Change in Control Event"), the Board of Directors shall have the
right to take such action with respect to any unexercised options
granted to key employees or directors, or all such options, as
the Board of Directors deems appropriate under the circumstances
to protect the interest of the Company in maintaining the
integrity of such grants under the Plan, including following the
procedure under the Plan for a sale or merger of the Company with
respect to such options. Upon the occurrence of a Change in
Control Event, the Board of Directors shall have the right to
take different action with respect to different key employees,
different directors or different groups of key employees or
directors as the Board of Directors determines appropriate.
Additionally, upon the occurrence of a Change in Control Event,
the Board of Directors shall have the right to take different
action with respect to key employees on the one hand and
directors on the other hand and/or with respect to different
directors or different groups of directors as the Board of
Directors determines appropriate.
TERM OF THE PLAN
The Plan shall terminate on the earlier of (i) the tenth
anniversary (April 11, 2007) of the Plan's effective date ("Tenth
Anniversary") or (ii) the date on which all of the Common Stock
reserved under the Plan has been issued. No option shall be
granted under the Plan after the date the Plan terminates but any
options which are outstanding on the termination date (e.g., the
Tenth Anniversary) will continue to be governed by the Plan until
such options have been exercised, surrendered or are no longer
exercisable.
AMENDMENT TO THE PLAN
The Board of Directors may amend the Plan from time to time
to the extent that the Board of Directors deems necessary or
appropriate; however, no amendment shall be made without approval
of the shareholders of the Company to the extent required under
Section 422 of the Code (e.g., amendment to increase the number
of shares reserved under the Plan; amendment to change the class
of eligible participants; amendment to increase materially, with
respect to directors or officers, the benefits, number of
securities which may be issued or eligibility requirements,
etc.). Any amendment which specifically applies to NQOs may be
effected without shareholder approval unless such approval is
required by Section 16 of the Exchange Act. The Board of
Directors may also suspend the granting of options under the Plan
at any time and may terminate the Plan at any time; provided,
however, the Board of Directors may not unilaterally modify,
amend or cancel any options theretofore granted unless the key
employee or director consents in writing to such modification,
amendment or cancellation or there is a dissolution or
liquidation of the Company or the occurrence of a transaction
described under the subheadings herein entitled "Adjustment of
Shares," "Sale or Merger of the Company" or "Change in Control."
FEDERAL INCOME TAX CONSEQUENCES
A brief description of the federal income tax consequences
of the Plan under on present law is set forth below. This brief
description is only a general summary based on current federal
income tax laws, regulations (including certain proposed
regulations), and judicial and administrative interpretations
thereof and the related federal securities laws and rules and
regulations. The federal income tax laws and regulations and the
related federal securities laws and rules and regulations are
frequently amended, and such amendments may or may not be
retroactive with respect to transactions described herein. This
summary is not intended to be exhaustive and, among other things,
does not describe state, local or foreign tax consequences.
Accordingly, a participant should consult a tax advisor with
respect to the tax aspects of the Plan.
As identified by the Administrator, each option granted
under the Plan is either an ISO or an NQO. A key employee or
director is not subject to any federal income tax upon the grant
of an option pursuant to the Plan nor will the grant of an option
result in an income tax deduction for the Company.
Upon the exercise of an ISO and the related transfer of
Common Stock to a key employee, the key employee normally will
not recognize any income for federal income tax purposes and the
Company normally will not be entitled to any federal income tax
deduction. However, the excess of the fair market value of the
shares transferred upon the exercise of an ISO over the option
price of such shares (the "spread") generally will constitute an
item of alternative minimum tax to the key employee. Thus,
notwithstanding that a key employee will not recognize income for
regular income tax purposes upon exercise of an ISO, the key
employee's federal income tax liability may be increased as a
result of such exercise under the alternative minimum tax rules
of the Code. The portion of a key employee's minimum tax
liability, if any, attributable to the spread may give rise to a
credit against such employee's regular tax liability in later
years.
If the Common Stock transferred pursuant to the exercise of
an ISO is disposed of within two years from the date of the grant
of the option or within one year from the date of exercise (the
"holding periods"), the key employee generally will recognize
ordinary income equal to the lesser of (i) the gain recognized
(e.g., the excess of the amount realized on the disposition over
the option price) or (ii) the spread. The balance, if any, of
the key employee's gain over the amount treated as ordinary
income on a disposition generally will be long-term or short-term
capital gain depending upon whether the holding period
applicable to long-term capital assets is satisfied. The Company
normally will be entitled to a federal income tax deduction equal
to any ordinary income recognized by the key employee.
Following satisfaction of the holding periods, the
disposition of shares of Common Stock acquired by the exercise of
an ISO generally will result in long-term capital gain or loss
treatment with respect to the difference between the amount
realized on the disposition and the option price. The Company
will not be entitled to any federal income tax deduction as a
result of a disposition of such shares after the holding periods.
Upon the exercise of an NQO, the key employee or director
will recognize ordinary income in an amount equal to the excess,
if any, of the fair market value of the shares transferred to the
key employee or director upon exercise over the option price.
Such fair market value will generally be determined on the date
the shares are transferred pursuant to the exercise. Income will
be recognized in the year such fair market value is determined,
and the Company generally will be entitled to a corresponding
federal income tax deduction. The sale or other taxable
disposition of shares of Common Stock acquired through the
exercise of an NQO generally will result in a short-term or long-
term capital gain or loss equal to the difference between the
amount realized on the disposition and the fair market value of
the shares of Common Stock when the NQO was exercised.
Special rules will apply to a key employee or director who
exercises an option by paying the option price, in whole or in
part, by the transfer to the Company of shares of Common Stock.
With respect to an Option Certificate which includes the
right to surrender an option (in lieu of exercise), no income is
recognized by a key employee or director upon the grant of the
surrender right. Upon the surrender of the option the key
employee or director will have ordinary income in an amount equal
to the cash received plus the fair market value of any Common
Stock received. The Company will be entitled to a deduction for
such amount at the time it is includable in the income of the key
employee or director. Special rules may apply to a key employee
or director who is subject to Section 16(b) of the Exchange Act.
VOTE REQUIRED
Approval of the Amendment requires the affirmative vote of
the holders of a majority of the outstanding shares of the
Company's Common Stock presented or represented at the Annual
Meeting. Abstentions will not be counted as votes cast either
for or against the proposal. Shares of Common Stock covered by
proxies executed and received in the accompanying form will be
voted in favor of the Amendment, unless otherwise specified on
the proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT.
ITEM III. KLETTER STOCK OPTION
On February 16, 1998, the Board granted to Harry Kletter a
non-qualified stock option (outside the Plan) to purchase 500,000
shares of Common Stock at $5.00 per share (the "Kletter Option").
The Kletter Option is exercisable as follows: (i) 200,000 shares
vested on July 1, 1998, (ii) 200,000 shares vested on October 1,
1998 and (iii) 100,000 vested on January 1, 1999. To date, no
exercises have occurred under the Kletter Option. The Kletter
Option terminates on January 16, 2003. Additionally, pursuant
to the terms of the Kletter Option, the Company agreed to use its
best efforts to register with the Commission the shares of Common
Stock underlying the Kletter Option by May 16, 1998. To date,
Mr. Kletter has waived his registration rights pursuant to the
Kletter Option as the exercise price of $5.00 per share under the
Kletter Option is above the market price of $2.75 per share of
the Common Stock as of April 20, 1999.
The Company believes that the Corporate Governance
Requirements of the Nasdaq Stock Market require it to obtain
shareholder approval of the Kletter Option. Approval of the
Kletter Option requires the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock
presented or represented at the Annual Meeting. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
KLETTER OPTION.
ITEM IV. RATIFICATION OF INDEPENDENT AUDITORS
The Company's Form 10-K Annual Report to Shareholders for
the fiscal year ended December 31, 1998, including financial
statements and the report of Crowe, Chizek and Company, LLC
thereon, is being mailed with this Proxy Statement to each of the
Company's shareholders of record at the close of business on
April 20, 1999. The Board has selected Crowe, Chizek and
Company, LLC as independent auditors of the Company's accounts
for the fiscal year ending December 31, 1999. This selection
will be presented to shareholders for ratification at the Annual
Meeting. If the shareholders fail to ratify this selection, the
matter of the selection of independent auditors will be
reconsidered by the Board. Representatives of Crowe, Chizek and
Company, LLC are not expected to be present at the Annual
Meeting.
On July 15, 1997, the Company dismissed Mather, Hamilton and
Company ("Mather, Hamilton") as its independent accountants and
hired Crowe, Chizek and Company, LLC as its independent
accountants. The decision to change accountants was approved by
the Board of Directors. The Company received an unqualified
audit report during its last two fiscal years. Additionally,
during the interim periods from December 31, 1996 through July
15, 1997 there were no disagreements between Mather, Hamilton and
the Company, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Mather, Hamilton's satisfaction, would
have caused it to make reference to the subject matter of the
disagreement in connection with its reports.
The selection of Crowe, Chizek and Company, LLC will be
deemed ratified if the votes cast in favor of the proposal exceed
the votes cast against the proposal. Abstentions and broker non-
votes will not be counted as votes cast either for or against the
proposal.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth cash and other compensation
information for the fiscal years ended December 31, 1998, 1997
and 1996 paid or accrued by the Company, to (i) the Company's
Chief Executive Officer and (ii) the President of the Company
(the Chief Executive Officer and President being the two most
highly compensated executive officers of the Company at December
31, 1998).
<TABLE>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
------------------------------ ------------------------
Name and Other Restricted Securities
Principal Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Awards Options (#) Compensation
-------- ---- ------ ---- ------------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sean M. Garber 1998 $107,364 $7,000 $5,233(6) -- -- $3,000 (5)
President, 1997 $75,562 $7,000 $3,868(6) -- 125,000(4) $3,000 (5)
Treasurer and
Chief Operating
Officer (1)
Harry Kletter 1998 (3) -- -- -- -- 500,000(7) --
Chief Executive 1997 (3) -- -- $975** -- -- --
Officer (2) 1996 (3) -- -- $975** -- -- --
</TABLE>
** Includes taxable use of Company vehicle.
(1) Mr. Garber served as Interim President from December 1, 1997
until February 5, 1998 at which time he became President and
Treasurer of the Company. Mr. Garber has been Chief
Operating Officer of the Company since November, 1997.
(2) Mr. Kletter served as President of the Company until
December 1, 1997 when he resigned upon the appointment of
Mr. Garber as Interim President. Mr. Kletter has served as
the Chief Executive Officer since July 31, 1992. See
"ELECTION OF DIRECTORS - Nominees for Directors".
(3) K & R, the sole shareholder of which is Mr. Kletter,
conducts significant business with the Company. Mr. Kletter
receives compensation from K & R. See "EXECUTIVE
COMPENSATION - Certain Transactions."
(4) These options are non-qualified stock options granted
pursuant to the Plan.
(5) Mr. Garber received a bonus contribution to his 401(k) in
the amount of $3,000 in 1997 and 1998. The total amount of
compensation vests immediately and would not be affected by
a change in control of the Company.
(6) The Garber Employment Agreement provides for a $1,000,000
life insurance policy with an annual premium of $3,268 for
1997 and 1998, and the taxable use of a Company vehicle
equal of $600 and $1,965 for 1997 and 1998, respectively.
(7) These options are non-qualified stock options granted
outside of the Plan.
All other executive officers of the Company earned less than
$100,000.
STOCK OPTIONS GRANTED
Following is a summary of stock option activity and number of
shares reserved for outstanding options for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
Securities Options/
Underlying SARs Grant
Options/ Granted to Exercise Date
SARs Employees or Base Present
Granted in Fiscal Price Expiration Value
Name (#) Year ($/Share) Date $(1)
---- --- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Sean M. Garber 100,000(2) 44.40% $5.00 10/31/1999 $4.75
25,000(2) 11.20% $1.00 10/26/2002 $5.50
Glenn Bierman 100,000(2) 44.40% $5.00 10/31/1999 $4.75
Harry Kletter 500,000(3) 100.00% $5.00 01/16/2003 $4.75
</TABLE>
(1) In the table above the column titled "Grant Date Present
Value $" the valuation is based on the closing price of the
Company's Common Stock on the Nasdaq Stock Market as of the
date of grant.
(2) These options are non-qualified stock options granted under
the Plan.
(3) These options are non-qualified stock options granted
outside of the Plan.
STOCK OPTION EXERCISES AND HOLDINGS
<TABLE>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Shares Options/ In-the-Money
Acquired SARs at Options/SARs
on Value FY-End (#) FY-End ($)
Name Exercise (#) Realized ($) Exercisable Exercisable (1)
---- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Sean M. Garber - - 100,000 - (2)
- - 25,000 $39,000
Glenn Bierman - - 100,000 - (2)
Harry Kletter - - 500,000 - (2)
</TABLE>
All of the Aggregated Options listed above were exercisable at
year ended December 31, 1998. To date the options remain
unexercised.
(1) The dollar values for column heading "Value of Unexercised
In-the-Money Options/SARs at FY-End ($) Exercisable" are
calculated by determining the difference between the fair
market value and the value based upon exercise price of the
securities underlying the options.
(2) The exercise price of these options is $5.00 per share, the
market value at the close of December 31, 1998 was $2.56 per
share; therefor these options were not in the money.
EMPLOYMENT CONTRACTS
In October 1997, the Company issued options to purchase
25,000 shares of the Common Stock and an additional option to
purchase 100,000 shares of Common Stock to its Interim President
and Chief Operating Officer, Sean M. Garber as a component of a
five-year employment agreement (the "Garber Employment
Agreement"), dated October 15, 1997, as amended on February 5,
1998, by and between the Company and Mr. Garber. 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.
Both such options are exercisable over a five year period.
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.
The term of the Garber Employment Agreement is five years
with salary measured on an annual basis from the date of Garber
Employment Agreement as follows: First Year $104,000, Second Year
at $110,000, Third Year at $120,000, Fourth Year at $130,000, and
Fifth Year and thereafter $140,000 with incentive pay to be
established by the Compensation Committee of the Board. The
Garber Employment Agreement includes a covenant not to compete
with the Company for a period of two years from the date of
termination of the Garber Employment Agreement in a territory
within a radius of 100 miles of the business operations of the
Company. The Garber Employment Agreement provides for a
$1,000,000 life insurance policy on the life of Mr. Garber, the
beneficiaries of which are to be designated by Mr. Garber in
addition to medical, dental, pension, retirement and disability
benefits, vacation and other comparable benefits customarily made
available to Company employees. The failure of the Company to
renew the Garber Employment Agreement, the disability of Mr.
Garber, the resignation of Mr. Garber within 180 days of a change
in control or the termination of Mr. Garber without cause will
result in (i) the Company obligation to pay Mr. Garber twice his
current annual salary payable in 24 equal monthly installments
except for a change in control where the payment in full is due
within 30 days of the change in control, and (ii) the immediate
vesting of all options to purchase Common Stock held by Mr.
Garber. 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 voting stock of the
Company acquires a majority of the outstanding voting stock of
the Company; or (ii) the Company sells or otherwise disposes of
all or substantially all of the assets or business operations of
the Company to any other person; or (iii) the Company merges or
consolidates with any other person; unless, in any such case,
------
shareholders owning the outstanding voting stock of the Company
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
voting stock of the person acquiring the shares or assets of the
Company or surviving the merger or consolidation of the Company
in the transaction(s). The Garber Employment Agreement terminates
upon the death or disability (at the end of the Company's long-
term disability coverage) of Mr. Garber, subject to the rights of
Mr. Garber with respect to disability described above. Mr.
Garber may resign and terminate the Garber Employment Agreement
upon 90 days prior written notice. The Board may terminate the
Garber Employment Agreement for cause, which shall terminate 30
days after notice to Mr. Garber from the Board. Causes for
termination are (i) Mr. Garber engaging in competition with the
Company or its subsidiaries, which is substantially harmful to
their business, (ii) abuse of intoxicants so as to affect the
ability of Mr. Garber to conduct Company business in a proper and
prudent manner; (iii) felony conviction of Mr. Garber, or (iv)
material breach by Mr. Garber of the Garber Employment Agreement
and a failure or refusal to remedy such breach within 30 days of
written notice of such breach. The Company may terminate the
Garber Employment Agreement without cause at any time, however
Mr. Garber is entitled to the benefits described above.
CERTAIN TRANSACTIONS
K & R LEASE; K & R CONSULTING AGREEMENT
On February 16, 1998 the Company's Board of Directors
ratified and formalized an existing relationship in connection
with (i) the leasing by the Company of its facilities from K & R
and (ii) the provision of consulting services from K & R to the
Company. K & R is an affiliate of the Company and Harry Kletter,
the Company's Chairman of the Board and Chief Executive Officer,
is the sole shareholder of K & R.
Lease Agreement. The Lease Agreement (the "K & R Lease"),
----------------
effective as of January 1, 1998, between K & R, as landlord, and
the Company, 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
Board of Directors believes that the Fixed Minimum Rent is
appropriate according to property appraisal. 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 Company. 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 Company acquires a majority of the
outstanding stock of the Company, (ii) the Company sells or
otherwise disposes of all or substantially all of the assets or
business operations of the Company to any other person; or (iii)
the Company merges or consolidates with any other person; unless,
in any such case, shareholders owning the outstanding voting
stock of the Company 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 Company or
surviving the merger or consolidation of the Company in the
transaction(s).
The Company 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 Company provided a $50,000 security deposit
to K & R for performance by the Company 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 Company 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 Company 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 Company for all damages
arising out of the Company's use or condition of the Leased
Premises excepting therefrom K & R's negligence. The K & R Lease
further provides that the Company 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 Company 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 Company to pay the Fixed Minimum Rent for 10 days after
written demand therefor, (ii) any other default in the observance
or performance by the Company 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 Company shall have
commenced and shall be diligently pursuing curing such default,
(iii) certain bankruptcy or related events affecting the Company,
(iv) vacation of the Leased Premises by the Company, or (v) the
transfer or devolution whether by operation of law or otherwise
of the K & R Lease or the Company's estate or of any of the
Company'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
---------------------------
dated as of January 2, 1998 (the "K & R Consulting Agreement"),
by and between the Company and K & R, 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 Company, including advice on management
activities, advertising, financial planning and mergers and
acquisitions (the "K & R Consulting Activities"). The Company
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 Company for a period of five years and
within 100 miles of any operation of the Company. The Company'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 Company not otherwise
in the public domain or required to be disclosed by law.
KLETTER OPTION
On February 16, 1998, the Board of the Company granted to
Harry Kletter an non-qualified option (outside of the Plan) to
purchase 500,000 shares of Common Stock at an exercise price of
$5.00 per share for past services rendered to the Company. The
vesting schedule of the option is as follows: (i) following July
1, 1998, the option to purchase 200,000 shares may be exercised;
(ii) following October 1, 1998 the option to purchase an
additional 200,000 shares may be exercised; and (iii) following
January 1, 1999, the option to purchase an additional 100,000
shares may be exercised. The options expire on January 16, 2003.
OUTSIDE DIRECTOR OPTIONS
On March 1, 1999, the Board granted the Outsider Director
Stock Options to Messrs. Cohen, Devereaux and Naft. See
"ELECTION OF DIRECTORS - Compensation of Directors."
TED L. COX
Mr. Cox, a director nominee, has been the President and the
majority owner of Ryan since 1988. Ryan sells and services
property casualty insurance policies for industrial and
commercial businesses, including the Company. The Company
purchases approximately $290,000 of insurance premiums annually
from Ryan.
JOSEPH H. COHEN
Mr. Cohen, a director of the Company, is a managing partner
of the law firm of Morris, Garlove, Waterman & Johnson PLLC,
Louisville, Kentucky. Mr. Cohen and his firm provide continuing
legal and corporate-related services to both the Company and K &
R and in addition counsel Harry Kletter on certain personal
matters.
LETTER OF INTENT
On April 29, 1999, the Company announced that it had signed
a letter of intent to purchase 100% of the capital stock of both
Waste Integration Service Center ("WISC"), a privately held company
headquartered in Tampa, Florida, and Lynn Waring Savannah, Inc.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report reflects the Company's compensation policies
with respect to its executive officers, as endorsed by the
Compensation Committee of the Board, and the resulting actions
taken by the Company for the reporting periods shown.
The Company through its executive compensation policies
seeks to provide compensation that will enable the Company to
attract and maintain quality executives in the competitive market
place. The Company believes in a pay-for-performance policy, to
align results for the executive, the Company and the shareholder.
Currently, the executive compensation program of the Company is
comprised of salary, annual cash incentive bonus opportunity,
long term incentives such as stock options and the employee
401(k) Plan in which executives can participate.
The compensation for both Harry Kletter as the Company's
Chief Executive Officer and to Sean Garber as the President of
the Company was determined by the Board considering the criteria
set forth in this report. In 1998, the Board implemented its
grant to Mr. Kletter of an option to purchase 500,000 shares of
Common Stock at $5.00 per share (see "CERTAIN TRANSACTIONS")
which was noted in the prior year Report on Executive
Compensation.
Submitted by the Compensation Committee of the Board of
Directors,
Joseph H. Cohen
R. Michael Devereaux
Dr. Barry N. Naft
PERFORMANCE GRAPH
The following performance graph compares the performance of
the Company's Common Stock to the Standard & Poors 500 and to a
peer group for the period commencing December 1996. Since there
is no nationally recognized industry index consisting of
consultants in the business of retail and industrial waste
management sales and service of waste handling equipment to be
used as a peer group index, the Company constructed its own peer
group. This peer group is comprised of four companies which
represent the other public companies in the industry - Allied
Waste Industries, Autonation Inc. ("Autonation"), Johnson
Controls, Inc. and Waste Management, Inc. ("WMI"). The returns
of each member of the peer group are weighted according to each
member's stock market capitalization as of the beginning of the
period measured. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100
at December 1996 and that all dividends were reinvested. The
changes to this peer group from the peer group used in the proxy
statement for the Company dated April 28, 1998 are the deletion
of Republic Industries, Inc. ("Republic"), Transamerican Waste
("Transamerican") and USA Waste Services, Inc. ("USA"). These
changes were the result of Republic merging with and into
Autonation and each of Transamerican and USA merging with and
into WMI.
COMPARATIVE ANNUAL TOTAL RETURN
INDUSTRIAL SERVICES OF AMERICA, INC.,
STANDARD & POORS 500 AND PEER GROUP
(PERFORMANCE RESULTS THROUGH 12/31/98)
NAME 1996 1997 1998
- ---- ---- ---- ----
Industrial Services of America, Inc. 100.00 40.00 22.78
Standard & Poors 500 100.00 133.38 171.25
Peer Group 100.00 104.68 99.13
Assumes $100 invested at the close of trading 12/96 in Industrial
Services of America, Inc. common stock, Standard & Poors 500 and
Peer Group.
*Cumulative total return assumes reinvestment of dividends.
SOURCE; Value Line, Inc.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the
next annual meeting of shareholders must be received by the
Company at its principal executive offices in Louisville,
Kentucky on or before December 23, 1999 for inclusion in the
Company's proxy statement and form of proxy relating to that
meeting and must comply with the applicable requirements of the
federal securities laws.
OTHER MATTERS
The Board knows of no business, which will be presented for
consideration at the Annual Meeting other than that described
above. However, if any such other business should properly come
before the Annual Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote the proxies in
respect of any such business in accordance with their best
judgment.
By Order of the Board of Directors
Joseph H. Cohen
Secretary of the Board of Directors
Louisville, Kentucky
April 30, 1999
<PAGE>
PROXY
INDUSTRIAL SERVICES OF AMERICA, INC.
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby appoints Harry Kletter and Sean M.
Garber, and each of them, as proxies, with full power of
substitution, and authorizes them, and each of them, to vote and
act with respect to all shares of common stock of Industrial
Serivces of America, Inc. which the undersigned is entitled to
vote at the Annual Meeting of Shareholders to be held on Thursday,
May 27, 1999, at 10:00 A.M. EDT, at the Building No. 1, 7100 Grade
Lane, Louisville, Kentucky, and at any and all adjournments
thereof.
The Board of Directors recommends a vote FOR each of the
following proposals:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to
the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below
NOMINEES: Joseph H. Cohen, Ted L. Cox, Sean M. Garber,
Harry Kletter and Dr. Barry N. Naft
(INSTRUCTION: To withhold authority to vote for one or more
individual nominees, write such name or names in the space
provided below. Unless authority to vote for all the
nominees listed above is withheld, this proxy will be deemed
to confer authority to vote for every nominee whose name is
not entered below.)
2. PROPOSAL TO AMEND THE INDUSTRIAL SERVICES OF AMERICA,
INC. 1997 EMPLOYEE STOCK OPTION PLAN TO (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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE A NON-QUALIFIED (NON-PLAN) STOCK
OPTION TO PURCHASE 500,000 SHARES OF COMMON STOCK
AT $5.00 PER SHARE GRANTED TO HARRY KLETTER, THE
COMPANY'S CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE SELECTION OF CROWE, CHIZEK AND
COMPANY, LLC AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
- -- -- -- -- -- -- -- -- -- --
The proxies shall vote such shares as specified herein. If
a choice is not specified, they shall vote for the election of
all nominees for directors and in favor of all proposals.
Dated: , 19
--------------------- ---
----------------------------------
Signature
----------------------------------
Signature
Name(s) should be signed exactly as
shown to the left hereof. Title
should be added if signing as
executor, administrator, trustee,
etc.
PLEASE DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ACCOMPANYING ENVELOPE
