<PAGE>
As filed with the Securities and Exchange Commission on May 24, 1996
================================================================================
Registration No. 333-4574
=========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________________
RECYCLING INDUSTRIES, INC.
(Exact name of Registrant specified in charter)
COLORADO 5093
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
384 INVERNESS DRIVE SOUTH,
SUITE 211
ENGLEWOOD, COLORADO 80112
84-1103445 (303) 790-7372
(I.R.S. Employer Identification No.) (Address, including zip code, and
telephone number, including area code, of
Registrant's principal executive offices)
THOMAS J. WIENS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
384 INVERNESS DRIVE SOUTH, SUITE 211
ENGLEWOOD, COLORADO 80112
(303) 790-7372
(Name, address and telephone number,including area code,
of agent for service)
Copies of communication, including all communication sent to the agent for
service, should be sent to:
<TABLE>
<CAPTION>
<S> <C>
RAYMOND L. FRIEDLOB, ESQ. NORMAN BROWNSTEIN, ESQ.
GERALD RASKIN, ESQ. JOHN R. GARRETT, ESQ.
JOHN W. KELLOGG, ESQ. DAVID M. BROWN, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
1400 GLENARM PLACE, SUITE 300 410 SEVENTEENTH STREET, SUITE 2200
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 571-1400 (303) 534-6335
</TABLE>
____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
___________________
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [_]
<PAGE>
_________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
RECYCLING INDUSTRIES, INC.
Cross Reference Sheet pursuant to Item 501 of Regulation S-K showing the
location in the Prospectus of information required by Items 1 through 12, Part I
of Form S-1.
<TABLE>
<CAPTION>
Form S-1
Item Number Information Required Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
1 Forepart of the Facing Page of Registration
Registration Statement and Statement; Outside Front Page of
Outside Front Cover Page Prospectus
of Prospectus
2 Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Pages of Prospectus
Prospectus
3 Summary Information, Risk Prospectus Summary; Risk Factors;
Factors and Ratio of Prospectus Summary - Summary
Earnings to Fixed Charges Financial Information
4 Use of Proceeds Prospectus Summary; Use of Proceeds
5 Determination of Offering Not Applicable
Price
6 Dilution Dilution
7 Selling Securityholders Selling Securityholders
8 Plan of Distribution Cover Page; Underwriting
9 Description of Securities Prospectus Summary; Description of
to be Registered Capital Stock
10 Interests of Named Experts Not Applicable
and Counsel
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-1
Item Number Information Required Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
11 Information with Respect Business - Industry Overview,
to the Registrant Strategy, Operations, Transportation,
Competition, Employees, Properties,
Legal Proceedings, Environmental
Matters, Recent Developments; Price
Range of the Common Stock; Dividend
Policy; Selected Financial
Information; Management's Discussion
and Analysis of Financial Condition
and Results of Operations; Management
- Executive Officers and Directors,
Executive Compensation, Principal
Shareholders; Certain Transactions.
12 Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED MAY 24, 1996
PROSPECTUS
4,892,448 SHARES
RECYCLING INDUSTRIES, INC.
[LOGO]
COMMON STOCK (PAR VALUE $.001 PER SHARE)
Of the 4,892,448 shares of Common Stock ("Common Stock") offered hereby
(the "Offering"), 4,400,000 are being sold by Recycling Industries, Inc. (the
"Company") and 492,448 are being sold by certain securityholders of the Company
(the "Selling Securityholders"). The Company will not receive any proceeds from
the sale of Common Stock by the Selling Securityholders.
The Company's Common Stock has been approved for trading on the Nasdaq
National Market and is currently traded on the Nasdaq SmallCap Market under the
symbol "RECY." On May 1, 1996, the closing sale price of the Common Stock, as
reported on the Nasdaq SmallCap Market, was $ 5.50 per share. See "Price Range
of the Common Stock."
____________________
SEE "RISK FACTORS" COMMENCING ON PAGE SIX FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================
Proceeds to
Price to the Underwriting Proceeds to the Selling
Public Discounts (1) Company (2) Securityholders (3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ 5.50 $ .385 $ 5.115 $ 5.115
- ----------------------------------------------------------------------------------------------------------------
Total (3) $ 26,908,464 $1,883,592 $ 22,506,000 $ 2,518,872
================================================================================================================
</TABLE>
(1) Does not include a 1 1/2% non-accountable expense allowance payable to the
Underwriter and warrants to purchase 450,105 shares of Common Stock
issuable to the Underwriter (the "Underwriter's Warrants"). The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, estimated at $1,025,000, including the non-
accountable expense allowance of $363,000 payable by the Company.
(3) The Company's Chief Executive Officer has granted to the Underwriter an
option, exercisable within 30 days of the date of this Prospectus, to
purchase up to an aggregate of 733,867 additional shares of Common Stock on
the same terms as set forth above, solely to cover over-allotments. The
Company will not receive any proceeds from the exercise of the over-
allotment option. See "Selling Securityholders" and "Underwriting."
____________________
The Shares of Common Stock are offered by the Underwriter, subject to prior
sale when, as and if accepted by it and subject to certain conditions, the right
to withdraw, cancel, modify or reject any order in whole or part, and subject to
approval of certain legal matters by counsel. It is expected that delivery of
the Common Stock will be made in New York, New York against payment therefor on
or about May 31, 1996.
____________________
PRIME CHARTER LTD.
THE DATE OF THIS PROSPECTUS IS __________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; at the Commission's New York Regional Office,
7 World Trade Center, Suite 1300, New York, New York 10048; and at the
Commission's Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Common Stock offered hereby of which
this Prospectus constitutes a part. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement, exhibits
and schedules. Any statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP OR NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER AND SELLING GROUP MEMBERS,
IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP OR NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
EXCHANGE ACT. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Concurrently with the closing of the
Offering made by this Prospectus, the Company will acquire Weissman Industries,
Inc. ("Weissman"), a metals recycler based in Waterloo, Iowa, for a purchase
price of $12.4 million in a separate transaction (the "Acquisition"). Unless
otherwise indicated, all references to the "Company" in this Prospectus include
Weissman and all financial information and other data in this Prospectus have
been adjusted to give pro forma effect to the Acquisition. Except as otherwise
indicated, the information contained in this Prospectus assumes that neither the
Underwriter's over-allotment option nor the Underwriter's Warrants are
exercised. As used herein, the "Offering Price" means $ 5.50 per share of Common
Stock.
THE COMPANY
Recycling Industries, Inc. is a full-service metals recycler engaged in the
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metals producers and
processors. The Company operates six metals recycling facilities in Las Vegas,
Nevada; Brownsville, Harlingen, McAllen and San Juan, Texas; and Ste. Genevieve,
Missouri and, upon consummation of the Acquisition, will operate a seventh
facility in Waterloo, Iowa. In addition, the Company owns a 20% interest in a
metals recycler in Athens, Georgia. The Company commenced its metals recycling
operations in May 1994 and, upon consummation of the Acquisition, will have
increased its revenues from $1.7 million for the quarter ended June 30, 1994 to
pro forma revenues of $ 12.8 million for the quarter ended March 31, 1996. Over
the same period, the Company's metals shredding capacity increased over 300% and
its total metals processing capacity increased over 325%.
The largest portion of the Company's operations involves the collection,
processing and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize electric arc furnace ("EAF") technology. The
increase in domestic EAF capacity from 14.8 million net tons (11.0% of total
domestic steel production) in 1966 to 40.6 million net tons (39.4% of total
domestic steel production) in 1995 has resulted in strong demand and prices for
processed ferrous scrap. According to industry reports, the anticipated
continuing increase in EAF capacity to an estimated 50.0 million net tons by the
year 2000 may cause global ferrous scrap shortages, resulting in further
increases in processed ferrous scrap prices.
The Company is also engaged in the processing of non-ferrous materials such
as copper, aluminum and brass, which are sold to secondary smelters and other
non-ferrous metals processors. The Company's non-ferrous operations complement
its ferrous operations, as most unprocessed scrap contains ferrous and non-
ferrous components which require separation in preparation for resale. The lower
cost of producing non-ferrous metals from scrap relative to the cost of primary
smelting has resulted in strong demand for processed non-ferrous scrap.
1
<PAGE>
The Company's objective is to become one of the largest metals recyclers in
North America through targeted acquisitions of independent metals recyclers. The
Company seeks to capitalize on the opportunity presented by the growing demand
for processed ferrous scrap, the expanding markets created by the rapid
proliferation of new EAF operations and the availability of metals recycling
facilities. By pursuing a consolidation strategy within the metals recycling
industry, the Company believes that it can significantly enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources. The Company also believes that geographic
diversity will reduce its vulnerability to the dynamics of any particular local
or regional market. Furthermore, as EAF capacity and demand for processed
ferrous scrap continue to increase, the Company believes that multi-regional and
national EAF operators such as Nucor Corporation, Birmingham Steel Corporation
and North Star Steel Co. will increasingly rely on suppliers who can provide a
dependable quantity and quality of processed scrap as well as a high degree of
service. The Company believes that it is the only metals recycler pursuing a
consolidation strategy on a national basis and therefore will be in an ideal
position to become a preferred supplier to the major EAF operators.
The Company believes that there are over 3,000 independent metals recyclers
in North America which generated more than $10 billion in revenues in 1995.
Based upon reports published by the Institute for Scrap Recycling Industries
("ISRI"), approximately 200 of these independent metals recyclers operate heavy-
duty automotive shredders, which constitute the primary equipment used in
processing large volumes of ferrous and non-ferrous scrap for sale to steel and
other metals producers. Because of the highly fragmented nature of the industry,
the Company believes that no single metals recycler has a significant share of
the national processed scrap market, although certain recyclers may have a
dominant share of their local or regional market. Similar to the ongoing
consolidation within the municipal solid waste industry, the metals recycling
industry has recently begun to experience local market consolidation due to: (i)
increasing capital requirements caused by more stringent environmental and
governmental regulations, and (ii) the exit of aging independent recyclers who
desire to sell closely-held businesses in the absence of a successor owner or
operator.
In implementing its acquisition strategy, the Company seeks to identify
potential acquisition targets with:
. dominant or strategic positions in local or regional markets;
. excess or underutilized capacity;
. the ability to supply an existing or planned metals production
facility, such as an EAF;
. access to rail, water or interstate highway transportation systems;
and
2
<PAGE>
. either operational shredding equipment, the ability to supply the
Company's existing shredding equipment or adequate facilities to
permit the installation of such equipment.
By continuing to acquire facilities that meet these criteria, the Company
believes it can achieve rapid growth and expansion of its customer base.
An essential component of the Company's acquisition strategy is improving
the operating efficiency, output and capacity of each acquired facility by
targeting three phases of the Company's operations: (i) the purchase of raw
scrap; (ii) the processing of raw scrap into saleable product; and (iii) the
sale of processed scrap. Each acquired facility is integrated into the Company's
operations through a comprehensive program that targets these operating phases
through the installation of management and financial reporting systems, the
implementation of expanded purchasing and marketing programs, the centralization
of operating functions to achieve economies of scale, selective reductions in
personnel and improved inventory and other financial controls. Where necessary,
the Company implements a capital improvements program to repair or replace
outdated and inefficient equipment and to improve the facility's scrap
processing operations and processed scrap output. Through these programs, the
Company has realized significant improvements in operating results.
Of the Company's pro forma revenues for the quarter ended March 31,
1995, approximately 68% was attributable to sales of ferrous scrap, 28% was
attributable to sales of non-ferrous scrap, and the balance was primarily
attributable to paper and plastic recycling and retail finished steel sales
conducted at certain of the Company's facilities.
The Company's executive offices are located at 384 Inverness Drive South,
Suite 211, Englewood, Colorado 80112, and its telephone number is 303-790-7372.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding
before the Offering.............. 10,178,137 shares (1)
Common Stock Offered by
the Company........................ 4,400,000 shares
Common Stock Offered by the
Selling Securityholders............ 492,448 shares
Common Stock to be Outstanding
after the Offering................ 13,409,691 shares (1)(2)(3)
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds....................... To pay a portion of the purchase price
in connection with the Acquisition, to
repurchase 1,544,586 outstanding shares
of the Company's Common Stock, to
redeem the Company's Series A
Convertible Preferred Stock, to repay
the Company's outstanding bridge and
revolving credit indebtedness, to
pursue other acquisitions in the metal
recycling industry and for general
corporate purposes.
Nasdaq National Market Symbol......... RECY
</TABLE>
__________
(1) Does not include Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants or: (i) 4,321,031 shares issuable upon exercise of
currently outstanding warrants; (ii) 1,358,440 shares issuable upon
exercise of currently outstanding options; (iii) 260,000 shares issuable
upon the conversion of the Company's Series A Convertible Preferred Stock
which will be redeemed upon consummation of the Offering; and (iv) shares
reserved for additional options to be granted under the Company's stock
option plans. See "Use of Proceeds," "Description of Capital Stock," and
"Shares Eligible for Future Sale."
(2) Has been reduced to reflect the repurchase by the Company of 1,544,586
shares of Common Stock upon consummation of the Offering. See "Use of
Proceeds."
(3) Includes 376,140 shares issuable in exchange for certain outstanding
warrants concurrently with completion of the Offering. See "Description of
Capital Stock - Warrants."
SUMMARY FINANCIAL INFORMATION
The following information presents, for the periods and dates indicated,
summary consolidated financial information of the Company. This information
should be read in conjunction with "Capitalization," "Selected Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Company's historical and pro forma financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, Six Months Ended March 31,
----------------------------------------------------------- --------------------------------------
Pro Forma/(2)/ Pro Forma/(2)/
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ------------- ---- ---- --------------
(in thousands, except per share data and selling prices)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA/(1)/:
Revenues $ -0- $4,831 $13,853 $52,222 $7,117 $10,763 $25,124
Cost of Sales -0- 4,110 10,869 43,290 5,323 9,352 20,737
-------- ------ ------- ------- ------ ------- -------
Gross Profit $ -0- $ 721 $ 2,984 $ 8,932 $1,794 $ 1,411 $ 4,387
</TABLE>
4
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<TABLE>
<CAPTION>
Fiscal Year Ended September 30, Six Months Ended March 31,
----------------------------------------------------------- --------------------------------------
Pro Forma/(2)/ Pro Forma/(2)/
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ------------- ---- ---- -------------
(in thousands except per share data and selling prices)
<S> <C> <C> <C> <C> <C> <C> <C>
Selling and
administrative expenses $ 2,335 $1,660 $ 2,279 $ 4,016 $ 911 $1,553 $ 2,497
Loss from joint
ventures and
equity investee 467 -0- -0- -0- -0- -0- -0-
-------- ------ ------- -------- ------ ------ -------
Income (loss) from
operations $ (2,802) $ (939) $ 705 $ 4,916 $ 883 $ (142) $ 1,890
Interest expense (156) (203) (407) (1,046) (198) (245) (557)
Extraordinary gain 475 218 806 806 222 48 48
-------- ------ ------- ------- ------ ------ ------
Income (loss) before
income taxes $ (2,483) $ (924) $ 1,104 $ 4,676 $ 907 $ (339) $ 1,381
Income tax provision
(benefit) -0- -0- (711) (638) -0- (437) 152
-------- ------ ------- ------- ------ ------ -------
Net income (loss) $ (2,483) $ (924) $ 1,815 $ 5,314 $ 907 $ 98 $ 1,229
-------- ------ ------- ------- ------ ------ -------
Net income (loss) per share $ (1.04) $(0.37) $ 0.30 $ 0.48 $ 0.26 $ 0.01 $ 0.09
------- ------ ------- ------- ------ ------ -------
Weighted Average
Shares Outstanding 2,377 2,505 6,100 11,013 3,495 9,790 13,347
OPERATING AND OTHER DATA:
EBITDA/(3)/ $ (2,445) ($547) $ 1,489 $ 5,903 $1,337 $ 337 $ 2,711
Shipments:
Ferrous (tons) -0- 24,600 57,100 209,402 28,980 55,500 121,500
Non-ferrous (pounds) -0- 3,676,300 8,805,600 33,729,071 4,686,000 6,739,000 11,239,000
Average Selling Price/(4)/:
Ferrous (per ton) -0- $100 $120 $120 $118 $123 $ 123
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------
Pro Forma
Actual As Adjusted (5)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 105 $ 7,174
Total assets 19,938 41,203
Property and equipment 8,421 20,180
Total liabilities 9,045 22,797
Stockholders' equity 10,893 25,006
</TABLE>
____________
(1) Prior to May 1994, the Company was engaged in the development of technology
related to the recycling of municipal solid waste. For comparative
purposes, financial data prior to fiscal 1994 reflects the Company's
efforts to develop such technology. The Company's current metals recycling
operations commenced in May 1994 with the acquisition of its Nevada
facility. The financial information for fiscal 1994 reflects five months of
operating results of the Nevada facility. The financial information for
fiscal 1995 reflects 12 months of operating results of the Nevada facility
and reflects the efforts of the Company to acquire other metals recycling
facilities.
(2) The pro forma data gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (upon
consummation of the Offering) as if each had occurred at the beginning of
the periods presented. In addition,
5
<PAGE>
the pro forma information is based upon available information and certain
assumptions and adjustments. See the notes to the pro forma financial
statements.
(3) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The Company
has included EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it understands such data
is used by certain investors to determine the Company's ability to service
its indebtedness.
(4) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the Company.
(5) Gives effect to the consummation of the Offering at the Offering Price and
the application of the net proceeds therefrom as described in "Use of
Proceeds."
RISK FACTORS
Prospective investors should consider carefully the following Risk Factors,
as well as the other information set forth in this Prospectus, before making an
investment in the Common Stock.
LIMITED COMBINED OPERATING HISTORY
The Company commenced its metals recycling operations upon the acquisition
of its Nevada facility in May 1994. Prior to May 1994, the Company generated
operating losses and negative cash flow as a development stage enterprise
pursuing the development of technology to recycle municipal solid waste (the
"MSW Technology"). Since May 1994, the Company has acquired metals recycling
facilities in southern Texas and Missouri and a 20% interest in a metals
recycling company in Georgia. The Company has entered into an agreement to
acquire an additional metals recycling facility, Weissman, concurrently with the
closing of the Offering. The Company has only a limited combined operating
history for its current facilities and the Company's pro forma results of
operations are not necessarily indicative of actual results. There can be no
assurance that the Company's existing operations, or those of Weissman to be
acquired in the Acquisition, will generate sufficient cash flow to fund the
future operations of the Company.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company's objective is to increase its revenues and earnings and expand
the markets it serves through the acquisition of additional metals recycling
facilities. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional facilities or successfully integrate
their operations without substantial costs, delays or other unanticipated
problems. There can be no assurance that Weissman or other acquired companies
will achieve sales and profitability that justify the Company's investment.
Acquisitions involve a number of risks, which may include: adverse short-term
effects on the Company's reported operating results and cash flows; diversion of
management's attention; dependence on retaining, hiring and training key
personnel; risks associated with environmental or legal liabilities; and the
effects of amortization of acquired intangible assets, such as goodwill. Some of
these risks
6
<PAGE>
could have a material adverse effect on the Company's operations and financial
performance. As the Company continues to expand, the Company will be required to
supplement its current management team in order to effectively manage the
acquired entities and successfully implement its acquisition and operating
strategies. See "Business - Strategy" and "Management."
CAPITAL REQUIREMENTS AND LIMITED WORKING CAPITAL
A substantial portion of the net proceeds of the Offering will be used to
pay a portion of the purchase price in connection with the Acquisition, to
repurchase certain outstanding shares of Common Stock, to redeem the Company's
Series A Convertible Preferred Stock and to repay the Company's bridge
financing. The Company will have limited proceeds remaining after such
applications and will require additional debt or equity financing in order to
continue implementing its acquisition strategy. There can be no assurance that
the Company will be able to obtain such financing on terms the Company deems
acceptable. If the Company does not have sufficient cash resources or if the
Company is unable to use its capital stock as consideration for acquisitions,
the Company may be unable to continue to pursue its acquisition strategy. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" and "Business -
Strategy."
MARKET CONSIDERATIONS
Sales prices for prepared scrap metal are cyclical in nature and are
subject to local, national and international economic conditions. While recent
increases in demand have resulted in strong sales prices for prepared ferrous
scrap, the Company's operating results are dependent upon the strength of the
national economy and, in particular, the domestic steel industry. A future
downturn in the economy or in steel production could adversely affect the
performance of the Company. The demand for processed ferrous and non-ferrous
scrap is subject to general economic, industry and market-specific conditions
beyond the Company's control which may result in periodic fluctuations in the
sales prices of the Company's products. Although the Company seeks to maintain
its operating margins by adjusting the purchase price for raw ferrous scrap in
response to changing sales prices for prepared ferrous scrap, its ability to
maintain these margins during periods of falling prices may be limited by the
adverse impact of lower prices on the available supply of raw ferrous scrap. The
Company is unable to hedge against changes in ferrous scrap prices and attempts
to minimize this risk by maintaining low inventory levels of raw and processed
scrap and by establishing firm prices with its larger customers at the beginning
of each month.
COMPETITION
The metals recycling business is highly competitive and subject to
significant changes in market conditions. Certain of the Company's competitors
have substantially greater financial,
7
<PAGE>
marketing and other resources. There can be no assurance that the Company will
be able to obtain its desired market share or compete effectively in its
markets.
ENVIRONMENTAL MATTERS
Compliance with state and federal environmental laws is a significant
factor in the metals recycling industry. Certain raw materials handled,
processed and disposed of in the metals recycling industry, such as automobiles
and appliances, may contain substances which are subject to a variety of
federal, state and local governmental regulations concerning the discharge of
hazardous materials into the environment. The Company has adopted standards and
policies for accepting raw materials designed to ensure compliance with
applicable environmental regulations. The Company's management does not believe
that the costs associated with environmental compliance will have a material
adverse impact on the Company. See "Business - Environmental Matters."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on a limited number of key
personnel, including the Company's Chairman and Chief Executive Officer, Thomas
J. Wiens, and its President and Chief Operating Officer, Michael I. Price. The
Company has not entered into employment agreements with either of such officers
but has obtained key-man life insurance policies in the amount of $500,000 for
Mr. Wiens and $1,000,000 for Mr. Price. See "Management."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share. As of March 31, 1996,
the net tangible book value per share of the Common Stock was $.55. After giving
effect to the sale of Common Stock offered by this Prospectus at the Offering
Price, the deduction of underwriting discounts and the estimated expenses of the
Offering and giving effect to: (i) the Acquisition; (ii) the anticipated use of
proceeds of the Offering; and (iii) the issuance of 376,140 shares of Common
Stock in exchange for certain outstanding warrants, the adjusted net tangible
book value of the Company at March 31, 1996 would have been $1.47 per share.
This represents an immediate increase in net tangible book value per share of
$.92 to the Company's present shareholders and an immediate dilution of $4.03
per share to purchasers in the Offering. See "Dilution."
8
<PAGE>
CONTROL BY PRINCIPAL SHAREHOLDER AND ANTI-TAKEOVER PROVISIONS
As of the date of this Prospectus, Thomas J. Wiens, the Company's Chairman
and Chief Executive Officer, beneficially owns 2,814,003 shares of the Company's
Common Stock, representing approximately 27.7% of the issued and outstanding
shares. Following consummation of the Offering, assuming no exercise of the
Underwriter's over-allotment option, Mr. Wiens will beneficially own
approximately 21.0% of the outstanding Common Stock.
The Company's Amended and Restated Articles of Incorporation contain
certain provisions which may inhibit a change of control of the Company. These
include scaled voting provisions that, upon a determination by the Company's
Board of Directors, may limit the voting rights of holders of more than 10% of
the Company's outstanding Common Stock. These provisions may discourage a party
from making a tender offer or otherwise attempting to take control of the
Company. As of the date of this Prospectus, the Company's Board of Directors has
not implemented the scaled voting provisions. The Company's Board of Directors
has adopted an amendment to the Amended and Restated Articles of Incorporation
to be voted upon at the Company's next annual meeting of shareholders to
eliminate these provisions. See "Description of Capital Stock -Anti-Takeover
Provisions." The Company's Amended and Restated Articles of Incorporation also
authorize the issuance of 10,000,000 shares of preferred stock, the terms of
which are to be determined by the Board of Directors at the time of issuance.
The ability to issue preferred stock could be used by the Board as a means for
resisting a change of control of the Company and may be considered an "anti-
takeover" device. As of the date of this Prospectus, the Company has 13,000
shares of Series A Convertible Preferred Stock issued and outstanding, all of
which are being redeemed upon consummation of the Offering. The Company may
authorize additional series of preferred stock to issue as consideration for
future acquisitions but has no commitment to do so at this time. See "Use of
Proceeds" and "Description of Capital Stock - Preferred Stock."
OUTSTANDING STOCK OPTIONS AND WARRANTS
The Company has outstanding options and warrants to acquire an aggregate of
5,658,946 shares of the Company's Common Stock, substantially all of which have
exercise prices ranging from $.90 to $7.50 per share. Warrants to purchase
359,250 shares of Common Stock at a current exercise price of $1.05 per share
and warrants to purchase 60,000 shares of Common Stock at $.90 per share are to
be exchanged for 376,140 shares of Common Stock upon consummation of the
Offering, representing an effective exercise price of $.60 per share. Of the
remaining outstanding options and warrants, options and warrants to acquire an
aggregate of 1,851,706 shares of Common Stock have exercise prices below the
Offering Price. In addition, warrants to purchase an aggregate of 2,863,956
shares of Common Stock have adjustment provisions providing for reduction of
their exercise prices in the event that the Company fails to register such
shares under the Securities Act within specified time frames. The exercise of
such options and warrants could have a substantial dilutive effect upon the
purchasers
9
<PAGE>
of shares of Common Stock offered by this Prospectus. See "Description of
Capital Stock - Warrants" and "Shares Eligible For Future Sale -Registration
Rights."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately
442,000 shares of Common Stock outstanding that will be eligible for sale
pursuant to Rule 144 under the Securities Act. In addition, holders of a total
of 5,107,160 shares of Common Stock and warrants to purchase an additional
2,944,076 shares of Common Stock will have the right to require the Company to
register such shares of Common Stock under the Securities Act on or before
September 30, 1996. The utilization of Rule 144 and the exercise of registration
rights by the holders of these shares will increase substantially the number of
shares available for sale in the public markets and may have an adverse impact
on the market price of the Common Stock. See "Shares Eligible for Future
Sale."
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, after deducting underwriting discounts and other
offering expenses (estimated to be approximately $2.7 million), are
approximately $21.5 million. Of this amount, $6.4 million will be used to pay a
portion of the purchase price in connection with the Acquisition; $5.0 million
will be used to repurchase 1,424,586 shares of the Company's Common Stock for
$3.50 per share (including a $.10 per share solicitation fee payable to First
Equity Capital Securities, Inc.); $2.4 million will be used to redeem all of the
Company's outstanding Series A Convertible Preferred Stock and 120,000 shares of
Common Stock issued in connection with the acquisition of its Nevada facility;
$2.0 million will be used to pay down the Company's revolving credit line which
bears interest at prime plus 2%; $438,000 will be used to repay the Company's
outstanding bridge indebtedness and $200,000 will be used to maintain the
Company's ownership interest in its Georgia facility. See "Business - Recent
Developments." The remaining proceeds of approximately $5.2 million will be used
for general corporate purposes, which are expected to include future
acquisitions. The Company is continuously evaluating acquisition opportunities
but at the present time has no commitment with respect to any future
acquisition, other than Weissman. Pending such uses, the net proceeds will be
invested in short-term, interest bearing, investment grade securities.
The Company expects to finance the balance of the $12.4 million purchase
price for Weissman with long-term debt and working capital financing obtained
from a lending institution, for which the Company has a signed letter of intent.
See "Business - Recent Developments." If for any reason such debt financing is
not available at the closing of the Acquisition, the Company may be required to
utilize the remaining proceeds of the Offering for such purpose. Such use of
proceeds may increase the Company's need for additional working capital and may
adversely affect the Company's ability to pursue its acquisition strategy.
10
<PAGE>
PRICE RANGE OF THE COMMON STOCK
The Common Stock is currently listed on the Nasdaq SmallCap Market System
under the symbol "RECY" and has been approved for listing on the Nasdaq National
Market System. In addition, the Common Stock has been trading on the Boston
Stock Exchange since July 6, 1995 under the trading symbol "RCY." Prior to its
approval for listing on the Nasdaq SmallCap Market and the Boston Stock
Exchange, the Common Stock was quoted on the National Association of Securities
Dealers OTC Bulletin Board (the "OTCBB") under the symbol "RECY".
The majority of the Company's shares are held by management and affiliates
and are subject to restriction on resale. The number of unrestricted shares of
Common Stock is relatively low in relation to the total number of shares issued
and, therefore, trading in the Common Stock is limited. As a result, the Company
believes that historical market quotations for the Common Stock are not a
reliable indicator of value. The quotations provided below are the high and low
reported sales prices for the quarters indicated as reported on the OTCBB and
the Nasdaq SmallCap Market and have been adjusted to reflect the Company's
one-for-five reverse stock split effective June 27, 1995.
<TABLE>
<CAPTION>
Common Stock
------------------
High Low
---- ---
<S> <C>
Fiscal 1994:
First Quarter $13.75 $6.25
Second Quarter 18.13 4.38
Third Quarter 18.75 7.50
Fourth Quarter 10.00 5.00
Fiscal 1995:
First Quarter $ 8.13 $2.00
Second Quarter 4.20 2.20
Third Quarter 5.63 2.50
Fourth Quarter 5.38 3.88
Fiscal 1996:
First Quarter $ 4.88 $2.88
Second Quarter 7.00 3.50
Third Quarter (through
May 22, 1996) 5.63 4.25
</TABLE>
The last reported sale price of the Common Stock as quoted on the Nasdaq
SmallCap Market System on May 1, 1996 was $5.50 per share. As of March 31,
1996, there were
11
<PAGE>
737 record holders of Common Stock. Based upon the information available to it,
the Company believes there are approximately 1,200 beneficial owners of its
Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
present intention to pay any cash dividends on its Common Stock for the
foreseeable future. Instead, the Company intends to retain its earnings, if any,
to support the growth and future development of its business and for general
corporate purposes. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted on a pro forma basis to reflect: (i) the
Acquisition of Mid-America Shredding, Inc. on April 15, 1996; (ii) the
Acquisition; and (iii) the Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table does not reflect
Common Stock reserved for issuance upon the exercise of outstanding options and
warrants or the Underwriter's Warrants. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Capital Stock." This table should be read in
conjunction with the historical and pro forma consolidated financial statements
of the Company, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
---------------------------
Pro Forma
Actual As Adjusted
------- -------------
(in thousands)
<S> <C> <C>
Short-term debt, including current
portion of long-term debt $ 4,766 $ 5,261
======= =======
Long-term debt, excluding current portion/(1)/ $ 1,576 $ 5,908
Note payable to related parties 945 945
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
Stockholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; 13,000 Shares of Series A
Convertible Preferred Stock issued and
outstanding and no shares issued and
outstanding pro forma as adjusted/(2)/ 1,312 - 0 -
Common Stock, $0.001 par value, 50,000,000
shares authorized; 10,055,193 shares issued
and outstanding and 13,409,691 shares pro
forma as adjusted/(3)/ 10 15
Additional paid-in capital 17,909 33,329
Retained earnings (deficit) (8,338) (8,338)
------- -------
Total stockholders' equity 10,893 25,006
------- -------
Total capitalization $13,414 $31,859
======= =======
</TABLE>
- ------------
(1) For a description of the Company's long-term debt, see Note 14 to the
Company's consolidated financial statements.
(2) The Company will redeem all of its outstanding Series A Convertible
Preferred Stock upon the consummation of the Offering. See "Use of
Proceeds."
(3) Excludes outstanding options and warrants to purchase Common Stock. See
"Description of Capital Stock - Warrants and Stock Options."
DILUTION
The net tangible book value of the Company (total assets less total
liabilities and intangible assets) on March 31, 1996 was $5,505,000 or $.55 per
share. After giving effect to (i) the sale of the shares of Common Stock offered
by this Prospectus, (ii) the Acquisition, (iii) the intended use of proceeds of
the Offering and (iv) the issuance of 376,140 shares of Common Stock in exchange
for certain outstanding warrants, the adjusted net tangible book value of the
Company at March 31, 1996 would have been $1.47 per share, representing an
immediate increase in net tangible book value per share of $.92 to existing
shareholders and an immediate dilution of $4.03 to the purchasers of Common
Stock in the Offering. The following table illustrates the per share dilution to
investors in the Offering:
<TABLE>
<S> <C>
Offering price per share (1) $5.50
Net tangible book value per
share before the Offering................................ $ .55
Increase per share attributable
to the sale of Common Stock
in the Offering (2)...................................... $ .92
-----
Adjusted net tangible book
value per share (2)...................................... $1.47
-----
Dilution to new investors................................ $4.03
=====
</TABLE>
- ------------
13
<PAGE>
(1) Before deductions of underwriting discounts and estimated offering expenses
payable by the Company.
(2) After deductions of underwriting discounts and estimated offering expenses
payable by the Company.
The following table sets forth as of the date of this Prospectus the number
of shares of Common Stock issued by the Company, the total consideration to the
Company and the average price per share paid by existing shareholders and by the
investors in the Offering:
<TABLE>
<CAPTION>
Shares Acquired Total Consideration Average
---------------------- --------------------
(In thousands) Price
Number Percent Amount Percent Per Share
------ ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders/(1)/ 10,055,193 69.6 $18,588 43.4 $1.85
Investors in the
Offering 4,400,000 30.4 24,200 56.6 5.50
--------------- ----- ------- ----- -----
Total 14,455,193/(2)/ 100.0 $42,788 100.0 $2.96
</TABLE>
____________
(1) Total consideration from existing shareholders represents the consolidated
shareholder's equity before the Offering.
(2) Has not been adjusted to reflect the repurchase of 1,544,586 shares of
Common Stock upon consummation of the Offering. See "Use of Proceeds."
SELECTED FINANCIAL INFORMATION
The statement of operations and balance sheet data included in the
following table for each of the five years ended September 30, 1995 have been
derived from the consolidated financial statements of the Company which have
been audited by independent accountants. The statement of operations and balance
sheet data included in this table for the six months ended March 31, 1996 and
1995 have been obtained from unaudited financial statements which, in the
opinion of management, include all adjustments necessary for a fair presentation
of the financial position and results of operations for these periods. The
results for the six months ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the full year. The pro forma financial
data set forth below has been derived from the Company's unaudited pro forma
consolidated financial statements included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, Six Months Ended March 31,
----------------------------------------------------------- -------------------------------------
Pro Forma/(2)/ Pro Forma/(2)/
1991 1992 1993 1994 1995 1995 1995 1996/(3)/ 1996
---- ---- ---- ---- ---- ------------- ---- --------- --------------
(in thousands, except per share data and selling prices)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA/(1)/:
Revenues $ -0- $ -0- $ -0- $4,831 $13,853 $52,222 $7,117 $10,763 $25,124
Cost of Sales -0- -0- -0- 4,110 10,869 43,290 5,323 9,352 20,737
------- ------- ------- ------ ------- ------- ------ ------- -------
Gross Profit $ -0- $ -0- $ -0- $ 721 $ 2,984 $ 8,932 $1,794 $ 1,411 $ 4,387
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selling and
administrative expenses $ 774 $ 2,951 $ 2,335 $ 1,660 $ 2,279 $ 4,016 $ 911 $ 1,553 $ 2,497
Loss from joint
ventures and
equity investee 839 462 467 -0- -0- -0- -0- -0- -0-
------- ------- ------- ------- -------- -------- ------- ------- -------
Income (loss) from
operations $(1,613) $(3,413) $(2,802) $ (939) $ 705 $ 4,916 $ 883 $ (142) 1,890
Interest expense (78) (114) (156) (203) (407) (1,046) (198) (245) (557)
Extraordinary gain 424 2,380 475 218 806 806 222 48 48
------- ------- ------- ------- -------- -------- ------- ------- -------
Income (loss) before
income taxes $(1,267) $(1,147) $(2,483) $ (924) $ 1,104 $ 4,676 $ 907 $ (339) $ 1,381
Income tax provision
(benefit) -0- -0- -0- -0- (711) (638) -0- (437) 152
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss) $(1,267) $(1,147) $(2,483) $ (924) $ 1,815 $ 5,314 $ 907 $ 98 $ 1,229
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss) per
share $ (0.70) $ (0.56) $ (1.04) (0.37) $ 0.30 $ 0.48 $ 0.26 $ 0.01 $ 0.09
------- ------- ------- ------- -------- -------- ------- ------- -------
Weighted average shares
outstanding 1,811 2,043 2,377 2,505 6,100 11,013 3,495 9,790 13,347
OTHER DATA:
EBITDA/(4)/ $(1,176) $ (599) $(2,445) $ (547) $ 1,489 $ 5,903 $ 1,337 $ 337 $ 2,711
Shipments:
Ferrous (tons) -0- -0- -0- 24,600 57,100 209,402 28,900 55,500 121,500
Non-ferrous (pounds) -0- -0- -0- 3,676,300 8,805,600 33,729,071 4,686,000 6,739,000 11,239,000
Average Selling
Price/(4)/:
Ferrous (per ton) -0- -0- -0- $100 $120 $120 $118 $123 $123
</TABLE>
<TABLE>
<CAPTION>
At September 30, At March 31, 1996
----------------------------------------------- -------------------------
1991 1992 1993 1994 1995 Pro Forma
----- ----- ----- ------ ------ Actual As Adjusted/(6)/
------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $(3,310) $(2,721) $(3,853) $ (4,175) $ 376 $ 105 $7,147
Total assets 2,982 1,975 1,147 9,618 10,297 19,938 41,203
Property and equipment 66 43 30 6,590 6,686 8,421 20,180
Total liabilities 7,737 2,801 3,853 6,852 3,843 9,045 22,797
Stockholders' equity (deficit) $(4,755) $ (936) $(2,706) 2,766 6,454 10,893 25,006
</TABLE>
_____________
(1) Prior to May 1994, the Company was engaged in the development of the MSW
Technology. For comparative purposes, financial data prior to 1994 reflects
the Company's efforts to develop such technology. The Company's current
operations commenced in May 1994 with the acquisition of its Nevada
facility. The financial information for fiscal 1994 reflects five months of
operating results of the Nevada facility. The financial information for
fiscal 1995 reflects 12 months of operating results of the Nevada facility
and reflects the efforts of the Company to acquire other metals recycling
facilities.
(2) The pro forma data gives effect to the acquisitions of Anglo Iron & Metal
(December 1995), Mid-America Shredding (April 1996) and Weissman (upon
consummation of the Offering) as if each had occurred at the beginning of
the periods presented. In addition, the pro forma information is based upon
available information and certain assumptions and adjustments. See the
notes to the pro forma financial statements.
15
<PAGE>
(3) The operating results for the six month period ended March 31, 1996 are not
comparable to those of the corresponding 1994 period due to the acquisition
of Anglo Iron & Metal that occurred in December 1995.
(4) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization")
represents operating income plus depreciation and amortization. The Company
has included EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it understands such data
is used by certain investors to determine the Company's ability to service
its indebtedness.
(5) Average selling price for non-ferrous scrap is not meaningful as there are
significant differences in the price per pound of the various component
non-ferrous metals (e.g., aluminum, copper, brass) produced by the Company.
(6) Gives effect to the consummation of the Offering at the Offering Price and
the application of the net proceeds therefrom as described in "Use of
Proceeds."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Information," the Company's consolidated financial statements and the
notes thereto and the Company's pro forma financial statements and the notes
thereto, all included elsewhere herein.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
below includes "forward looking statements" within the meaning of Section 27A of
the Securities Act, and is subject to the safe harbor created by that section.
Factors that could cause actual results to differ materially from those
contained in the forward looking statements are set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Risk Factors."
OVERVIEW
The Company is a full-service metals recycler primarily engaged in the
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metals producers and
processors. Prior to May 1994, the Company was a development stage enterprise
engaged in the development of the MSW Technology. Although the Company continues
to own this technology, the Company is no longer actively engaged in its
development.
The Company's current operations commenced in May 1994 with the acquisition
of its Nevada metals recycling facility. Since that time, the Company has
experienced significant growth from the acquisition of other metals recycling
facilities. On June 30, 1995, the Company acquired a 20% interest in a metals
recycling facility located in Georgia. On December 11, 1995, the Company
acquired its four southern Texas facilities and, on April 15, 1996, the Company
acquired its Missouri facility. These acquisitions, except for the 20% ownership
interest in the Georgia facility, are accounted for under the purchase method
for business combinations and, accordingly, the results of operations for such
acquired businesses are included in the Company's financial statements only from
the applicable date of acquisition. As a result, the Company's historical
results of operations for the periods presented are not directly comparable.
The Company believes these acquisitions will have a positive impact on its
future results of operations, and accordingly believes that the Company's
historical results should be considered in conjunction with the pro forma
financial statements and the notes thereto included elsewhere herein.
Additionally, neither the historical nor the pro forma results of operations
fully reflect the operating efficiencies and improvements that are expected to
be achieved by integrating the acquired businesses into the Company's
operations. See "Business - Strategy."
17
<PAGE>
RESULTS OF OPERATIONS
The Company's operating results depend in large part on its ability to
effectively manage the purchase, processing and sale of scrap metals. The demand
for processed ferrous and non-ferrous scrap is subject to general economic,
industry and market-specific conditions beyond the Company's control which may
result in periodic fluctuations in the sales prices of the Company's products.
The Company seeks to maintain its operating margins by adjusting the purchase
price for raw ferrous and non-ferrous scrap in response to such fluctuations,
subject to local market conditions. Although the Company is unable to hedge
against changes in market prices, it seeks to minimize this risk by maintaining
low inventory levels of raw and processed scrap.
Six months ended March 31, 1996 and 1995
The results of operations for the six months ended March 31, 1996 were
impacted by a number of factors, including delays in processed scrap shipments
and lower gross margins at the Company's Nevada facility. In addition,
profitability was negatively affected by transition expenses incurred in
conjunction with the acquisition of its southern Texas facilities on December
11, 1995.
Revenues. Revenues increased $3.7 million or 51.2%, to $10.8 million for
the six months ended March 31, 1996 from $7.1 million for the six months
ended March 31, 1995. This increase in revenues is primarily due to the
acquisition of the Company's southern Texas facilities on December 11, 1995. The
operations of the southern Texas facilities provided an additional $4.4 million
of revenues, which were partially offset by a $700,000 decrease in revenues from
the operations of the Nevada facility. The main factors responsible for the
decline in revenues at the Nevada facility were a decrease in paper sales of
$467,000 and a decrease in non-ferrous scrap revenues of $648,000 which were
partially offset by an increase in ferrous revenues of $421,000.
18
<PAGE>
For the six months ended March 31, 1996, ferrous scrap revenues increased
$3.7 million, or 109.0%, as shipments increased approximately 26,600 tons to
55,500 tons and the average selling price rose approximately $5 per ton to $123
per ton. Non-ferrous scrap revenues increased approximately $412,000, or 14.0%,
reflecting a 2.1 million pound increase in non-ferrous shipments to 6.7 million
pounds which was partially offset by a $.13 per pound decrease in average non-
ferrous selling prices to $.50 per pound. Paper sales decreased approximately
$467,000, or 66.5%, for the six months ended March 31, 1996 as average sales
prices and volumes declined relative to the comparable period of 1995.
Cost of Sales. Overall cost of sales increased $4.0 million, or 75.7%,
to $9.4 million for the six months ended March 31, 1996 from $5.3 million for
the six months ended March 31, 1995, and increased as a percentage of revenues
to 86.9% from 74.8%. This increase in cost of sales was primarily due to
decreases in ferrous and non-ferrous sales prices at the Company's Nevada
facility, without corresponding declines in raw material and direct production
costs. In addition, increased raw material costs incurred upon the acquisition
of the Company's southern Texas facilities combined with shipping delays at the
facilities to further increase cost of sales. As a result, gross profit
decreased to $1.4 million for the six months ended March 31, 1996 compared with
$1.8 million for the six months ended March 31, 1995.
Selling and Administrative Expenses. Selling and administrative expenses
increased to $1.5 million, or 14.4% of revenues, for the six months ended March
31, 1996 from $900,000, or 12.6% of revenues, for the six months ended March 31,
1995. This increase resulted from additional expenses associated with acquired
operations and expenses incurred in connection with the Company's increase in
personnel in anticipation of additional acquisitions. Specifically, $205,000 of
the increase was attributable to compensation paid upon consummation of the
acquisition of the Company's southern Texas facilities.
19
<PAGE>
Interest Expense. Interest expense was $245,000 for the six months ended
March 31, 1996 compared to $198,000 for the six months ended March 31, 1995.
Interest expense increased primarily due to higher average interest rates on the
Company's debt as well as additional debt incurred to finance the purchase of
the southern Texas facilities in December 1995.
Extraordinary Item. An extraordinary gain was recognized during the six
months ended March 31, 1996 of approximately $48,000. For the six months ended
March 31, 1995 an extraordinary gain of $222,000 was recognized. Both gains
resulted from the settlement of debts primarily related to services provided to
the Company during its development stage.
Benefit From Income Taxes. For the six months ended March 31, 1996, the
Company recorded an increase to its net deferred tax asset of $441,000 which
resulted in a net deferred tax benefit of $437,000. As a result, at March 31,
1996, the Company has recognized a net deferred tax asset of $1.2 million, as
management has determined that the net operating loss carryforward was more
likely than not to be used in the near future due to the future taxable income
to be generated by the Company's southern Texas facilities. The net income for
the six months ended March 31, 1996 decreased the net operating loss
carryforward by $387,000 leaving approximately $8.2 million available through
2010. No benefit from deferred income taxes was recognized for the six months
ended March 31, 1995.
Net Income. For the six months ended March 31, 1996, the Company had net
income of $98,000, or $.01 per share, compared to net income of $907,000, or
$.26 per share, for the six months ended March 31, 1995. The principal reasons
for this decrease were the higher cost of sales and selling and administrative
expenses in the 1996 period described above.
20
<PAGE>
Three months ended March 31, 1996 and 1995
The results of operations for the three months ended March 31, 1996 include
the effects of the acquisition of the Company's southern Texas facilities for
the entire period whereas the March 31, 1995 results relate primarily to the
operations of the Nevada facility only. Following is a summary of the key
operating results for each of the three month periods:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 7,304,000 $ 3,700,000
Cost of sales 5,936,000 2,668,000
Gross profit 1,368,000 1,032,000
Selling and administrative
expenses 799,000 588,000
Income before income
taxes and extraordinary
gains 422,000 325,000
Net income 466,000 486,000
Net income per share
$ .05 $ .13
Weighted average
shares outstanding 10,266,844 3,879,354
</TABLE>
Revenues. For the three months ended March 31, 1996, revenues increased
$3.6 million, or 97.4%, to $7.3 million from $3.7 million for the three months
ended March 31, 1995. This increase was primarily the result of the acquisition
of the Company's southern Texas facilities on December 11, 1995. The operations
of the southern Texas facilities generated $3.9 million of revenues during the
three months ended March 31, 1996. Revenues for the Nevada facility declined
slightly from $3.7 million for the three months ended March 31, 1996 compared to
$3.4 million for the three months ended March 31, 1995, a decrease of 8.3%.
Ferrous scrap revenues increased $3.3 million, or 181.1%, to $5.1 million
for the three months ended March 31, 1996, from $1.8 million for the three
months ended March 31, 1995. Total tons shipped increased to 38,300 tons for the
three months ended March 31, 1996 from 14,800 tons for the three months ended
March 31, 1995. The average selling price rose approximately $2 per ton to $124.
Non-ferrous scrap revenues rose approximately $612,000, or 40.7%, reflecting the
southern Texas acquisition which were partially offset by a decrease in average
non-ferrous selling prices from $.65 to $.48 per pound. Total shipments for non-
ferrous materials increased 2.0 million pounds to a total of 4.3 million pounds
for the three months ended March 31, 1996. Paper sales decreased approximately
$280,000, or 72.5%, for the three months ended March 31, 1996 as average sales
prices and volumes declined relative to the comparable period in 1995.
Cost of Sales. For the three-month period ended March 31, 1996, cost of
sales increased $3.2 million to $5.9 million compared to $2.7 million for the
three months ended March 31, 1995, and increased as a percentage of revenues to
81.3% from 72.1%. This increase in cost of sales was primarily due to increased
raw material and production costs. The increase in cost of sales as a percentage
of revenue was driven by decreased sales prices without corresponding decreases
in raw materials costs beginning in the quarter ended December 31, 1995. The
Company has adjusted purchase prices for raw material over the course of the
quarter ended March 31, 1996 and believes that future margins will reflect such
changes. Overall gross profit improved by $336,000 for the three months ended
March 31, 1996 to $1.4 million compared to $1.0 million for the three months
ended March 31, 1995.
Selling and Administrative Expenses. Selling and administrative expenses
increased to $799,000, or 10.9% of revenues, from $588,000, or 15.9% of
revenues, for the three months ended March 31, 1995. This increase was the
result of increased personnel, selling and overhead costs from acquired
operations and overhead added in anticipation of additional growth.
Net Income. For the three months ended March 31, 1996, the Company had net
income of $466,000, or $.05 per share, compared to net income of $486,000, or
$.13 per share, for the three months ended March 31, 1995. Income from
operations before taxes and extraordinary gains improved to $422,000 for the
three months ended March 31, 1996 from $325,000 for the three months ended march
31, 1995.
Fiscal Years Ended September 30, 1995, 1994 and 1993
The results of operations for the years ended September 30, 1995, 1994 and
1993 have been driven primarily by the Company's acquisition activity. Prior to
the Company's acquisition of its Nevada facility in May 1994, the Company was a
development stage enterprise without revenues. Subsequent to the acquisition of
the Nevada facility in fiscal 1994, the results of operations reflect the
implementation of the Company's current metals recycling acquisition and
operation strategy.
Revenues. For the year ended September 30, 1995, the Company had revenues
of $13.9 million compared to $4.8 million for the year ended September 30, 1994,
which reflected only five months of operations of the Nevada facility. There
were no revenues generated by the Company for the year ended September 30, 1993,
as the Company was unsuccessful in permitting a facility utilizing the MSW
Technology. For the year ended September 30, 1995, the increase in revenues was
due primarily to the inclusion of a full year's results of operations of the
Nevada facility, as well as generally higher demand and market prices for scrap
metal.
Revenues per month for ferrous scrap for the year ended September 30, 1995
increased to $572,000, compared to $494,000 for the year ended September 30,
1994 as a result of general increases in the market prices and demand for
processed ferrous scrap combined with increased shredder volume. For the year
ended September 30, 1995, the average sales price per ton of prepared ferrous
scrap was $123, a 7.9% increase compared to $114 per ton for the year ended
September 30, 1994. Non-ferrous revenues increased to $471,000 per month for the
year ended September 30, 1995 from $373,000 per month for the year ended
September 30, 1994. This increase was primarily due to price increases for non-
ferrous scrap, such as copper and aluminum, which contributed to higher monthly
revenues. For the year ended September 30, 1995, the average sales price for
non-ferrous scrap was $.64 per pound, representing a 25.5% increase compared to
$.51 per pound for the year ended September 30, 1994.
Cost of Sales. For the year ended September 30, 1995, the Company incurred
cost of sales of $10.9 million compared to $4.1 million for the year ended
September 30, 1994. The Company had no cost of sales for the year ended
September 30, 1993. Cost of sales decreased to 78.5% of revenues for the year
ended September 30, 1995 from 85.1% of revenues for the year ended September 30,
1994. This decrease was caused by an increase in the sales price of ferrous and
non-ferrous scrap as well as by the substantial increases in paper selling
prices without proportional increases in the Company's raw scrap and paper
acquisition costs. The Company's increased production volume in 1995 also
contributed to improved gross margins, as fixed production costs were spread
over a larger volume of processed scrap. As a result of these factors, gross
profit increased to $3.0 million for the year ended September 30, 1995 from
$721,000 for the year ended September 30, 1994.
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Selling and Administrative Expenses. Selling and administrative expenses
were $2.3 million, or 16.5% of revenues, for the year ended September 30, 1995
compared to $1.7 million, or 34.4% of revenues, for the year ended September 30,
1994, primarily due to the purchase of the Nevada facility in May 1994 and other
acquisition and financing activities. The largest component of the increase was
salary and related expenses, which rose $417,000 due to increased staffing at
the corporate level and to the additional seven months of personnel costs at the
Nevada facility. Selling and administrative expense for the year ended September
30, 1993 was $2.3 million, primarily related to the development and permitting
of the MSW Technology.
Interest Expense. For the year ended September 30, 1995, the Company had
interest expense of $407,000 compared to $203,000 for the year ended September
30, 1994. This increase was caused by additional outstanding debt, primarily
related to the acquisition of the Nevada facility. Interest expense for the year
ended September 30, 1993 was $156,000.
Extraordinary Items. The Company had extraordinary gains of $806,000,
$218,000 and $475,000 for the years ended September 30, 1995, 1994 and 1993,
respectively. These gains are related to the settlement of various amounts owed
by the Company to vendors primarily in connection with services provided to the
Company during its development stage.
Benefit From Income Taxes. The Company has generated a net operating loss
carryforward due to operating losses incurred prior to fiscal 1995. During
fiscal 1995, management determined that the net operating loss carryforward was
more likely than not to be used in the near future due to taxable income to be
generated in the future by the Company's Nevada facility. Therefore, a net
deferred tax asset of $800,000, net of a $221,000 valuation allowance, and a
benefit from income taxes of $711,000 was recorded which correspondingly
increased income for the period. No benefit from deferred income taxes was
recognized for the year ended September 30, 1994.
Net Income. For the year ended September 30, 1995, the Company generated
net income of $1.8 million, or $.30 per share, compared to a net loss of
$924,000, or $.37 per share, for the year ended September 30, 1994, and a loss
of $2.5 million, or $1.04 per share, for the year ended September 30, 1993. This
significant increase in profit is the result of the Company's acquisition of its
Nevada facility in May 1994.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The Company's pro forma combined operating results reflect the acquisitions
of Anglo, Mid-America and Weissman as if each had occurred at the beginning of
each period presented. The pro forma operating results for the 12 months ended
September 30, 1995 includes the 12 months ended September 30, 1995 for the
Company and the 12 months ended December 31, 1995 for Anglo, Mid-America and
Weissman. The pro forma operating results for the six months ended March 31,
1996 includes the operating results of the Company, Anglo, Mid-
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America and Weissman for such period. Adjustments to the pro forma combined
operating results include changes in depreciation and amortization to reflect
the new cost basis of assets acquired; changes to selling and administrative
expenses to remove non-recurring salaries and benefits to officers and
stockholders; changes in interest expense to reflect debt incurred in financing
the acquisitions; and changes to the provision for income taxes to reflect the
utilization of the Company's net operating loss carryforward and alternative
minimum tax requirements. In addition, weighted average shares outstanding have
been adjusted to reflect the consummation of the acquisitions, private
placements completed by the Company and the Offering as of the beginning of the
periods presented. No adjustments have been made to reflect synergies or
operating efficiencies. The pro forma operating results are not necessarily
indicative of the actual results which would have been reported had the Company
owned Anglo, Mid-America and Weissman in the periods presented.
Six Months Ended March 31, 1996 and Fiscal Year Ended September 30, 1995
Revenues. For the six months ended March 31, 1996, pro forma revenues for
the Company were $25.1 million. During the six month period, the Company
generated $10.8 million, Anglo generated $2.8 million, Mid-America generated
$1.2 million and Weissman generated $10.4 million of the pro forma revenues. For
the twelve months ended September 30, 1995, pro forma revenues for the Company
were $52.2 million. In the twelve month period, the Company generated $13.9
million, Anglo generated $15.3 million, Mid-America generated $3.9 million and
Weissman generated $19.2 million of the pro forma revenues.
Cost of Sales. For the six months ended March 31, 1996, pro forma cost of
sales for the Company was $21.0 million, or 83.7% of pro forma revenues. In the
six month period (prior to adjustment), the Company contributed $9.4 million,
Anglo contributed $2.9 million, Mid-America contributed $1.2 million and
Weissman contributed $8.3 million to pro forma cost of sales. For the six months
ended March 31, 1996, gross profit was $4.1 million and the gross margin was
16.3% on a pro forma basis. For the twelve months ended September 30, 1995, pro
forma cost of sales for the Company was $43.3 million, or 82.9% of pro forma
revenues. In the twelve month period (prior to adjustment), the Company
contributed $10.9 million, Anglo contributed $13.7 million, Mid-America
contributed $3.6 million and Weissman contributed $15.1 million to pro forma
cost of sales. For the twelve months ended September 30, 1995, gross profit was
$8.9 million and the gross margin was 17.1% on a pro forma basis.
Selling and Administrative Expenses. For the six months ended March 31,
1996, pro forma selling and administrative expenses for the Company were $2.0
million, or 8.1% of pro forma revenues. In the six month period (prior to
adjustment), the Company contributed $1.5 million, Anglo contributed $284,000,
Mid-America contributed $75,000 and Weissman contributed $512,000 to pro forma
selling and administrative expenses. For the twelve months ended September 30,
1995, pro forma selling and administrative expenses for the Company were
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$4.0 million, or 7.7% of pro forma revenues. In the twelve-month period (prior
to adjustment), the Company contributed $2.3 million, Anglo contributed
$732,000, Mid-America contributed $277,000 and Weissman contributed $728,000
million to pro forma selling and administrative expenses.
Interest Expense. For the six months ended March 31, 1996, pro forma
interest expense for the Company was $557,000. For the twelve months ended
September 30, 1995, pro forma interest expense for the Company was $1.0
million.
Extraordinary Item. For the six months ended March 31, 1996, the Company
recognized an extraordinary gain on a pro forma basis of $48,000. For the
twelve months ended September 30, 1995, the Company recognized an $806,000 gain
on a pro forma basis.
Benefit from Income Taxes. For the six months ended March 31, 1996, the
Company recognized a $152,000 provision for income taxes on a pro forma basis.
For the twelve months ended September 30, 1995, the Company recognized a
$338,000 benefit from income taxes on a pro forma basis.
Net Income. Pro forma net income for the Company was $1.2 million, or $.09
per share, for the six months ended March 31, 1996, and $5.0 million, or $.45
per share, for the twelve months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As the Company's business has grown, overall cash requirements for internal
growth and acquisitions have been met through a combination of private
placements of debt and equity securities, equipment and receivables financing
and cash flow from operations. Since commencement of its metals recycling
operations in May 1994, the Company has raised net cash proceeds of $6.3 million
through the sale of its equity securities. Through March 1995, the Company was
also funded in part by $887,000 of borrowings from First Dominion Holdings,
Inc., a company controlled by the Company's Chairman and Chief Executive Officer
("First Dominion"), all of which has been repaid. At March 31, 1996, the Company
had $7.3 million of debt outstanding, of which $4.8 million is due in the next
twelve months.
Prior to the acquisition of its Nevada facility, the Company generated
operating losses and negative operating cash flow. As a result, the Company
experienced significant shortages of working capital to fund its day to day
operations. The shortages of working capital and insufficient cash flow
prevented the Company from making payments necessary to meet its obligations.
As a result, the Company has been subject to legal claims for collection of past
due amounts, the majority of which arose from services performed for the Company
during its development stage. During the year ended September 30, 1994, the
Company was successful in settling a number of these legal claims. The Company
subsequently negotiated with all of its remaining vendors and all outstanding
claims were settled as of September 30, 1995.
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On May 11, 1994, the Company acquired its Nevada facility by purchasing all
of the outstanding common stock of Nevada Recycling, Inc. As restructured, the
purchase price for the Nevada facility consisted of debt of $5.0 million and the
issuance of 13,000 shares of the Company's Series A Convertible Preferred Stock
valued at $1.3 million. In addition, the Company issued to the sellers a warrant
to acquire 20,000 shares of Common Stock at an exercise price of $1.25 per
share.
On June 30, 1995, the Company acquired its 20% interest in a Georgia metals
recycling facility through its investment in The Loef Company ("Loef"). This
investment has been valued at $277,000, the amount of costs incurred by the
Company in pursuing its acquisition of Loef. The Company's ownership interest
in Loef will be reduced to 15% if the Company fails to invest an additional
$200,000 in Loef by June 30, 1996. The Company expects to make such payment
from the proceeds of the Offering.
On December 11, 1995, the Company acquired its southern Texas facilities by
acquiring substantially all of the assets of Anglo Metals, Inc., d/b/a Anglo
Iron & Metal, for $6.1 million. The purchase price was paid as follows: (i)
$2.1 million in cash; (ii) $1.9 million of secured equipment financing bearing
interest at approximately 12% and payable in 60 consecutive monthly installments
of $41,000; (iii) a $446,000 secured promissory note bearing interest at 8% and
payable in 60 monthly installments of $9,000; (iv) a $750,000 unsecured
promissory note and non-compete agreement payable in 72 consecutive installments
of $10,416; and (v) 227,693 shares of the Company's Common Stock valued at
$925,000.
On April 15, 1996, the Company acquired its Missouri facility by acquiring
substantially all of the assets of Mid-America Shredding, Inc. for $1.9 million.
The purchase consideration consisted of cash of $660,000 and assumed debt of
$1.3 million.
For the six months ended March 31, 1996, net cash used by operations was
$748,000. During this period the Company generated net income of $98,000 and
depreciation and amortization of $479,000, which were partially offset by
deferred income tax of $441,000 and an extraordinary gain of $48,000. Increases
in accounts receivable, inventory, prepaid expenses, and current assets amounted
to $1,643,000, offset by an increase in accounts payable and accrued liabilities
of $807,000. Inventories and accounts receivable increases were primarily
related to the acquisition of the Company's southern Texas facilities on
December 11, 1995.
Cash provided by operations was $113,000 for the year ended September 30,
1995 compared to cash used by operations of $918,000 for the year ended
September 30, 1994. Net income of $1.8 million plus depreciation and
amortization of $784,000 were the primary sources of cash from operations. Major
uses of this cash included increases in accounts receivable and inventories and
reductions in accounts payable and other accrued liabilities.
For the six months ended March 31, 1996, the Company used net cash in
investing activities of $978,000 compared to $464,000 for the six months ended
March 31, 1995. This
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increase reflects $302,000 of additions to equipment, $200,000 paid in
connection with the purchase of the southern Texas facilities in December 1995,
and $604,000 paid for acquisition costs and goodwill.
For the year ended September 30, 1995, the Company used net cash in
investing activities of $926,000 compared to net cash used in investing
activities of $199,000 for the year ended September 30, 1994. The Company had
capital expenditures of $472,000 for the year ended September 30, 1995 for the
purchase of equipment and property to increase production capacity compared to
$25,000 for additions to equipment for the year ended September 30, 1994. The
Company also expended $238,000 during the year ended September 30, 1995 as
advances against future compensation payable to the Company's chief executive
officer.
The Company had a positive net worth of approximately $10.9 million at
March 31, 1996, compared to $6.5 million at September 30, 1995, and $2.8 million
at September 30, 1994. This improvement in net worth is due to the issuance of
$2.3 million (net) of Common Stock during the quarter ended March 31, 1996, the
conversion of $1.1 million of bridge loan debt to equity, and the issuance of
$925,000 of Common Stock in connection with the acquisition of the southern
Texas facilities.
Working capital at March 31, 1996 was $105,000 as compared to $376,000 at
September 30, 1995. The decrease in working capital is primarily the result of
an increase in current maturities of acquisition indebtedness, including $1.8
million of notes payable issued in connection with the Nevada acquisition and
$1.5 million of notes payable issued in connection with the purchase of
inventory for the southern Texas facilities.
The planned capital expenditures over the next 12 to 24 months for the
Company's existing facilities, including the Weissman facility to be acquired in
the Acquisition, are estimated to be $2.0 million. Included in this amount are
capital improvements for the Company's shredders and materials handling
equipment designed to increase capacity and improve operating efficiencies.
The Company believes that the proceeds from the Offering, cash flow from
operations and availability under various credit facilities will be sufficient
to meet its currently anticipated working capital and capital expenditure needs
for existing operations, including the operations of Weissman, for at least 12
to 24 months. The Company may, however, need to raise additional capital to
fund the acquisition and integration of additional metals recycling businesses
which is an integral component of the Company's strategy. The Company may raise
such funds through warrant exercises, bank financings or public or private
offerings of its securities. There can be no assurance that the Company will be
able to secure such additional financing. If the Company is not successful in
securing such financing, the Company's ability to pursue its acquisition
strategy may be impaired and the results of operations for future periods may be
adversely affected.
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INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. The Company believes it should be able to implement price increases
sufficient to offset most raw material cost increases resulting from inflation,
although there may be some delay between raw material cost increases and sales
price increases and competitive factors may require the Company to absorb at
least a portion of these cost increases. Management believes that a sustained
economic slowdown would negatively impact the operations and financial
performance of the Company.
SEASONALITY
The Company believes that its operations can be adversely affected by
protracted periods of inclement weather which could reduce the volume of
material processed at its facilities. In addition, periodic maintenance
shutdowns by the Company's larger customers may have a temporary adverse impact
on the Company's operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 123 encourages the
accounting for stock-based employee compensation programs to be reported within
the financial statements on a fair value-based method. If the fair value-based
method is not adopted, then SFAS No. 123 requires pro forma disclosure of net
income and earnings per share as if the fair value-based method had been
adopted. The Company has not yet determined how SFAS No. 123 will be implemented
or its impact on the financial statements. SFAS No. 123 is effective for
transactions entered into after December 15, 1995.
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BUSINESS
Recycling Industries, Inc. is a full-service metals recycler engaged in the
collection and processing of various ferrous and non-ferrous metals for resale
to domestic and foreign steel producers and other metals producers and
procssors. The Company was formed in December 1988 as a Colorado corporation and
commenced its metals recycling operations in May 1994. Upon consummation of the
Acquisition, the Company will have increased its revenues from $1.7 million for
the quarter ended June 30, 1994 to pro forma revenues of $12.8 million for the
quarter ended March 31, 1996. Over the same period, the Company's monthly metals
shredding capacity has increased over 300% and its total monthly metals
processing capacity increased over 325%.
Giving effect to the Acquisition, upon completion of the Offering, the
Company will have the following operating subsidiaries:
Nevada Recycling, Inc., acquired by the Company in May 1994, operates a
metals recycling facility in Las Vegas, Nevada, serving the Las Vegas
market and steel mills located throughout the western United States
("NRI").
Recycling Industries of Texas, Inc. d/b/a Anglo Iron & Metal, formed by the
Company to acquire the assets of Anglo Metals, Inc. in December 1995,
operates four metals recycling facilities in Brownsville, Harlingen,
McAllen and San Juan, Texas, serving steel mills and markets in the Rio
Grande Valley in southern Texas and northern Mexico ("Anglo").
Recycling Industries of Missouri, Inc. d/b/a Mid-America Shredding, formed
by the Company to acquire the assets of Mid-America Shredding, Inc. in
April 1996, operates a metals recycling facility in Ste. Genevieve,
Missouri, serving midwestern steel mills and markets along the Mississippi
River ("Mid-America").
Weissman Industries, Inc. d/b/a Weissman Iron & Metal, to be acquired in
the Acquisition, operates a metals recycling facility in Waterloo, Iowa,
serving midwestern steel mills.
In addition, the Company has a 20% interest in The Loef Company, which
operates a metals recycling facility in Athens, Georgia, serving steel mills and
markets in the southeastern United States ("Loef"). The Company's interest in
Loef will be reduced to 15% if the Company fails to invest an additional
$200,000 in Loef by June 30, 1996. See "Use of Proceeds."
Of the Company's pro forma revenues for the three months ended March 31,
1996, approximately 68% was attributable to sales of ferrous scrap, 28% was
attributable to sales of non-ferrous scrap, and the balance was attributable to
the Company's paper and plastic recycling and retail finished steel sales
conducted at certain of the Company's facilities.
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INDUSTRY OVERVIEW
The Company believes that there are over 3,000 independent metals recyclers
in North America which generated more than $10 billion in revenues in 1995.
Based upon reports published by the Institute for Scrap Recycling Industries
("ISRI"), approximately 200 of these independent metals recyclers operate heavy-
duty automotive shredders, which constitute the primary equipment used in
processing large volumes of ferrous and non-ferrous scrap for sale to steel and
other metals producers. Because of the highly fragmented nature of the industry,
the Company believes that no single metals recycler has a significant share of
the national processed scrap market, although certain recyclers may have a
dominant share of their local or regional market. Similar to the ongoing
consolidation within the municipal solid waste industry, the metals recycling
industry has begun to experience local market consolidation due to: (i)
increasing capital requirements caused by more stringent environmental and
governmental regulations, and (ii) the exit of aging independent recyclers who
desire to sell closely-held businesses in the absence of a successor owner or
operator.
The Ferrous Scrap Market
The largest portion of the Company's operations involves the collection,
shredding and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize EAF technology. All of the Company's facilities
process ferrous scrap. The increase in EAF capacity from 14.8 million net tons
in 1966 to 40.6 million net tons in 1995 has resulted in strong demand and
prices for processed ferrous scrap. Demand for ferrous scrap is expected to
increase as a number of new EAFs come on line in the next several years, such as
North Star Steel Co.'s Kingman, Arizona plant (scheduled to begin production
during the second quarter of 1996) located approximately 100 miles from the
Company's Nevada facility. According to industry estimates, the anticipated
continuing increase in EAF capacity to an estimated 50 million net tons by the
year 2000 may cause global ferrous scrap shortages, resulting in further
increases in processed ferrous scrap prices.
The growth in EAF capacity has been fueled by the historically low prices
for prepared ferrous scrap, which give EAFs a production cost advantage over
integrated steel producers which operate blast furnaces whose primary raw
materials are coke and iron ore. Recent increases in prepared ferrous scrap
prices have eroded much of the EAFs' production cost advantage. As a result,
many EAF operators are examining alternatives to prepared steel scrap, such as
pre-reduced iron pellets, as a feedstock for EAFs. The Company believes,
however, that such alternatives to prepared ferrous scrap will be used primarily
as a supplemental feedstock to permit EAFs to utilize lower grades of prepared
scrap, and will not significantly reduce demand for prepared ferrous scrap in
the foreseeable future. Industry analysts' reports continue to predict rising
demand for prepared ferrous scrap over the next several years. Because ferrous
scrap represents the largest portion of the metals recycling industry, the
economic conditions of the industry are directly tied to the strength of
domestic steel producers
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utilizing EAF technology. Accordingly, any decrease in domestic steel production
may have an adverse impact on the demand and price for prepared ferrous scrap.
Raw ferrous scrap is sourced primarily on a local basis, typically from
small independent salvage operations located near major developed urban areas.
These operations supply raw ferrous scrap to the Company in the form of
automobile bodies, appliances and structural steel. The geographic market for
prepared ferrous scrap is larger, tending to be within a 100 to 150 mile radius
of the metals recycler, but may include shipments to Asian markets via deep
water port facilities located on the west coast of the United States. The
primary limitation on the geographic size of the supply and resale markets in
the metals recycling industry are the transportation costs of raw and processed
ferrous scrap. For this reason, metal scrap processing facilities tend to be
located on or near key rail, interstate highway or water transportation routes.
Although somewhat determined by local factors, the average domestic price
for prepared ferrous scrap has increased significantly in the past several years
from approximately $80 per ton in 1992 to over $140 per ton during 1995. The
current prices for prepared ferrous scrap range from $116 to $138 per ton
depending on the region and the quality of the prepared material.
The Non-Ferrous Scrap Market
Non-ferrous metals include copper, aluminum, brass, stainless steel, high
temperature alloys and other exotic metals. The non-ferrous scrap market is less
fragmented than the ferrous scrap market due to the higher intrinsic values of
the non-ferrous metals and the available commodity market prices for these
metals. Although supply sources are still local, the higher value of these
metals makes the shipment of prepared non-ferrous scrap economical over longer
distances, both domestically and internationally. The primary consumers of
prepared non-ferrous scrap are domestic and foreign secondary smelters. All of
the Company's facilities process non-ferrous scrap, primarily copper, aluminum,
brass and stainless steel.
Prices for non-ferrous scrap change based upon the daily publication of
spot and futures prices for the primary types of non-ferrous metals on the COMEX
or London Metal Exchange. These exchanges also permit suppliers and consumers of
non-ferrous metals to hedge against price variations through the purchase and
sale of futures contracts on such exchanges. The Company does not participate in
the non-ferrous futures markets and, instead, sells its non-ferrous processed
scrap at a negotiated spot price. Current prices for prepared prime grade
aluminum scrap range from $.46 to $.68 per pound, and current prices for
No. 1 prepared copper scrap range from $1.15 to $1.18 per pound. The Company
seeks to protect against price fluctuations by managing its raw and processed
non-ferrous scrap inventory levels.
Sales prices for non-ferrous scrap are cyclical in nature and are driven by
demand for finished non-ferrous metal goods and by levels of general economic
activity. Secondary
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smelters, utilizing processed non-ferrous scrap as raw material, can produce
non-ferrous metals at a lower cost than primary smelters producing such metals
from ore due to significant savings in energy consumption, environmental
compliance and labor costs. These cost advantages and the long lead time
necessary to construct new non-ferrous primary smelting capacity result in
sustained demand and increased prices for processed non-ferrous scrap during
periods of high demand for finished non-ferrous metal products.
The Paper Recycling Market
The Company's paper recycling operations, currently conducted at its Nevada
facility, acquire waste paper products primarily through local industrial
accounts where roll-off boxes are placed to collect waste materials. The primary
grades of waste paper include corrugated cardboard, newspaper, blank newspaper,
hard white, white ledger, computer paper and rolls. The Company sorts the
collected waste paper by grade for shipment to domestic paper mills. Prices for
waste paper vary by grade and the Company purchases and sells such grades at the
spot price.
STRATEGY
The Company's objective is to become one of the largest metals recyclers in
North America through targeted acquisitions of independent metals recyclers. The
Company seeks to capitalize on the opportunity presented by the growing demand
for processed ferrous scrap, the expanding markets created by the rapid
proliferation of new EAF operations and the availability of metals recycling
facilities. By pursuing a consolidation strategy within the metals recycling
industry, the Company believes that it can significantly enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources. The Company also believes that geographic
diversity will reduce its vulnerability to the dynamics of any particular local
or regional market. Furthermore, as EAF capacity and demand for processed
ferrous scrap continue to expand, the Company believes that multi-regional and
national EAF operators such as Nucor Corporation, Birmingham Steel Corporation
and North Star Steel Co. will increasingly rely on suppliers who can provide a
dependable quantity and quality of processed scrap as well as a high degree of
service. The Company believes that it is the only metals recycling company
pursuing a consolidation strategy on a national basis and therefore will be in
an ideal position to become a preferred supplier to the major EAF operators.
Identification and Acquisition of Metals Recycling Facilities
The Company seeks to identify potential acquisition targets with: (i)
dominant or strategic positions in local or regional markets; (ii) excess or
underutilized capacity; (iii) the ability to supply an existing or planned
metals production facility, such as an EAF; (iv) access to rail, water or
interstate highway transportation systems; and (v) either operational shredding
equipment, the ability to supply the Company's existing shredding equipment or
adequate
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<PAGE>
facilities to permit the installation of such equipment. Generally, the target
should have sufficient asset value to enable the Company to obtain acquisition
financing on reasonable terms and should not present the risk of significant
environmental or other contingent liabilities. The Company is continuously
evaluating acquisition opportunities in light of the above criteria. At the
present time, the Company has no agreements with respect to any future
acquisition, other than Weissman.
Once an acquisition candidate has been identified, the Company commences an
in-depth due diligence evaluation of the target's operations, markets,
profitability and environmental history. The Company's due diligence evaluation
includes independent third party appraisals for both fair market and orderly
liquidation values of the machinery and equipment, and Phase I and II
environmental studies of the operations and facilities of the target company.
The Company has successfully commenced its industry consolidation strategy
by acquiring six metals recycling facilities over the past 24 months, and will
acquire a seventh facility upon consummation of the Offering. By continuing to
acquire facilities that meet the Company's criteria, the Company believes that
it can achieve rapid growth and expand its existing customer base.
Integration of Acquired Facilities
An essential component of the Company's acquisition strategy is improving
the operating efficiency, output and capacity of each acquired facility by
targeting three phases of the Company's operations: (i) the purchase of raw
scrap; (ii) the processing of raw scrap into saleable product; and (iii) the
sale of processed scrap. Each acquired facility is integrated into the Company's
operations through a comprehensive program that targets these operating phases
through the installation of management and financial reporting systems, the
implementation of expanded purchasing and marketing programs, the centralization
of operating functions to achieve economies of scale, selective reductions in
personnel and improved inventory and other financial controls. When necessary,
the Company implements a capital improvements program to repair or replace
outdated and inefficient equipment to improve the facility's scrap processing
operations and processed scrap output. Through these programs, the Company has
realized significant improvements in operating results.
To achieve and monitor improvements in operating efficiency, the Company is
developing a reporting and training program designed to integrate the typically
unsophisticated management information systems of an acquired facility into the
Company's operations. In order to ensure a smooth transition and maintain
customer and supplier relationships, the Company generally seeks to retain the
acquired facility's existing operating management.
The Company utilizes a decentralized operating strategy that relies on
local managers experienced in the day-to-day operations of a particular facility
and its local markets. These managers are responsible for operating decisions
such as pricing and purchasing and for the
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<PAGE>
profitability and growth of that location. The Company will centralize certain
administrative, equipment acquisition, personnel and benefits functions at its
corporate headquarters to reduce overhead, eliminate redundant activities and
personnel and increase financial controls. The Company believes that, over the
long term, such centralization will result in reductions in administrative
overhead and the ability to reduce the cost of equipment and replacement parts.
OPERATIONS
Raw Scrap Purchasing
The primary sources of raw scrap are automobile salvage and wrecking yards,
demolition firms, ordinance depots, military bases, public utilities, industrial
facilities, metal fabricators, machine shops, railroads, refineries, shipyards
and numerous independent scrap collectors. Raw or unprepared scrap is acquired
from these sources in the form of automobile bodies, structural steel from
demolition sites, industrial scrap steel, appliances and other goods fabricated
from steel and other metals. The Company purchases scrap at each of its
facilities from industrial accounts and in negotiated bulk purchases from large
suppliers such as demolition sites, military bases and railroads as well as
smaller purchases from drive-in sellers.
Industrial and governmental sources of raw scrap supply are the result of
long-term supply relationships and competitive bidding. Retail sources of supply
are paid spot prices for their items at the Company's facilities. The Company
employs full-time buyers to manage existing supply relationships and secure new
industrial and governmental supply accounts.
Due to the low value of unprepared scrap compared to its shipping cost, the
Company's facilities are strategically located near sources of supply, such as
major urban areas, and near major railway, interstate highway or water
transportation routes.
The continued availability of raw scrap is dependent upon, among other
things, the local economy, the level of demolition activity and the ability to
maintain supply relationships with local industrial and governmental sources and
automobile wreckers. Consistent with industry practice, the Company has long-
term supply arrangements with certain suppliers, although none of these
arrangements is material to the Company's operations.
Scrap Processing
Raw scrap metal is prepared for resale by sorting, cleaning, shearing and
shredding the metal into various sized pieces according to customer
specifications and market demand. Metal scrap that is ready for shipment to the
Company's customers is referred to as "prepared scrap."
The Company's sorting operations prepare the raw scrap for further
processing by a variety of methods according to the nature of the material
(i.e., ferrous or non-ferrous), size and composition. Raw scrap is handled
within the Company's facilities using conveyor systems,
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<PAGE>
front-end loaders and crane mounted electromagnets. Through the sorting process,
the Company determines whether particular items require preliminary preparation
before being shredded.
The Company's processing operations at each of its facilities are primarily
based upon the use of heavy-duty automotive shredders which are capable of
shredding an entire automobile body into fist-sized pieces of metal within 45
seconds. Through the operation of shredders, ferrous and non-ferrous items such
as automobiles, appliances and vending machines are shredded into various sized
pieces according to customer specifications. The shredded material is then
magnetically separated into ferrous and non-ferrous metals and non-metallic
items. The non-ferrous metals are further separated utilizing eddy current
separators. The prepared ferrous scrap is then sold to the Company's customers.
The prepared non-ferrous scrap is recovered as a mixture of aluminum, zinc die-
cast, stainless steel and copper and sold to the Company's customers who further
process and separate the mixture into constituent metals for resale. The non-
metallic portion of the shredded materials, referred to as shredder fluff, is
disposed of off site. The Company currently operates four heavy duty automotive
shredders with a monthly output capacity of approximately 21,500 tons of
prepared ferrous scrap.
Items which are too large or too heavy to be introduced into the shredder
are reduced by either torching or shearing, utilizing crane-mounted alligator or
stationary guillotine shears, into smaller pieces according to customer
specifications or to a size and weight that may be further processed by
shredding. Generally, non-ferrous items prepared by these methods are sold to
the Company's customers without further processing.
Many non-ferrous metals, such as copper, brass, aluminum, stainless steel,
zinc die-cast, and insulated wire (aluminum and copper), are purchased by the
Company in a form that is not capable of being processed through a shredder.
Each of the Company's facilities processes these items through a variety of
methods, including manual and automatic sorting, shearing, torching, baling,
wire stripping or a combination of these methods. Prepared non-ferrous items are
either sold in their separated form or baled into low-density bales in
accordance with customer specifications.
The Company's paper operations involve the sorting and baling of various
grades of waste paper and removing all off-grade material and foreign matter.
The sorted product is weighed, tagged and sold to domestic paper mills and
foreign paper brokers.
Processed Scrap Sales
The Company sells processed ferrous scrap primarily to regional and local
steel mills operating EAFs, although integrated steel manufacturers utilize some
ferrous scrap in their blast furnace operations. The price for processed ferrous
scrap is dependent upon the uniformity of the processed material, its
cleanliness and the non-ferrous content of the processed material. The Company
has established relationships with regional steel producers for the sale of
processed ferrous scrap and anticipates that its national strategy will improve
these relationships. Most
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<PAGE>
steel producers purchase processed ferrous scrap on a 30-day basis at the
beginning of each month, thereby locking in the price and quantity purchased for
such period. Sales of processed ferrous scrap accounted for 68% of the Company's
pro forma revenues for the quarter ended March 31, 1996.
The Company sells processed non-ferrous scrap primarily to foundries,
aluminum sheet and ingot manufacturers, copper refineries and smelters, brass
and bronze ingot manufacturers and other consumers. Non-ferrous scrap is sold on
a spot market basis. Sales of non-ferrous materials accounted for 28% of the
Company's pro forma revenues for the quarter ended March 31, 1996.
Scrap paper is sold to paper mills at spot prices dependent upon the grade
of the baled product. In addition, the Company's southern Texas facilities
utilize covered warehouse space to store and sell small quantities of finished
steel products such as angle iron, channel, flat bar, rounds and concrete
reinforcing bar. Paper and plastic recycling and retail finished steel sales
accounted for 4% of the Company's pro forma revenues for the quarter ended March
31, 1996.
Three of the Company's customers accounted for approximately 46.3% of the
Company's pro forma revenues (17.1%, 15.5% and 13.7%, respectively) during
the three month period ended March 31, 1996. The loss of any one of these
customers could have a material adverse effect on the Company's business. Sales
of processed scrap are generally not seasonal but are affected by periodic
maintenance shutdowns of certain major customers.
TRANSPORTATION
Transportation cost is a significant factor in the sale of processed scrap
and limits the geographic market in which processed ferrous scrap may be sold.
Processed ferrous and non-ferrous scrap is shipped by the Company to its
customers by truck, rail car and barges. The Company competes for available
shipping space on each of these methods of transportation.
COMPETITION
The scrap market is regionally competitive both in the purchase of raw
scrap and the sale of processed scrap. The Company competes for purchases of raw
scrap with numerous independent recyclers as well as with smaller scrap yards.
The Company's primary competition for processed scrap sales to its customers are
other regional or local metals recyclers.
The primary competitive factors in both the purchase and sale of scrap are
price, shipping costs and availability. In addition, the sale of processed scrap
is affected by the reliability of the metals recycler as a source of supply and
the quality of its processed scrap. The Company believes that its professional
management team, quality of processed scrap and emphasis on customer service
enable it to compete favorably in its markets. In addition, the Company believes
that its national growth strategy will increase its market exposure to large
purchasers
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of processed scrap, thereby giving it a competitive advantage relative to
independent local and regional metals recyclers.
The Company believes that, because of the economic, environmental and
zoning impediments to establishing a new metals recycling facility, few new
facilities will be constructed in the foreseeable future. In addition, the
Company does not believe that substitutes for processed ferrous scrap, such as
pre-reduced iron pellets, will have a significant impact on the demand for
ferrous scrap in the foreseeable future.
EMPLOYEES
The Company has approximately 300 full-time employees, most of whom are
employed by the Company's wholly-owned subsidiaries. The 60 employees of
Weissman are represented by the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW") under a
three-year collective bargaining agreement which expires on November 30, 1996.
Although negotiations have not yet commenced, the Company has no reason to
believe it will not reach a satisfactory agreement with the UAW prior to
expiration of the current contract. The Company believes its and Weissman's
relationships with their respective employees are good.
PROPERTIES
The Company's metals recycling facilities generally are comprised of
administrative offices, warehouses for the storage of repair parts and certain
types of raw and processed scrap, covered and open storage areas for raw and
processed scrap, a machine or repair shop for the maintenance and repair of the
facility's vehicles and equipment, scales for the weighing of scrap, and loading
and unloading facilities. Each facility has specialized equipment for the
processing of all grades of raw scrap which may include a heavy duty automotive
shredder to process both ferrous and non-ferrous scrap, crane mounted alligator
or stationary guillotine shears to process large pieces of heavy scrap, wire
stripping and chopping equipment, baling equipment and torch cutting facilities.
The Company believes its facilities are adequate for its anticipated production.
The following is a summary of the processing capabilities at each of the
Company's properties based on a single shift:
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<PAGE>
<TABLE>
<CAPTION>
Monthly
Facility Size Materials Shredding
Facility Location (acres) Processed Capacity (tons
- -------------------------- ------------- ---------------------- -------------------
<S> <C> <C> <C>
Las Vegas, Nevada/(1)/ 13 Ferrous and 5,000
non-ferrous
scrap, paper
Brownsville, Texas 12 Ferrous and /(2)/
non-ferrous scrap
Harlingen, Texas 7 Ferrous and 6,500
non-ferrous scrap
McAllen, Texas 1 Ferrous and /(2)/
non-ferrous scrap
San Juan, Texas 8 Ferrous and /(2)/
non-ferrous scrap
Ste. Genevieve, Missouri 32 Ferrous and
non-ferrous scrap 5,000
Waterloo, Iowa/(3)/ 34 Ferrous and non-ferrous scrap, paper 5,000
-- -----
Totals 107 21,500
</TABLE>
(1) The former owners of the Las Vegas facility have the right to
reacquire such facility under certain circumstances, which right will
be extinguished upon the repurchase of 13,000 shares of Series A
Convertible Preferred Stock and 120,000 shares of Common Stock issued
in connection with the Company's acquisition of such facility. See
"Use of Proceeds" and Note 2 to the Company's consolidated financial
statements.
(2) The Company's four Texas facilities are an integrated operation
serving the markets of southern Texas and northern Mexico. All
shredding of raw scrap purchased by these facilities occurs at the
Harlingen, Texas location.
(3) Represents the Weissman facility to be acquired in the Acquisition.
Due to the nature of the items handled by the Company and the operation of
shredding equipment, each of the Company's facilities maintains a comprehensive
maintenance program. To reduce costs, each facility has its own maintenance and
repair personnel. The Company also has the ability to fabricate certain parts
of its operating equipment tailored to meet the needs of a particular facility.
The Company leases approximately 3,350 square feet of office space in
Englewood, Colorado as its corporate office. The Company's lease expires on
June 30, 2000. Terms of the lease call for the Company to pay a base rent plus
additional pro rata occupancy costs such as building operating costs, taxes and
utilities. Average total rents for the remaining term of the lease are $13.50
per square foot per year.
LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation and is not
aware of any threatened litigation that could have a material adverse effect on
the Company's business, operating results or financial condition.
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<PAGE>
ENVIRONMENTAL MATTERS
In the course of processing ferrous and non-ferrous metals, the Company
inspects all inbound material several times prior to and during processing to
screen out matter that may be considered "hazardous materials" under various
environmental laws. Such materials may be contained in unprocessed items such as
automobile bodies, light fixtures, construction debris, industrial machinery and
other items manufactured or fabricated primarily out of ferrous or non-ferrous
metals that are acquired and processed by the Company through its shredder
operations (the "feed stream"). While the Company screens the feed stream for
hazardous materials and rejects high-risk items such as transformers and
batteries, certain items in the feed stream may inadvertently contain hazardous
materials that end up in shredder fluff, the by-product of shredder operation.
To avoid classification as a hazardous waste, shredder fluff must pass toxic
leaching tests under certain environmental laws. Because of the Company's
screening of the feed stream, it believes that the shredder fluff produced from
its operations does not contain hazardous materials in excess of allowable
limits and is suitable for disposal in municipal or private landfills. Changes
in the environmental laws or testing methods with respect to shredder fluff,
however, may change the classification and availability of suitable disposal
sites for shredder fluff, resulting in significant additional expense to the
Company. In addition, the premises upon which shredder operations are conducted
may become contaminated by hazardous materials through inadvertent spillage or
improper disposal, although the Company believes that such contamination is
unlikely.
The facilities and equipment of the Company are believed to be in
substantial compliance with the current requirements of all applicable
environmental laws and regulations. There are no capital expenditures planned
for new environmental control equipment, although changes in environmental laws
may require such expenditures in the future. The Company cannot predict the
amount of such expenditures, if any, to comply with future changes in
environmental laws or whether such costs can be passed on to its customers
through increases in the price of processed scrap. Accordingly, there can be no
assurance that such costs will not have a material adverse effect on the
Company.
In addition to the costs of compliance, certain environmental laws may
result in liability arising out of the past operations of the Company's
facilities, whether or not such operations were lawful at the time, and create
public rights of action against the Company for environmental contamination.
Generally, if the Company's past or present operations cause environmental
damage, the Company may be subject to fines and may be required to remediate the
damage. Such costs may have a material adverse effect on the Company.
The Company has implemented extensive procedures to ensure compliance with
applicable environmental laws. These procedures include screening all raw scrap
for hazardous materials prior to purchase and acceptance. Any hazardous
materials found in this process, such
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<PAGE>
as automobile batteries, suspected PCB contaminated transformers and equipment
containing freon, are segregated and rejected. The Company refuses to accept any
sealed or closed-end barrels of material which may have contained a hazardous
material. In addition to the screening process, the Company retains
environmental engineering firms to perform periodic independent site reviews and
sampling to ensure continued operational compliance and detect any contamination
that may have occurred on the Company's facilities.
Prior to and as a condition to the consummation of any acquisition, the
target company's facilities will be tested and evaluated under the American
Society for Testing and Materials ("ASTM") standards for Phase I and Phase II
environmental site assessments to ascertain compliance with all environmental
laws and regulations. In addition, as many metals recyclers may be subject to
remediation liability with respect to their current or former sites as well as
off-site disposal of hazardous materials, the Company also performs an ASTM
Transaction Screen Process and regulatory action review to determine the
operating history of each target company and whether such companies have been or
are subject to any pending regulatory action for environmental contamination.
The Phase I and Phase II environmental evaluations performed in connection
with the acquisition of the Company's Texas facilities indicated possible
contamination of portions of the real property associated with such facilities.
To allow sufficient time for further evaluation and the completion of any
necessary remediation, the Company has subleased those portions of the real
property which are free of contamination, as indicated by the environmental
studies performed prior to closing, and will acquire the balance of the real
property only upon completion of environmental studies and any necessary
remediation. In that connection, the Company has placed the shares of Common
Stock given as consideration for the Texas facilities into escrow until the
resolution of all environmental issues.
Loef, in which the Company has a 20% investment, is a potentially
responsible party with respect to two superfund sites. The Company has been
indemnified by the former owners of Loef to the extent Loef's liability for such
matters as well as other non-environmental matters exceeds $375,000 up to a
maximum of $1 million. In addition, the real property upon which the Loef
facilities are located may have been contaminated with certain hazardous
materials. The former owners of Loef have agreed to pay for the remediation of
the contamination to the extent remediation costs exceed $125,000 up to
$400,000.
Weissman is a potentially responsible party with respect to one superfund
site. Based upon information Weissman has been able to obtain from the
Environmental Protection Agency and other potentially responsible parties at the
site, Weissman believes that its estimated cleanup liability is approximately
$30,000.
The environmental assessments performed with respect of the Company's
Nevada and Missouri facilities and Weissman's Iowa facility indicated no
reportable levels of contamination at such facilities.
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<PAGE>
RECENT DEVELOPMENTS
In April 1996, the Company reached agreement regarding the purchase of
Weissman for a cash purchase price of $12.4 million. Weissman operates a metals
recycling business through its Weissman Iron & Metal division. Approximately
$6.4 million of the $12.4 million purchase price will be funded through the
proceeds of the Offering. The balance of the purchase price for the Acquisition
will be financed with long-term debt and working capital financing obtained from
a lending institution secured by the equipment and real property acquired. The
Company has signed a letter of intent for this financing. The acquisition of
Weissman, which had 1995 revenues of $19.3 million, will increase the Company's
monthly shredding capacity by 5,000 tons.
On April 15, 1996, the Company acquired substantially all of the assets of
Mid-America Shredding, Inc., a metals recycler with operations in Ste.
Genevieve, Missouri, for total consideration of $1.9 million. The acquisition
of Mid-America, which had 1995 revenues of $3.9 million, increased the Company's
monthly shredding capacity by 5,000 tons.
On December 11, 1995, the Company acquired substantially all of the assets
of Anglo Metal, Inc., a metals recycler with operations in Brownsville,
Harlingen, McAllen and San Juan, Texas, for total consideration of $6.1 million.
The acquisition of Anglo, which had 1995 revenues of $15.3 million, increased
the Company's monthly shredding capacity by 6,500 tons.
On January 17, 1996, the Company borrowed $1.6 million in short-term bridge
financing, which indebtedness bears interest at 10% per annum, with principal
and accrued interest due December 13, 1996 or upon the Company receiving gross
proceeds of $3.0 million or more through the sale of its securities prior to
that date. In connection with the bridge financing, the Company issued its
Series I warrants to purchase 359,250 shares of Common Stock at $1.50 per share,
exercisable through the end of a three-year period commencing on the effective
date of a registration statement covering the shares issuable upon their
exercise. The proceeds from this bridge financing were used to complete the
acquisition of Anglo and for general working capital purposes. Because the
Company failed to register the Common Stock underlying the Series I warrants by
March 31, 1996, the exercise price was reduced by $.15 per share and will be
reduced by an additional $.15 per share on the last day of each month until such
registration is effected. Upon consummation of the Offering, the holders of the
Series I warrants have agreed to exchange their warrants for 316,140 shares of
Common Stock, representing an effective exercise price of $.60 per share (the
anticipated exercise price as of September 30, 1996 in the absence of
registration). The Company has agreed to register the shares of Common Stock
received upon such exchange within 120 days from the closing of the Offering.
On January 31, 1996 and April 8, 1996, the Company completed two private
placements of an aggregate of 1,454,156 shares of Common Stock and warrants to
purchase an additional 727,078 shares of Common Stock at $7.50 per share for
total consideration of approximately $4.0 million, including conversion of
$1,137,000 of the bridge financing indebtedness discussed
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<PAGE>
above. The remaining $438,000 principal amount of the bridge indebtedness plus
accrued interest will be repaid from the proceeds of the Offering. The proceeds
from these private placements were used to complete the acquisition of Mid-
America and for general working capital purposes.
In December 1995, the Company agreed to purchase 1,424,586 shares of Common
Stock from certain of its securityholders for $3.40 per share in cash on or
before May 31, 1996. In connection with this repurchase, the Company will pay a
solicitation fee of $.10 per repurchased share to First Equity Capital
Securities, Inc., an NASD member firm who acted as placement agent for certain
private placements of the Company's securities. See "Use of Proceeds." The
Company also agreed to repurchase 71,130 outstanding warrants held by the
placement agent at a cash purchase price of $5.00 per warrant. In the event
that the Company fails to repurchase such shares by May 31, 1996, certain
securityholders will be released from contractual "lock-up" restrictions with
respect to a total 5,727,912 shares of Common Stock, the exercise prices of the
Series G and J warrants will be reduced from $7.50 to $5.40 per share, and the
Company will be obligated to register the shares of Common Stock held by such
persons (including shares underlying the Series G and Series J warrants) by June
30, 1996. See "Shares Eligible for Future Sale - Registration Rights."
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Upon consummation of the Offering, the Company's Board of Director's will
be expanded from six to seven, three of whom will not be officers or employees
of the Company or any of its subsidiaries ("Independent Directors").
The directors and executive officers of the Company and their positions are
set forth below:
<TABLE>
<CAPTION>
Name Age Position(s)
- --------------------- --- ------------------------------------------------
<S> <C> <C>
Thomas J. Wiens 44 Chairman of the Board, Chief Executive Officer
Michael I. Price 54 Director, Chief Operating Officer, President
Jerome B. Misukanis 53 Director, Chief Financial Officer, Treasurer (1)
Rebekah L. Coe 34 Director of Corporate Development, Secretary
Graydon H. Neher 46 Director (1)
Barry L. Plost 50 Director (1)
Sylvan Schefler 58 Director (2)
</TABLE>
____________
(1) Member of the Audit Committee.
(2) Mr. Schefler will be elected as a director upon consummation of the
Offering.
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<PAGE>
Each director is elected to hold office until the next annual meeting of
stockholders, or until his successor is elected and qualified. Officers serve at
the discretion of the Board of Directors.
Certain information concerning the directors, executive officers and
certain key employees of the Company are set forth below:
Thomas J. Wiens. Mr. Wiens has served as Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Wiens has served as
President of First Dominion Holdings, Inc. since 1987. Prior to founding the
Company, Mr. Wiens was involved in various entrepreneurial pursuits including
banking, communications, insurance and retail. Mr. Wiens has over ten years of
experience in the recycling industry. Mr. Wiens received a BA in Political
Science from American University and a MDIV from Yale University. Mr. Wiens
serves on the Board of Advisors of the Yale Divinity School and on the boards of
directors of various charitable organizations.
Michael I. Price. Mr. Price has served as President of the Company since
March 1996 and as Chief Operating Officer and President of the Metals Division
since March 1994. Mr. Price was elected to the Board of Directors of the Company
in March 1994. Prior to joining the Company, Mr. Price was President of
Recovermat Technologies, Inc., a solid waste technology company, from 1992 to
1994. Previously, Mr. Price served in various capacities in his 29 years in the
metals recycling industry with Joseph Smith & Sons, Inc. and The David J. Joseph
Company. Mr. Price received a BSIE from the General Motors Institute and
completed an Executive MBA program at Indiana University. Mr. Price is a
director of ERS Industries, Inc., a railroad supply company.
Jerome B. Misukanis. Mr. Misukanis has served as a member of the Company's
Board of Directors since March 1994 and as Treasurer and Chief Financial Officer
since February 1996. Prior to joining the Company, Mr. Misukanis was a principal
of Misukanis and Dodge, P.A., CPA, a public accounting firm, since 1991. Mr.
Misukanis has worked in the recycling industry for 12 years. Mr. Misukanis
received a BA in accounting from the University of St. Thomas and graduated from
the Harvard Business School's Executive Management Program. Mr. Misukanis also
attended the William Mitchell College of Law. Mr. Misukanis is a Certified
Public Accountant.
Graydon H. Neher. Mr. Neher was elected to the Board of Directors in June
1995. Mr. Neher has been President and a director of Chemco, Inc., a privately-
held oil and gas company since 1980. Mr. Neher is a director of Compa Food
Ministry, a non-profit food bank. Mr. Neher received a BA degree from the
University of Puget Sound.
Barry L. Plost. Mr. Plost was elected to the Board of Directors of the
Company in December 1995. Mr. Plost has served as Chairman, President and Chief
Executive Officer of SeraCare, Inc., a group of plasma collection centers, since
February 1996. Previously,
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Mr. Plost was with David Barrett, Inc., a management consulting firm, from 1994
to 1996. Mr. Plost was President and Chief Executive Officer of Country Wide
Transportation Services, Inc., a transportation and distribution company from
1991 to 1994. Mr. Plost is a director of Care Concepts, Inc. Mr. Plost received
a BA in Political Science from the University of Illinois and an MBA from Loyola
University.
Sylvan Schefler. Mr. Schefler is Vice Chairman of Prime Charter Ltd., an
investment banking firm and the underwriter of the Offering. Mr. Schefler has
served as Chairman of the Investment Banking Division and as a member of the
Executive Committee of Prime Charter Ltd. since September 1994. Mr. Schefler has
been a partner of Crystal Asset Management Group, Ltd., a merchant banking firm
since 1990. Previously, Mr. Schefler was Chief Executive Officer of Hampshire
Securities Corporation, an investment banking firm, from 1992 to 1994 and Co-
Chairman of Dabney/Resnick and Wagner, Inc., an investment banking firm, from
1990 to 1992. Mr. Schefler previously served in various capacities with Drexel
Burnham Lambert Incorporated for over thirty years, including as a member of its
Executive Committee and Board of Directors. Mr. Schefler has served as a
Director of GSE Systems, Inc., a supplier of software systems for manufacturing
industries, since August 1995. Mr. Schefler received a BA in Political Science
from Cornell University.
Rebekah L. Coe. Ms. Coe has served as Director of Corporate Development
for the Company since August 1995. Prior to joining the Company, Ms. Coe was
Executive Director of Alpine Mutual Fund Trust Receivership, a mutual fund
company, from 1992 to 1995. Prior to 1992, Ms. Coe served as Controller and
General Business Manager for Production Geophysical Services, a public oil and
gas company. Ms. Coe has over 10 years of experience in finance and accounting.
Ms. Coe received her BBA degree in accounting from Abilene Christian University.
The Company's operating management is comprised of the following individuals:
Barry D. Cummings. Mr. Cummings, age 59, joined the Company upon the
acquisition of Anglo Iron & Metal in December 1995. Mr. Cummings has served as
Plant Manager of Anglo since 1994, and was the Controller of Anglo from 1986 to
December 1995. Mr. Cummings has over 25 years of experience in financial and
plant management. Mr. Cummings received a BA in Business Administration from
Texas A&M University.
Lawrence E. Emch. Mr. Emch, age 53, has served as General Manager of the
Company's Nevada facility since December 1995. Prior to joining the Company, Mr.
Emch was an independent consultant in the metals recycling industry from July
1994 through November 1995. Mr. Emch was Plant Manager for The David J. Joseph
Company, a leading metals broker and recycler, where he served as manager of
four different facilities from prior to 1991 to 1994. Mr. Emch has served in
various industrial engineering capacities for the past 30 years. Mr. Emch
attended Youngstown State University.
43
<PAGE>
Ronald W. Kralovetz. Mr. Kralovetz, age 56, has served as the General
Manager of the Company's four southern Texas facilities since February 1996.
Prior to joining the Company, Mr. Kralovetz was a General Superintendent for
Midwest Steel Co., Inc., a dismantling company, from prior to 1991 to 1996. Mr.
Kralovetz began his career in the metals recycling business over 25 years ago as
a Plant Manager with Luria Brothers Co., Inc.
Peter F Prinz. Mr. Prinz, age 49, has served as Vice President of
Recycling Industries of Missouri, Inc. and General Manager of the Company's
Missouri facility since May 1996. Prior to joining the Company, Mr. Prinz was
President of Hawco Manufacturing Company of Baton Rougue, LA, a manufacturer
of equipment for the metals recycling, dredging and mining industries. Mr. Prinz
was also employed by the David Joseph Company, Inc. for seven years as manager
of their Newport, Kentucky metals recycling plant. Mr. Prinz received a BS in
Mechanical Engineering from the University of Wisconsin.
Charles N. Ruth. Mr. Ruth, age 66, has served as Plant Engineer for the
Company's Nevada facility since January 1996. Prior to joining the Company, Mr.
Ruth was Plant Engineer at Joseph Smith & Sons, Inc., a metals recycling
company, from prior to 1991 to 1996. Mr. Ruth has over 20 years of experience in
the metals recycling business, including engineering management at Luria
Brothers Co., Inc. and Vulcan Materials Company. Mr. Ruth received a BS in
Mechanical Engineering from Texas Tech University and is a registered
professional mechanical engineer.
Clifford D. Vellinga. Mr. Vellinga, age 54, has served as Assistant
Manager for the Company's Nevada facility since October 1995. Previously, Mr.
Vellinga served as Chief Financial Officer from 1987 to 1995. Mr. Vellinga has
over 20 years experience in the construction and recycling industries. Mr.
Vellinga received a BA in Accounting from Weber State University.
As the Company expands, it will hire additional qualified individuals with
industry experience to manage the different segments of its operations. In
connection with the Acquisition and any future acquisitions, the Company
anticipates retaining the principals of the acquired company to facilitate
integration of the acquired operations into its consolidated group.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Board of Directors has established an Audit Committee comprised of
Messrs. Neher and Plost, both of whom are Independent Directors, and Mr.
Misukanis. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans of the audit engagement, approves professional services
provided by the independent accountants, reviews the independence of the
independent public accountants and reviews the adequacy of the Company's
internal accounting controls.
Compensation Committee
Promptly following the consummation of the Offering, the Board of Directors
will establish a Compensation Committee which will be comprised solely of
Independent Directors.
44
<PAGE>
The Compensation Committee will determine compensation for the Company's
executive officers in addition to administering the Company's Stock Option
Plans, described below.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid to the Company's chief executive officer and all other
executive officers of the Company whose salary and bonus compensation for the
year ended September 30, 1995 exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Fiscal Other Annual Securities
Principal Position Year Salary Compensation Underlying Options
- ------------------------- ------ ------ ------------- ------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens 1995 $222,000 $1,257,197 (1) -0-
Chief Executive 1994 47,000 (1) -0- -0-
Officer and 1993 -0- (1) -0- -0-
Chairman of the
Board of Directors
Michael I. Price 1995 $223,000 (2) -0- 150,000 (3)
Chief Operating Officer 1994 112,000 (4) -0- 150,000
and President 1993 -0- -0- -0-
</TABLE>
__________
(1) Although accrued, the Company did not pay any cash compensation to Mr.
Wiens during fiscal 1994 and fiscal 1993. During fiscal 1995, the
Company paid to Mr. Wiens $47,000 of the unpaid 1994 salary. The
remaining unpaid salary for 1994 and 1993 of $260,000 was forgiven by
Mr. Wiens along with the transfer of certain technology to the Company
in exchange for the right to acquire shares of the Company's Common
Stock, which right was exercised on August 8, 1995. The amount
reported as "Other Annual Compensation" represents the difference
between the purchase price of the Common Stock under such right and
the market value of the Common Stock on August 8, 1995 related to the
forgiven salary. See "Certain Transactions."
(2) $210,000 was paid during fiscal 1995.
(3) Represents the repricing of the option granted to Mr. Price in fiscal
1994. See "Certain Transactions."
(4) Paid during fiscal 1995.
OPTION GRANTS DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
The following table provides information regarding stock options
granted to the named executive officers during the fiscal year ended September
30, 1995. In addition, in accordance with the rules and regulation promulgated
by the Commission, the table shows hypothetical gains or "option spreads" that
would exist for the respective options based upon assumed annual rates
45
<PAGE>
of appreciation for the price of the Common Stock of 5% and 10% from the date
the options were granted over the full option term.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------------------------
Percent of Potential Realizable
Number of Total Options Market Value at Assumed Annual
Securities Granted to Price Rates of Stock Price
Underlying Employees In Exercise on Date Expiration Appreciation For Option
Name Options Granted Fiscal Year Price of Grant Date 0% 5% 10%
- ---- --------------- ------------- -------- -------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Wiens -- -- -- -- -- -- -- --
Michael I. Price 150,000 (1) 79% $.90 $3.15/(2)/ 12/31/98 $337,500 $439,327 $556,787
</TABLE>
____________
(1) Represents repricing of option originally granted on January 1, 1994.
See "Certain Transactions."
(2) At the time of the repricing of the option, the Company was selling
shares of Common Stock in a private placement at approximately $.90 per
share. Accordingly, the Company believes the fair market value of the
Common Stock on that date was $.90 per share.
STOCK OPTION EXERCISES DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1995,
OUTSTANDING GRANTS AND GAINS AS OF SEPTEMBER 30, 1995
The following table shows stock options exercised by named executive
officers during the fiscal year ended September 30, 1995. In addition, this
table includes the number of shares covered by both exercisable and non-
exercisable stock options as of September 30, 1995 and the values for "in-the-
money" options which represent the positive spread between the exercise price of
any such existing stock options and the price of the Common Stock at September
30, 1995.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-The-Money Options
Name Upon Exercise Realized Options at Fiscal Year End at Fiscal Year End
- ---- ---------------- -------- --------------------------- --------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens -- -- -- --
Michael I. Price -- -- 0/150,000 0/$795,000
</TABLE>
DIRECTOR COMPENSATION
Independent Directors will receive an annual fee of $7,500 for their
services in that capacity and $1,500 for each Board of Directors or committee
meeting attended. In addition, the Independent Directors will be granted
options under the Company's 1995 Non-Employee Director Stock Option Plan,
described below. All directors are reimbursed for travel expenses incurred in
attending meetings.
46
<PAGE>
STOCK OPTION PLANS
The Company has established two stock option plans, the Incentive
Stock Option Plan (the "Incentive Plan") and the Non-Qualified Stock Option Plan
(the "Non-Qualified Plan"). In addition, on December 27, 1995, the Board of
Directors adopted, subject to shareholder approval, the 1995 Non-Statutory Stock
Option Plan (the "1995 Plan") and the 1995 Non-Employee Director Stock Option
Plan (the "Director Plan"). The terms of each of these stock option plans are
discussed further below. All of the Company's stock option plans are currently
administered by the Board of Directors and will be administered by the
Compensation Committee upon its establishment as discussed above.
Incentive Plan
The Incentive Plan provides for the grant of stock options to
officers, regional managers, department heads, corporate counsel and other key
employees of the Company. An aggregate of 200,000 shares of Common Stock are
authorized for issuance under the Incentive Plan. As of the date of this
Prospectus, options to purchase 20,000 shares of Common Stock at an exercise
price of $2.50 per share and 12,000 shares of Common Stock at an exercise price
of $6.25 per share have been granted under the Incentive Plan.
Options granted under the Incentive Plan are "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code. As a result,
options granted under the Incentive Plan must have an exercise price of not less
than the fair market value of the Common Stock on the date of grant or, if the
optionee is the owner of more than 10% of the outstanding Common Stock, the
exercise price of the options must not be less than 110% of the fair market
value of the Common Stock on the date of grant. Incentive stock options permit
the optionee to defer taxable income related to the exercise of the option until
subsequent disposition of the shares acquired in connection with such exercise.
Payment of the exercise price for options granted under the Incentive Plan must
be made in cash.
Options granted under the Incentive Plan are not exercisable for a
period of one year from the date of grant and, thereafter, vest at a rate of not
less than 25% per year for the remaining four years of the option term. The term
of any option granted under the Incentive Plan may not exceed five years. The
Incentive Plan provides that the aggregate fair market value of the shares of
Common Stock that may be granted to any single optionee under the Incentive Plan
may not exceed $200,000 during any calendar year. Options granted under the
Incentive Plan are exercisable only by the optionee during the optionee's
lifetime and are not transferable, except under limited circumstances. Options
that are exercisable as of the date the optionee's employment by the Company
terminates, other than by death, expire three months after such termination or
immediately if such termination was for cause. If the optionee dies, the options
shall be exercisable by the optionee's heirs for a six-month period following
the optionee's death. The Incentive Plan terminates on March 19, 2002.
47
<PAGE>
Non-Qualified Plan
The Non-Qualified Plan provides for the grant of stock options to
persons who are not eligible for grants under the Incentive Plan, including the
Company's Independent Directors or persons who are closely related to the
Company, such as consultants and independent contractors, and who are
recommended to receive grants by the Company's Chief Executive Officer and
Treasurer. An aggregate of 50,000 shares of Common Stock are authorized for
issuance under the Non-Qualified Plan. As of the date of this Prospectus, no
options have been granted under the Non-Qualified Plan.
Options granted under the Non-Qualified Plan must have an exercise
price of not less than the fair market value of the Common Stock on the date of
grant or, if the optionee is the owner of more than 10% of the outstanding
Common Stock, the exercise price of the options must not be less than 110% of
the market price of the Common Stock on the date of grant. Payment of the
exercise price may be made in cash or other non-cash consideration as may be
approved and valued by the Compensation Committee.
Options granted under the Non-Qualified Plan are not exercisable for a
period of one year from the date of grant and, thereafter vest at a rate of not
less than 25% per year for the remaining four years of the option term. The
term of any option granted under the Non-Qualified Plan may not exceed five
years. The Non-Qualified Plan provides that the total number of shares of
Common Stock as to which options granted under the plan may not exceed an
aggregate value of $200,000. Options granted under the Non-Qualified Plan are
exercisable only by the optionee during the optionee's lifetime and are not
transferable, except under limited circumstances. Options that are exercisable
as of the date the optionee's relationship with the Company terminates, other
than by death, expire three months after such termination. If the optionee
dies, the options shall be exercisable by the optionee's heirs for a six-month
period following the optionee's death. The Non-Qualified Plan terminates on
March 19, 2002.
1995 Plan
The 1995 Plan provides for the grant of stock options to employees,
officers and employee directors of the Company. An aggregate of 2,000,000
shares of Common Stock are authorized for issuance under the 1995 Plan.
Concurrently with the adoption of the 1995 Plan by the Board of Directors on
December 27, 1995, options to acquire 300,000 shares of Common Stock at an
exercise price of $2.87 per share were granted to Mr. Wiens, the Company's
Chairman and Chief Executive Officer, and options to acquire 450,000 shares of
Common Stock at an exercise price of $2.87 per share were granted to Mr. Price,
the Company's Chief Operating Officer and President. These options and the 1995
Plan are subject to approval by the Company's shareholders at the 1996 annual
meeting of shareholders. The 1995 Plan terminates on December 27, 2006.
48
<PAGE>
Options granted under the 1995 Plan must have an exercise price of not
less than 80% of the fair market value of the Common Stock on the date of grant.
Payment of the exercise price may be made in cash, in shares of the Company's
Common Stock having a fair market value equal to the aggregate exercise price, a
combination of cash and shares of Common Stock or, subject to the approval of
the Compensation Committee, in whole or in part with monies received from the
Company as a compensatory cash payment.
The term of any option granted under the 1995 Plan may not exceed ten
years. Options granted under the 1995 Plan are not transferable, except under
limited circumstances. If the optionee ceases to be an employee, officer or
employee director of the Company or a subsidiary or parent corporation of the
Company, other than by reason of death, disability or cause, all unexercised
options granted under the 1995 Plan shall terminate 90 days thereafter. If the
optionee is terminated for cause, all unexercised options shall immediately
terminate. If the optionee's employment is terminated by reason of death,
disability or retirement, all unexercised options shall terminate one year
thereafter.
Director Plan
The Director Plan provides for the grant of stock options to existing
and future Independent Directors of the Company. Each Independent Director will
receive an initial grant of options under the Director Plan to acquire up to
5,000 shares of the Company's Common Stock having an exercise price equal to the
fair market value of the Common Stock on the date such person first becomes an
Independent Director. Thereafter, each independent director who is serving as a
director on December 31 of each calendar year, commencing with December 31,
1996, will automatically be granted an option to acquire up to 5,000 shares of
Common Stock at an exercise price per share equal to the fair market value per
share of Common Stock on such date. Each Independent Director joining the Board
of Directors within 30 days of the consummation of the Offering will receive
options having an exercise price equal to the Offering Price. Messrs. Misukanis,
Neher and Plost, who were serving as Independent Directors on December 27, 1995,
each received an initial grant of 5,000 options under the Director Plan having
an exercise price of $2.87 per share, the fair market value per share of the
Common Stock on that date. These options and the Director Plan are subject to
approval by the Company's shareholders at the 1996 annual meeting of
shareholders. The Director Plan terminates on December 27, 2006.
Payment of the exercise price for options granted under the Director
Plan may be made in cash, in shares of the Company's Common Stock having a fair
market value equal to the aggregate exercise price, a combination of cash and
shares of Common Stock or, subject to the approval of the Compensation
Committee, in whole or in part with monies received from the Company as a
compensatory cash payment.
Options granted under the Director Plan will be exercisable commencing
six months after the date of grant and continuing for five years from the date
of grant. Options granted under
49
<PAGE>
the Director Plan are not transferable, except under limited circumstances. If
the optionee ceases to an Independent Director other than by reason of death,
disability or cause, all unexercised options shall terminate 90 days thereafter.
If the optionee is removed from the board for cause, all unexercised options
shall immediately terminate. If the optionee's service as a director is
terminated by reason of death, disability or retirement, all unexercised options
shall terminate one year thereafter.
PRINCIPAL SHAREHOLDERS
As of March 31, 1996, the Company's only class of outstanding voting
securities was its Common Stock, $.001 par value. The following table sets
forth information as of March 31, 1996 with respect to the ownership of the
Common Stock by all executive officers, directors and persons known by the
Company to beneficially own more than five percent of the Common Stock. The
following shareholders have sole voting and investment power with respect to the
shares, unless indicated otherwise:
<TABLE>
<CAPTION>
Shares of Percentage of Shares of
Common Stock Common Stock Common Stock Percentage of
Beneficially Ownership Beneficially Common Stock
Owned Prior to Prior to the Owned Prior to Ownership After
Name of Beneficial Owner the Offering Offering the Offering the Offering
----------------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Stanley Becker 913,475 (1) 8.7% 694,536 (1) 5.1%
55 East End Avenue, #7A
New York, New York 10028
Caside Associates 841,990 (2) 7.9% 817,990 (2) 5.9%
373 North Main St.
Fall River, MA 02720
J.E. McConnaughy, Jr. 739,800 (3) 7.1% 575,400 (3) 4.2%
c/o JEMC Corporation
1011 High Ridge Road
Stamford, Connecticut 06905
Samuel Benjamin 673,200 (4) 6.5% 523,600 (4) 3.8%
2763 Roscomare Road
Los Angeles, California 90077
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of Shares of
Common Stock Common Stock Common Stock Percentage of
Beneficially Ownership Beneficially Common Stock
Owned Prior to Prior to the Owned Prior to Ownership After
Name of Beneficial Owner the Offering Offering the Offering the Offering
----------------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
CERTAIN DIRECTORS AND EXECUTIVE
- -------------------------------
OFFICERS (5)
- ------------
Thomas J. Wiens 2,814,003 (6) 27.7% 2,814,003 (11) 21.0%
Michael I. Price 154,000 (7) 1.5% 154,000 1.1%
Jerome B. Misukanis 18,000 (8) .2% 18,000 .1%
Graydon H. Neher 36,000 (9) .4% 28,000 (9) .2%
Barry D. Plost 18,000 (10) .2% 14,000 (10) .1%
Directors and Executive Officers as a 3,040,003 29.4% 3,028,003 22.3%
group
</TABLE>
____________
(1) Includes 297,659 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 198,439 shares of
Common Stock from Mr. Becker for $3.40 per share as part of the Company's
repurchase of 1,424,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds." Mr. Becker is also selling 20,500 shares
in the Offering. See "Selling Securityholders."
(2) Includes 304,440 shares underlying a stock option and 210,000 shares
underlying common stock purchase warrants. The shares held by Caside
Associates may be deemed to be beneficially owned by the partners of Caside
Associates, which are John Silvia Jr., Louis G. Carreiro, Joseph L.
Vinagro, Ronald Rapoza, Dwight D. Silvia, Louis Goncalo, Patricia Mello,
Ilene Hayes and Recycling Associates Trust. Upon consummation of the
Offering, the Company will purchase 24,000 shares of Common Stock from
Caside Associates for $3.40 per share as part of the Company's repurchase
of 1,424,586 shares of Common Stock upon consummation of the Offering. See
"Use of Proceeds."
(3) Includes 246,600 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 164,400 shares of
Common Stock from Mr. McConnaughy for $3.40 per share as part of the
Company's repurchase of 1,424,586 shares of Common Stock upon consummation
of the Offering. See "Use of Proceeds."
(4) Includes 224,400 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 149,600 shares of
Common Stock from Mr. Benjamin for $3.40 per share as part of the Company's
repurchase of 1,424,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds."
(5) The business address of all directors and executive officers is 384
Inverness Drive South, Suite 211, Englewood, Colorado 80112.
(6) Includes 1,664 shares owned by Real Heroes, Inc., a non-profit corporation
controlled by Thomas J. Wiens, and 227,414 shares owned by First Dominion,
a corporation controlled by Thomas J. Wiens. In the event that the
Underwriter's over-allotment option is exercised in full, following the
Offering Mr. Wiens will beneficially own 2,089,136 shares of Common Stock,
representing approximately 15.8% of the outstanding Common Stock.
(7) Includes 150,000 shares underlying options.
51
<PAGE>
(8) Includes 12,000 shares underlying options.
(9) Includes 12,000 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 8,000 shares of
Common Stock from Mr. Neher for $3.40 per share as part of the Company's
repurchase of 1,424,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds."
(10) Includes 6,000 shares underlying common stock purchase warrants. Upon
consummation of the Offering, the Company will purchase 4,000 shares of
Common Stock from Mr. Plost for $3.40 per share as part of the Company's
repurchase of 1,424,586 shares of Common Stock upon consummation of the
Offering. See "Use of Proceeds."
(11) Assumes that the Underwriter's over-allotment option is not exercised. See
"Selling Securityholders."
CERTAIN TRANSACTIONS
On December 1, 1991 the Company entered into exclusive perpetual
license agreements related to the MSW Technology with First Dominion, a
company owned and controlled by Thomas J. Wiens. Under the original terms
of the license agreements, the Company was to pay certain license fees and
royalties, provided that the Company had raised additional equity and had
constructed operational facilities utilizing the MSW Technology. On January
25, 1995, the Company paid $750,000 to First Dominion in exchange for
ownership of the MSW Technology and certain other technology related to the
recycling of shredder fluff, 291,333 shares of Series B preferred stock
owned by First Dominion and the forgiveness of $750,000 of accrued salary,
royalties and other amounts due from the Company to Thomas J. Wiens and
First Dominion. In connection with this purchase, the Company granted to
Mr. Wiens the right to acquire $1,187,500 of Common Stock at a price equal
to the lesser of 50% of the fair market value of the Common Stock or $.90
per share, exercisable on the day the Company reported gross revenues in
excess of designated amounts. On January 25, 1995, the last reported sales
price of the Common Stock was $3.15 per share. The Company met the gross
revenue requirement on August 8, 1995 upon filing of its Form 10-Q for the
quarter ended June 30, 1995. At that time, Mr. Wiens exercised his right
and acquired 1,319,445 shares of Common Stock at an acquisition price of
$.90 per share.
During the fiscal years ended September 30, 1994 and September 30,
1995, the Company received bridge loans from First Dominion in an aggregate
amount of $887,000. During fiscal 1994, $887,000 of this loan amount was
converted to 591,333 shares of Series B preferred stock at the request of
First Dominion. The rights, designations and preferences of the Series B
preferred stock provided that the Series B preferred stock was convertible
into Common Stock on a five-for-one share basis. The Company reacquired
291,333 shares of Series B preferred stock from First Dominion in the
transaction described above, and the remaining shares of Series B preferred
stock were transferred by First Dominion to a third party and were
subsequently converted into Common Stock.
On July 15, 1994, the Company issued to Caside Associates an option to
acquire 360,000 shares of Common Stock at an exercise price of $2.50 per
share. On January 25, 1995, to reflect the then-current offering price of
the Company's Common Stock in a private placement
52
<PAGE>
of its securities, the exercise price of this option was reduced to $.90
per share and the Company issued to Caside Associates warrants to acquire
up to 180,000 additional shares of Common Stock at an exercise price of
$7.50 per share.
On January 25, 1995, the Company repriced an option previously granted
to Michael I. Price and granted an option to Jerome B. Misukanis, executive
officers of the Company, to purchase up to 150,000 and 12,000 shares of
Common Stock, respectively, exercisable for nominal consideration. On
August 3, 1995, these options were amended to revise the exercise price to
$.90 per share. At the time of the repricing of these options, the Company
was selling shares of Common Stock in a private placement at approximately
$.90 per share. Accordingly, the Company believes the fair market value of
the Common Stock on that date was $.90 per share. The options expire on
December 31, 1998.
SELLING SECURITYHOLDERS
The following table sets forth, as of the date of this Prospectus,
certain information with respect to the total number of shares of Common
Stock beneficially owned by each of the Selling Securityholders before and
after consummation of the Offering. All post-Offering totals reflect the
Company's agreement to repurchase shares from certain of the Selling
Securityholders following consummation of the Offering as described above
in "Recent Developments." Except for Stanley Becker, none of the Selling
Securityholders is an officer or director of the Company or the beneficial
owner of five percent or more of the outstanding Common Stock. The
Underwriter will receive a discount of seven percent of the Offering Price
and a non-accountable expense allowance of 1 1/2 percent of the Offering
Price of the Shares of Common Stock sold for the account of the Selling
Securityholders, which discounts and expenses will be withheld from the
proceeds of the shares sold by the Selling Securityholders. See
"Underwriting." The Company will not receive any of the proceeds of the
sales of Common Stock by the Selling Securityholders.
53
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NUMBER OF SHARES OF COMMON STOCK COMMON STOCK
OF COMMON STOCK NUMBER OF BENEFICIALLY BENEFICIALLY
BENEFICIALLY OWNED SHARES OWNED AFTER OWNED AFTER
SELLING SECURITYHOLDER PRIOR TO OFFERING OFFERED OFFERING OFFERING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Becker, Marshall 305,082 (1) 30,000 275,082 (1) 2.0
Becker, Stanley 913,475 (2) 20,500 694,536 (2) 5.1
Bender, Merrill 19,600 19,600 0 0
Eddie Mahe Company 7,600 7,600 0 0
Fru-Con Construction, Inc. 145,001 145,001 0 0
Gelin, Peter 19,500 19,500 0 0
Heller, Matthew 13,000 13,000 0 0
Levine, Kenneth 305,082 (1) 30,000 275,082 (1) 2.0
Morse, Clayton 4,600 4,600 0 0
Nathanson, Barry F. 358,823 (3) 5,250 275,001 (3) 2.1
NCO Investors III, LP 60,000 60,000 0 0
Rome, Robert C. (4) 227,693 100,000 127,693 1.0
Schafran, Hank 5,391 5,391 0 0
Smart & Thevenet, P.C. 13,600 13,600 0 0
The Stockbrokers Society, 2,276 2,276 0 0
Inc.
Strong, Albert 2,000 2,000 0 0
Wittenstein, Frederick M. 312,852 (5) 13,500 232,829 (5) 1.8
Worden, Andrew B. 16,160 (6) 630 12,079 (6) 0
</TABLE>
(1) Represents shares underlying warrants. Upon consummation of the
Offering, 15,000 of these warrants will be exchanged into 30,000
shares of Common Stock and 15,000 Series H Warrants.
(2) Includes shares underlying warrants to acquire 297,659 shares of
Common Stock. Upon consummation of the Offering, the Company will
purchase 198,439 shares from Mr. Becker at $3.40 per share as part of
the Company's repurchase of 1,424,586 shares of Common Stock. See "Use
of Proceeds."
54
<PAGE>
(3) Includes shares underlying warrants to acquire 117,858 shares of
Common Stock. Upon consummation of the Offering, the Company will
purchase 78,572 shares from Mr. Nathanson at $3.40 per share as part
of the Company's repurchase of 1,424,586 shares of Common Stock. See
"Use of Proceeds."
(4) Shares issued in connection with the Company's acquisition of its
southern Texas facilities.
(5) Includes shares underlying warrants to acquire up to 99,784 shares of
Common Stock. Upon consummation of the Offering, the Company will
purchase 66,523 shares from Mr. Wittenstein at $3.40 per share as part
of the Company's repurchase of 1,424,586 shares of Common Stock. See
"Use of Proceeds."
(6) Includes shares underlying warrants to acquire up to 5,177 shares of
Common Stock. Upon consummation of the Offering, the Company will
purchase 3,451 shares from Mr. Worden at $3.40 per share as part of
the Company's repurchase of 1,424,586 shares of Common Stock. See
"Use of proceeds."
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.001 par value. At May 15, 1996, 10,178,137 shares of Common Stock
were outstanding. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully paid and non-assessable shares. On liquidation of the Company, each
holder of Common Stock is entitled to receive a pro rata share of the
Company's assets available for distribution to common shareholders after
payments with respect to the preferential rights of the Company's then
outstanding preferred stock, if any.
Unless the holder is a "Substantial Stockholder" (as discussed below
under "Anti-Takeover Provisions"), all shares of Common Stock have equal
voting rights and have one vote per share in all matters to be voted upon
by shareholders. Cumulative voting in the election of directors is not
allowed, which means that the holders of a majority of the outstanding
shares represented at any meeting at which a quorum is present will be able
to elect all of the directors if they choose to do so and, in such event,
the holders of the remaining shares will not be able to elect any
directors.
A vote by the holders of a majority of the shares of Common Stock
present at a meeting at which a quorum is present is necessary to take
action, except for certain extraordinary matters which require the approval
of a majority of the outstanding shares of voting stock.
PREFERRED STOCK
The Company is authorized to issue up to a total of 10,000,000 shares
of preferred stock, no par value, issuable in one or more series designated
by the Board of Directors. Material provisions concerning the terms of any
series of preferred stock which may be issued, such as dividend rate,
conversion features and voting rights, are to be determined by the Board of
55
<PAGE>
Directors of the Company at the time of such issuance. The ability of the
Board to issue preferred stock could also be used by it as a means for
resisting a change of control of the Company and, therefore, can be
considered an "anti-takeover" device.
The Company has issued and outstanding 13,000 shares of Series A
Convertible Preferred Stock (the "Series A Shares"), which were issued in
connection with the Company's acquisition of its Nevada operations. The
Series A Shares have no dividend rights, liquidation preference or voting
rights, except in certain limited circumstances. The Series A Shares will
be redeemed along with 120,000 shares of Common Stock issued in connection
with the acquisition of the Company's Nevada facility for $2.4 million upon
consummation of the Offering. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation authorize
the Company's Board of Directors to limit the voting rights of any person
or entity that becomes a "Substantial Stockholder," defined as any
stockholder designated by the Board of Directors who is the direct or
indirect beneficial owner of 10% or more of the Company's Common Stock,
including shares of Common Stock which may be issuable pursuant to any
agreement or upon the exercise of conversion rights, options or warrants.
All shares of Common Stock beneficially owned by a Substantial Stockholder
in excess of 10% will not be entitled to any voting rights and will be
deemed not outstanding for purposes of determining a quorum. As of the date
of this Prospectus, the Company's Board of Directors had not determined any
person or entity to be a Substantial Stockholder.
In addition to restricting the voting rights of a Substantial
Stockholder, the Company has the right to redeem all or a portion of the
Common Stock beneficially owned by a Substantial Stockholder at a
redemption price equal to the lesser of the average market price of the
shares for each of the preceding 30 days prior to the date of the written
redemption notice or the average market price of the shares for each of the
30 trading days during which shares of the Common Stock have been traded
immediately preceding the date upon which the Substantial Stockholder
beneficially owned more than 5% of the issued and outstanding Common Stock.
A Substantial Stockholder has no rights, voting or otherwise, regarding
shares subject to a redemption notice.
The Company's Board of Directors has adopted an amendment to its
Articles of Incorporation to eliminate these provisions. This amendment
will be submitted to the Company's shareholders for approval at the 1996
annual meeting of shareholders. The amendment will require the affirmative
vote of holders of two-thirds of the outstanding Common Stock and, if any
preferred stock is outstanding, two-thirds of the outstanding preferred
stock.
56
<PAGE>
WARRANTS
The Company has the following outstanding warrants to acquire an
aggregate of 4,321,031 shares of Common Stock:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE SECURITIES ISSUABLE UPON COMMON STOCK ISSUABLE
---------- -------- ------------------------ ---------------------
TITLE OR SERIES DATE PRICE OUTSTANDING EXERCISE UPON EXERCISE
- --------------- ---- ----- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Series A (1) $37.50 22,969 1 share of Common Stock 22,969
and 1 Series B Warrant
Series B (2) $75.00 22,969 Common Stock 22,969
Series G (3) $ 7.50 2,136,878 Common Stock 2,136,878
Series H (4) $ 7.50 286,096 Common Stock 286,096
Series I (5) $ 1.05 359,250 Common Stock 359,250
Series J (6) $ 7.50 727,078 Common Stock 727,078
Ally Capital November 3, $ 5.00 53,600 Common Stock 53,600
1999
Caside Associates January 5, $ 7.50 180,000 Common Stock 180,000
1998
Nevada Recycling January 4, $ 1.25 20,000 Common Stock 20,000
2004
Placement Agent's (7) April 17, $ 1.80 139,828 2 Shares of Common Stock 279,656
1998
Placement Agent's July 31, $ 1.80 73,560 2 Shares of Common Stock 147,120
1998 and 1 Series H Warrant
Placement Agent's January 31, $ 2.75 65,445 2 Shares of Common Stock 130,890
1999 and 1 Series H Warrant
Placement Agent's April 8, $ 2.75 4,500 2 Shares of Common Stock 9,000
1999 --------- and 1 Series H Warrant ---------
Total Outstanding 4,092,173 4,375,506
========= =========
</TABLE>
(1) Exercisable for a three-year period commencing on the effective
date of a registration statement covering the Series A Warrants
or the shares issuable upon their exercise.
(2) Exercisable for a three-year period commencing on the effective
date of a registration statement covering the Series B Warrants
or the shares issuable upon their exercise.
(3) Currently exercisable and continuing for a three-year period
commencing on the effective date of a registration statement
covering the shares issuable upon their exercise and the shares
of Common Stock purchased by the holders of the Series G Warrants
in the Company's February and May 1995 private placements. The
exercise price of the Series G warrants will be reduced to $5.40
per share in the event that the Company fails to repurchase
certain shares of Common Stock by May 31, 1996 and will reduce by
$.35 per share for each month subsequent to September 1996 (June
1996 in the event such stock purchase is not effected by May 31)
in which a registration
57
<PAGE>
statement covering the shares issuable upon exercise of the
Series G warrants is not effective. See "Business - Recent
Developments" and "Use of Proceeds."
(4) Exercisable for a three-year period commencing on the exercise of
the Placement Agent's Warrants. Additional Series H Warrants will
be issued upon exercise of the Placement Agent's Warrants.
(5) Upon consummation of the Offering, the Series I Warrants will be
exchanged by the Company for 316,140 shares of Common Stock. The
exercise price of the Series I warrants was originally $1.50 per
share, but has been reducing by $.15 per share for each month
subsequent to March 31, 1996 in which a registration statement
covering the Common Stock issuable upon exercise of the warrants
is not effective.
(6) Exercisable for a three-year period commencing on the
effectiveness of a registration statement covering the shares
received upon their exercise. The exercise price of the Series J
Warrants will be reduced to $5.40 per share in the event that the
Company fails to repurchase certain shares of Common Stock by May
31, 1996 and will reduce by $.35 per share for each month
subsequent to September 1996 (June 1996 in the event such stock
purchase is not effected by May 31) in which a registration
statement covering the shares issuable upon exercise of the
Series J warrants is not effective. See "Business - Recent
Developments" and "Use of Proceeds."
(7) Upon consummation of the Offering, the Company will exchange
30,000 Placement Agent's warrants for 60,000 shares of Common
Stock and 30,000 Series H Warrants. See "Selling
Securityholders".
STOCK OPTIONS
The Company has granted options to purchase an aggregate of 1,283,440
shares of Common Stock at exercise prices ranging from $.90 to $6.25 per share,
including options to Messrs. Wiens, Price, Misukanis, Neher and Plost to
purchase 300,000, 450,000, 5,000, 5,000 and 5,000 shares of Common Stock,
respectively, at an exercise price of $2.87 per share. See "Management - Stock
Option Plans."
TRANSFER AGENT
The transfer agent for the Company's Common Stock and warrant agent
for the Company's warrants is American Securities Transfer, Inc., 938 Quail
Street, Suite 101, Lakewood, Colorado 80215.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 13,409,691
outstanding shares of Common Stock, based on the number of shares outstanding on
May 15, 1996. Of these shares, the 4,892,448 shares of Common Stock sold in the
Offering will be freely tradeable under the Securities Act, except for any
shares held by "affiliates" of the Company, as that term is defined under the
Securities Act and the regulations promulgated thereunder (an "Affiliate"). The
remaining 8,517,243 shares (the "Restricted Shares") held by existing
stockholders were sold by
58
<PAGE>
the Company in reliance on exemptions from the registration requirements of the
Securities Act and are "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act.
As of the closing of the Offering, a total of 3,028,003 shares of
Common Stock (including shares underlying outstanding options) held by the
existing stockholders will be subject to lock-up agreements in favor of the
Underwriter which provide that none of such shares may, without the prior
written consent of the Underwriter, be sold or otherwise disposed of for a
period of 12 months from the date of this Prospectus. Upon the expiration of
the lock-up agreements, all of such shares will be eligible for resale in the
public market subject to the provisions of Rule 144. The Underwriter may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to the lock-up agreements.
In general, under Rule 144, as currently in effect, any holder of
Restricted Shares, including an Affiliate of the Company, as to which at least
two years have elapsed since the later of the date of the acquisition of such
Restricted Shares from the Company or an Affiliate, is entitled within any
three-month period to sell a number of shares that does not exceed the greater
of 1% of the then-outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock in the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Affiliates of the Company must comply with the
requirements of Rule 144 (except for the two-year holding period requirement) in
order to sell shares of Common Stock which are not "restricted securities" (such
as shares acquired by Affiliates in the Offering).
Further, under Rule 144(k) a person who holds Restricted Shares as to
which at least three years have elapsed since the date of their acquisition from
the Company or an Affiliate, and who is not deemed to have been an Affiliate of
the Company at any time during the three months preceding a sale, is entitled to
sell such shares under Rule 144 without regard to volume limitations, manner of
sale provisions, notice requirements or availability of current public
information concerning the Company.
REGISTRATION RIGHTS
As described below, the holders of certain shares of the Company's
Common Stock and certain outstanding warrants and options are entitled to
certain rights with respect to the registration under the Securities Act of
their shares of Common Stock (the "Registerable Common Stock") or the shares of
Common Stock issuable upon exercise of their warrants or options (the
"Registerable Warrant Stock"). These rights are granted under the terms of
agreements between the Company and the holders of the Registerable Common Stock
or the Registerable Warrant Stock. In connection with such rights, the Company
has agreed to pay all registration expenses, other than fees of the holder's own
counsel, transfer taxes, and
59
<PAGE>
underwriting discounts and commissions payable in connection with the
registration of any shares of Registerable Common Stock or Registerable Warrant
Stock. In addition, the Company has agreed to indemnify the holders of such
securities against certain liabilities arising under the Securities Act.
Required Registration
The Company has agreed with the holders of 4,851,020 shares of
Registerable Common Stock and 2,983,956 shares of Registerable Warrant Stock to
include such shares of Common Stock in a registration statement to be filed no
later than September 30, 1996. Of these shares, 4,303,327 shares of Registerable
Common Stock and 2,863,956 shares of Registerable Warrant Stock are subject to
lock-up agreements in favor of the Company which provide that commencing on the
earlier of June 30, 1996 and the closing of the Offering (the "Commencement
Date"): (i) none of such shares, warrants or options may, without the prior
written consent of the Company, be sold, exercised or otherwise disposed of for
a period of four months following the Commencement Date; (ii) during the fifth
month following the Commencement Date, each such shareholder will sell no more
than five percent of the shares of Registerable Common Stock and, commencing
with the fifth month following the Commencement Date, each such shareholder may
exercise the warrants held by such holder and the shares of Registerable Warrant
Stock received upon such exercise will not be subject to these lock-up
provisions; (iii) during the sixth month following the Commencement Date each
such shareholder will sell no more than 7.5 percent of the shares Registerable
Common Stock held by such holder; (iv) during each month commencing with the
seventh month and ending upon completion of the twelfth month following the
Commencement Date, each such shareholder will be permitted to sell no more than
15 percent of the shares of Registerable Common Stock owned by such holder; and
(v) after expiration of the twelfth month following the Commencement Date, the
shares of Registerable Common Stock will no longer be subject to these lock-up
provisions. The Company is required to keep the registration statement filed
pursuant to this registration obligation effective for a period of up to three
years.
Piggyback Registration
Whenever the Company proposes to register any shares of Common Stock,
the Company is required to give notice to the holders of 951,803 shares of
Registerable Warrant Stock who have the right to include such shares in the
registration statement ("Piggyback Registration Rights"). In addition, upon
expiration of the registration statement filed under the Company's registration
obligation described in the preceding section, the holders of the Registerable
Common Stock and Registerable Warrant Stock included therein have limited
Piggyback Registration Rights.
The Piggyback Registration Rights are subject to certain conditions,
including the ability of an underwriter to limit the number of shares of
Registerable Common Stock and Registerable Warrant Stock included in the
registration statement or to exclude certain shares of Registrable Common Stock
or Registerable Warrant Stock from the Registration Statement.
60
<PAGE>
Demand Registration
Holders of 851,923 shares of Registerable Warrant Stock are entitled
to require the Company to use its reasonable best efforts to register such
shares at the Company's expense within 150 to 180 days of their demand ("Demand
Registration Rights"). The Demand Registration Rights may only be exercised
once.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, Prime Charter Ltd. (the
"Underwriter") has agreed to purchase from the Company and the Selling
Securityholders, and the Company and the Selling Securityholders have agreed to
sell to the Underwriter, an aggregate of 4,892,448 shares of Common Stock.
The Underwriting Agreement provides that the Underwriter's obligations
to pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent, and that the Underwriter is committed to purchase
all of the shares of Common Stock if any shares are purchased.
The Underwriter proposes initially to offer the shares of Common Stock
offered hereby to the public at the Offering Price set forth on the front cover
page of this Prospectus, and to certain dealers at such price less a concession
not in excess of $______ per share. The Underwriter may allow, and such dealers
may reallow, a concession not in excess of $____ per share to certain dealers.
After the Offering, the Offering Price, concession and reallowance may be
changed by the Underwriter.
The Company and the Selling Securityholders have agreed to pay to the
Underwriter a non-accountable expense allowance equal to 1 1/2% of the gross
proceeds of the Offering, $85,000 of which already has been paid by the Company
to cover some of the underwriting costs and due diligence expenses related to
the Offering.
Thomas J. Wiens, the Company's Chief Executive Officer, has granted to
the Underwriter an option, exercisable during the 30-day period after the date
of this Prospectus, to purchase up to an aggregate of 733,867 additional shares
of Common Stock at the Offering Price less underwriting discounts and the
Underwriter's expense allowance. The Underwriter may exercise this option
solely to cover over-allotments, if any, made on the sale of the Common Stock
offered hereby. The Company will receive no proceeds from the exercise of the
over-allotment option.
The Company, the Underwriter and the Selling Securityholders have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
61
<PAGE>
The Company has agreed to sell to the Underwriter or its designees,
for nominal consideration, the Underwriter's Warrants to purchase an aggregate
of 450,105 shares of Common Stock. The shares of Common Stock subject to the
Underwriter's Warrants will be in all respects identical to the shares of Common
Stock offered to the public hereby. The Underwriter's Warrants will be
exercisable for a four-year period commencing one year after the effective date
of the Registration Statement of which this Prospectus forms a part at a per
share exercise price equal to 120% of the Offering Price. During the period
beginning one year from the effective date of the Registration Statement and
ending five years after such effective date, the Company has agreed at its
expense to register under the Securities Act the shares of Common Stock issued
or issuable upon exercise of the Underwriter's Warrants, and to include such
shares of Common Stock in any appropriate registration statement which is filed
by the Company. The Underwriter's Warrants will contain anti-dilution
provisions providing for appropriate adjustment of the exercise price and number
of shares that may be purchased upon the occurrence of certain events. The
Underwriter's Warrants may be exercised by paying the exercise price in cash,
through the surrender of shares of Common Stock, or by using a combination of
such methods.
The Company and all of its executive officers and directors and
certain of its current stockholders have agreed not to offer, sell, contract to
sell or otherwise dispose of Common Stock or rights to acquire Common Stock
without the prior written consent of the Underwriter for a period of 12 months
after the date of this Prospectus. See "Shares Eligible For Future Sale."
LEGAL MATTERS
The legality of the shares of Common Stock being offered will be
passed on for the Company by Friedlob Sanderson Raskin Paulson & Tourtillott,
LLC, Denver, Colorado. The firm of Brownstein Hyatt Farber & Strickland, P.C.,
Denver, Colorado, has acted as counsel to the Underwriter in connection with the
Offering.
EXPERTS
The financial statements of the Company for the years ended September
30, 1993 and 1994, appearing in this Prospectus have been audited by AJ.
Robbins, P.C., independent certified public accountants, as stated in their
report appearing herein, and have been so included herein in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing. The financial statements of the Company for the year ended September
30, 1995, have been audited by BDO Seidman, LLP, independent certified public
accountants, as stated in their report appearing herein, and have been so
included herein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
62
<PAGE>
CHANGE IN INDEPENDENT AUDITORS
The Company engaged BDO Seidman, LLP on March 25, 1996, to serve as
its independent auditors, replacing AJ. Robbins, P.C., who had previously served
in that capacity. This change in independent auditors was approved by the
Company's Board of Directors. During the past two fiscal years through March 25,
1996, AJ. Robbins, P.C.'s report on the financial statements of the Company
neither contained any adverse opinion or disclaimer of opinion nor was qualified
or modified as to uncertainty, audit scope or accounting principles. There were
no disagreements between the Company and AJ. Robbins, P.C. on any matters of
accounting principles or practice, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of AJ. Robbins,
P.C., would have caused them to make reference to the subject matter of the
disagreement in their report.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
Financial Statements:
Pro Forma Explanatory Headnote F-3
For the Year Ended September 30, 1995 (Unaudited)
Unaudited Pro Forma Consolidated Statement of Operations F-6
For the Six Months Ended March 31, 1996 (Unaudited)
Unaudited Pro Forma Consolidated Balance Sheet F-7
Unaudited Pro Forma Consolidated Statement of Operations F-9
Notes to Pro Forma Consolidated Financial Statements F-10
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants F-13
Report of Independent Certified Public Accountants F-14
Financial Statements:
Consolidated Balance Sheets F-15
Consolidated Statements of Operations F-17
Consolidated Statement of Stockholders' Equity (Deficit) F-18
Consolidated Statements of Cash Flows F-19
Notes to Consolidated Financial Statements F-20
Independent Certified Public Accountants Report on Supplemental Schedules F-54
Independent Certified Public Accountants Report on Supplemental Schedules F-55
Schedule 1 - Condensed Financial Information of Registrant:
Balance Sheets F-56
Statements of Operations F-58
Statements of Cash Flows F-59
Notes to Condensed Financial Information of Registrant F-60
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
ANGLO METAL, INC., DBA ANGLO IRON & METAL
Report of Independent Certified Public Accountants F-61
Financial Statements:
Balance Sheets F-62
Statements of Operations F-64
Statement of Changes in Stockholders' Equity F-65
Statements of Cash Flows F-66
Notes to Financial Statements F-67
MID-AMERICA SHREDDING, INC.
Report of Independent Certified Public Accountants F-75
Financial Statements:
Balance Sheet F-76
Statement of Operations F-77
Statement of Changes in Stockholders' Equity F-78
Statement of Cash Flows F-79
Notes to Financial Statements F-80
WEISSMAN IRON & METAL, A DIVISION OF WEISSMAN
INDUSTRIES, INC.
Report of Independent Certified Public Accountants F-85
Financial Statements:
Balance Sheets F-86
Statements of Operations F-87
Statement of Changes in Division Equity F-88
Statements of Cash Flows F-89
Notes to Financial Statements F-90
</TABLE>
F-2
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
========================================
INTRODUCTION
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisitions by Recycling Industries, Inc. (the Company) of
the entities detailed below and are based on the estimates and assumptions set
forth herein and in the notes to such statements. This pro forma information has
been prepared utilizing the historical financial statements and notes thereto,
which are incorporated by reference herein. The pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the acquisitions been effected on the dates indicated or the
results which may be obtained in the future.
The pro forma condensed consolidated statements of operations assume the
acquisitions were consummated as of the beginning of each period and the pro
forma condensed consolidated balance sheet assumes the acquisitions were
consummated at that date.
ANGLO METAL, INC. DBA ANGLO IRON & METAL
- ----------------------------------------
On December 11, 1995, the Company acquired substantially all of the assets and
the business of Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo). The assets
acquired from Anglo consisted of a heavy duty automotive shredder, inventories,
metals shearing equipment, balers, heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. The Company also
purchased from Anglo certain real property, buildings and leasehold improvements
used in the business of recycling ferrous and non-ferrous metals.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in cash; a
$1,865,000 note which is to be paid in ten equal monthly installments of
$186,500 beginning in February 1996; a $446,000 secured promissory note payable
in 60 consecutive monthly installments of $9,000; a $750,000 unsecured note
payable in 72 equal consecutive monthly installments of $10,400; and 227,693
shares of the Company's common stock (Common Stock) valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease. The terms of the
sale-leaseback provide for 60 consecutive monthly lease payments of $41,000 with
a bargain purchase option at the end of the lease term. The lease contains
numerous covenants for maintaining certain financial ratios and earnings levels.
The remaining $279,000 paid at closing was obtained from the operating cash
reserves and working capital of the Company.
The purchase price for Anglo has been allocated as follows:
<TABLE>
<S> <C>
Equipment under capital lease $ 1,800,000
Contract to purchase land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
-------------
Total purchase price 6,065,000
Notes payable (3,061,000)
Common Stock (925,000)
-------------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
-------------
Cash from operating capital $ 279,000
=============
</TABLE>
F-3
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
========================================
MID-AMERICA SHREDDING, INC.
- ---------------------------
On April 15, 1996, the Company acquired the assets and the business of Mid-
America Shredding, Inc. (Mid-America). The assets acquired from Mid-America
consisted of real property, buildings, inventories, a heavy duty automotive
shredder, a wire chopping plant, heavy equipment and tools used in the business
of recycling ferrous and non-ferrous metals.
The purchase price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900, and
the assumption of Mid-America's outstanding bank debt of $1,210,000.
The purchase price for Mid-America has been allocated as follows:
<TABLE>
<S> <C>
Inventory $ 55,000
Land 300,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
Closing costs 10,000
-------------
Total purchase price 1,925,000
Notes payable (1,265,000)
-------------
Cash paid at closing $ 660,000
=============
</TABLE>
F-4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
========================================
WEISSMAN IRON AND METAL, A DIVISION OF WEISSMAN INDUSTRIES, INC.
- ----------------------------------------------------------------
The Company has reached an agreement with the stockholders of Weissman
Industries, Inc. to acquire the business of Weissman Iron and Metal,
a division of Weissman Industries, Inc. (Weissman), through the purchase of
all of the outstanding common stock of Weissman.
The assets of Weissman consist of a heavy duty automotive shredder, metal
shearing equipment, a Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property and buildings, inventories and accounts receivable
used in the business of recycling ferrous and non-ferrous metals.
The purchase price for Weissman is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Accounts receivable $ 1,600,000
Inventories 900,000
Buildings and improvements 3,000,000
Automotive shredder 1,500,000
Heavy equipment 3,400,000
Equipment and rolling stock 1,200,000
Land 800,000
-------------
Total purchase price 12,400,000
Note payable, bank (4,000,000)
Revolving line of credit (2,000,000)
-------------
Cash to be paid at closing $ 6,400,000
=============
</TABLE>
The $4,000,000 note payable will be secured by the assets of Weissman and will
be payable in 60 monthly installments of $84,000, including interest. The
Company has received a non-binding commitment from a commercial lender with
respect to such term loan and a revolving credit facility totalling $10,000,00
to $11,000,000 (a $4.0 million term loan and approximately $2.0 million of the
revolving credit facility are dedicated for the operations of Weissman).
F-5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
========================================
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, ANGLO ANGLO MID-AMERICA
INC. IRON & METAL IRON & METAL SHREDDING
SEPTEMBER 30, DECEMBER 31, PRO FORMA DECEMBER 31,
1995 1995 ADJUSTMENTS 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 13,812,000 $ 15,116,000 $ - $ 3,866,000
Brokerage - 216,000 - -
Other income 41,000 7,000 - -
------------- ------------- ------------- ------------
Total Revenues 13,853,000 15,339,000 - 3,866,000
------------- ------------- ------------- ------------
COST AND EXPENSES
Cost of sales 10,869,000 13,739,000 (198,000)/7/ 3,587,000
- - 12,000 /3/ -
Cost of brokerage - 181,000 - -
Management fees - - - -
Personnel 744,000 414,000 - 247,000
Professional services 527,000 66,000 - 6,000
Travel 39,000 - - 1,000
Occupancy 83,000 - - -
Depreciation and amortization 258,000 11,000 66,000 /3/ -
- - 167,000/11/ -
Interest 407,000 133,000 - 125,000
Environmental remediation costs - - - -
Bad debt expense 151,000 - - -
Other general and administrative 477,000 336,000 (328,000)/5/ 23,000
------------- ------------- ------------- ------------
Total Costs and Expenses 13,555,000 14,880,000 (281,000) 3,989,000
------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 298,000 459,000 281,000 (123,000)
EXTRAORDINARY GAIN FROM SETTLEMENT
OF DEBTS 806,000 - - -
------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,104,000 459,000 281,000 (123,000)
PROVISION (BENEFIT) FROM INCOME TAXES (711,000) 140,000 (64,000)/8/ -
------------- ------------- ------------- ------------
NET INCOME (LOSS) $ 1,815,000 $ 319,000 $ 345,000 $ (123,000)
============= ============= ============= ============
INCOME PER COMMON SHARE:
Before extraordinary item $ .17
Extraordinary item .13
-------------
NET INCOME PER COMMON SHARE $ .30
=============
Weighted Average Number of Common
Shares Outstanding 6,099,694
=============
<CAPTION>
MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING IRON & METAL IRON & METAL PRO FORMA
PRO FORMA DECEMBER 31, PRO FORMA SEPTEMBER 30,
ADJUSTMENTS 1995 ADJUSTMENTS 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ - $ 16,207,000 $ - $ 49,001,000
Brokerage - 2,956,000 - 3,172,000
Other income - 1,000 - 49,000
------------- ------------- ------------- -------------
Total Revenues - 19,164,000 - 52,222,000
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of sales (9,000)/3/ 12,235,000 160,000/3/ 40,215,000
- - (180,000)/5/ -
Cost of brokerage - 2,894,000 - 3,075,000
Management fees - 180,000 (180,000)/5/ -
Personnel - 654,000 - 2,059,000
Professional services - 17,000 - 616,000
Travel - - - 40,000
Occupancy - - - 83,000
Depreciation and amortization - 7,000 - 509,000
- - - -
Interest - - 381,000/9/ 1,046,000
Environmental remediation costs - 30,000 (30,000)/7/ -
Bad debt expense - - - 151,000
Other general and administrative - 124,000 (74,000)/5/ 558,000
------------- ------------- ------------- -------------
Total Costs and Expenses (9,000) 16,141,000 77,000 48,352,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 9,000 3,023,000 (77,000) 3,870,000
EXTRAORDINARY GAIN FROM SETTLEMENT
OF DEBTS - - - 806,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 9,000 3,023,000 (77,000) 4,676,000
PROVISION (BENEFIT) FROM INCOME TAXES (10,000)/8/ - 307,000/8/ (338,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 19,000 $ 3,023,000 $ (384,000) $ 5,014,000
============= ============= ============= =============
INCOME PER COMMON SHARE:
Before extraordinary item $ .38
Extraordinary item .07
-------------
NET INCOME PER COMMON SHARE $ .45
=============
Weighted Average Number of Common
Shares Outstanding 11,073,087
=============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
F-6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
========================================
ASSETS
------
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, ANGLO ANGLO MID-AMERICA
INC. IRON & METAL IRON & METAL SHREDDING
MARCH 31 MARCH 31, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996
------------ -------------- -------------- -----------
/(6)/
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,240,000 $ - $ - $ 18,000
Trade accounts receivable, net 2,149,000 - - 109,000
Accounts receivable, related parties 95,000 - - -
Inventories 2,076,000 - - 34,000
Prepaid expenses 353,000 - - -
Other current assets 216,000 - - -
Deferred income taxes 500,000 - - -
------------ -------------- -------------- -----------
Total current assets 6,629,000 - - 161,000
PROPERTY, PLANT AND EQUIPMENT, net 8,421,000 - - 2,823,000
DEFERRED INCOME TAXES, net 741,000 - - -
OTHER ASSETS, net 4.147,000 - - -
------------ -------------- -------------- -----------
$ 19,938,000 $ - $ - $ 2,984,000
============ ============== ============== ===========
<CAPTION>
MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING IRON & METAL IRON & METAL PRO FORMA
PRO FORMA MARCH 31, PRO FORMA MARCH 31,
ADJUSTMENTS 1996 ADJUSTMENTS 1996
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ - $ 9,000 $ - $ 1,267,000
Trade accounts receivable, net - 2,170,000 (570,000)/2/ 3,858,000
Accounts receivable, related parties - - - 95,000
Inventories 21,000/2/ 765,000 (135,000)/2/ 2,761,000
Prepaid expenses - 10,000 - 363,000
Other current assets - - - 216,000
Deferred income taxes - - - 500,000
------------ -------------- -------------- ------------
Total current assets 21,000 2,954,000 (705,000) 9,060,000
PROPERTY, PLANT AND EQUIPMENT, net (964,000)/2/ 5,400,000 4,500,000/2/ 20,180,000
DEFERRED INCOME TAXES, net - - - 741,000
OTHER ASSETS, net - - - 4,147,000
------------ -------------- -------------- ------------
$ (943,000) $ 8,354,000 $ 3,795,000 $ 34,128,000
============ ============== ============== ============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
F-7
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1996
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, ANGLO ANGLO MID-AMERICA
INC. IRON & METAL IRON & METAL SHREDDING
MARCH 31, MARCH 31, PRO FORMA MARCH 31 ,
1996 1996 ADJUSTMENTS 1996
-------------- ------------- ------------- ------------
(6)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ - $ - $ - $ -
Notes payable - - - 1,210,000
Notes payable - related party 1,927,000 - - -
Trade accounts payable 1,235,000 - - 129,000
Trade accounts payable-related parties 140,000 - - 143,000
Accrued liabilities:
Interest 30,000 - - -
Payroll and other 267,000 - - 16,000
Income taxes payable 86,000 - - -
Due to factor, related party 137,000 - - -
Environmental remediation liabilities - - - -
Current portion of long-term debt 94,000 - - 21,000
- - - -
Current portion of long-term debt, related parties 2,294,000 - - -
Current portion of obligation under capital lease 314,000 - - -
-------------- ------------- ------------- ------------
Total Current Liabilities 6,524,000 - - 1,519,000
-------------- ------------- ------------- ------------
LONG-TERM DEBT:
Long-term debt, net of current portion 124,000 - - 2,000
- - - -
Long-term debt-related parties, net of current portion 945,000 - - -
Obligation under capital lease, net of current portion 1,452,000 - - -
Purchase price obligation - - - -
-------------- ------------- ------------- ------------
Total Long-Term Debt 2,521,000 - - 2,000
-------------- ------------- ------------- ------------
Total Liabilities 9,045,000 - - 1,521,000
-------------- ------------- ------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A 1,312,000 - - -
Common stock 10,000 - - -
Additional paid-in capital 17,909,000 - - 3,055,000
Retained earnings (deficit) (8,338,000) - - (1,592,000)
-------------- ------------- ------------- ------------
Total Stockholders' Equity 10,893,000 - - 1,463,000
-------------- ------------- ------------- ------------
$ 19,938,000 $ - $ - $ 2,984,000
============== ============= ============= ============
<CAPTION>
MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING IRON & METAL IRON & METAL PRO FORMA
PRO FORMA MARCH 31, PRO FORMA MARCH 31,
ADJUSTMENTS 1996 ADJUSTMENTS 1996
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ - $ 115,000 $ (115,000)/4/ $ -
Notes payable (1,155,000)/2/ - - 55,000
Notes payable - related party - - - 1,927,000
Trade accounts payable - 1,200,000 - 2,564,000
Trade accounts payable-related parties (143,000)/4/ - - 140,000
Accrued liabilities:
Interest - - - 30,000
Payroll and other 11,000/4/ 172,000 (27,000)/4/ 439,000
Income taxes payable - - - 86,000
Due to factor, related party - - - 137,000
Environmental remediation liabilities - 30,000 - 30,000
Current portion of long-term debt (21,000)/4/ - 632,000/2/ 972,000
246,000/2/ - - -
Current portion of long-term debt, related parties - - - 2,294,000
Current portion of obligation under capital lease - - - 314,000
-------------- ------------- ------------- ------------
Total Current Liabilities (1,062,000) 1,517,000 490,000 8,988,000
-------------- ------------- ------------- ------------
LONG-TERM DEBT:
Long-term debt, net of current portion (2,000)/4/ - 3,368,000/2/ 4,456,000
- - - -
Long-term debt-related parties, net of current portion 964,000/2/ - - 945,000
Obligation under capital lease, net of current portion - - - 1,452,000
Purchase price obligation 620,000/2/ - 6,774,000/2/ 7,394,000
-------------- ------------- ------------- ------------
Total Long-Term Debt 1,582,000 - 10,142,000 14,247,000
-------------- ------------- ------------- ------------
Total Liabilities 520,000 1,517,000 10,632,000 23,235,000
-------------- ------------- ------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A - - - 1,312,000
Common stock - - - 10,000
Additional paid-in capital (3,055,000)/2/ - - 17,909,000
Retained earnings (deficit) 1,592,000 6,837,000 (6,837,000) (8,338,000)
-------------- ------------- ------------- ------------
Total Stockholders' Equity (1,463,000) 6,837,000 (6,837,000) 10,893,000
-------------- ------------- ------------- ------------
$ (943,000) $ 8,354,000 $ 3,795,000 $ 34,128,000
============== ============= ============= ============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
F-8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
========================================
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, ANGLO ANGLO MID-AMERICA
INC. IRON & METAL IRON & METAL SHREDDING
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 10,735,000 $ 3,346,000 $ (539,000)/6/ $ 1,170,000
Brokerage - - - -
Other income 28,000 1,000 - -
------------- ------------- ------------ -------------
Total Revenues 10,763,000 3,347,000 (539,000) 1,170,000
------------- ------------- ------------ -------------
COST AND EXPENSES:
Cost of sales 9,352,000 2,895,000 8,000/3/ 1,228,000
(618,000)/6/ -
(100,000)/7/ -
Cost of brokerage - - - -
Personnel 862,000 114,000 (22,000)/6/ 60,000
Professional services 264,000 30,000 - 6,000
Travel 60,000 - - -
Occupancy 28,000 - - -
Depreciation and amortization 101,000 2,000 32,000/3/ -
42,000/11/ -
(2,000)/4/
Interest 245,000 57,000 (2,000)/6/ 67,000
Management fee - - - -
Other general and administrative 238,000 140,000 (164,000)/5/ 9,000
(22,000)/6/
------------- ------------- ------------ -------------
Total Costs and Expenses 11,150,000 3,238,000 (848,000) 1,370,000
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAINS (387,000) 109,000 309,000 (200,000)
EXTRAORDINARY GAIN FROM SETTLEMENT
OF DEBTS 48,000 - - -
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE
INCOME TAXES (339,000) 109,000 309,000 (200,000)
PROVISION (BENEFIT) FROM
INCOME TAXES (437,000) 13,000 129,000/8/ -
------------- ------------- ------------ -------------
NET INCOME (LOSS) $ 98,000 $ 96,000 $ 180,000 $ (200,000)
============= ============= ============ =============
NET INCOME PER COMMON SHARE $ .01
=============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,789,924
=============
<CAPTION>
MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING IRON & METAL IRON & METAL PRO FORMA
PRO FORMA MARCH 31, PRO FORMA MARCH 31,
ADJUSTMENTS 1996 ADJUSTMENTS 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ - $ 7,881,000 $ - $ 22,593,000
Brokerage - 2,476,000 - 2,476,000
Other income - 26,000 - 55,000
------------- ------------- ------------ -------------
Total Revenues - 10,383,000 - 25,124,000
------------- ------------- ------------ -------------
COST AND EXPENSES:
Cost of sales (3,000)/3/ 5,858,000 80,000/3/ 18,610,000
(90,000)/5/
Cost of brokerage - 2,411,000 - 2,411,000
Personnel - 301,000 - 1,315,000
Professional services - 15,000 - 315,000
Travel - - - 60,000
Occupancy - - - 28,000
Depreciation and amortization - 4,000 - 179,000
- -
Interest - - 190,000/9/ 557,000
Management fee - 45,000 (45,000)/5/ -
Other general and administrative - 151,000 (36,000)/5/ 316,000
------------- ------------- ------------ -------------
Total Costs and Expenses (3,000) 8,785,000 99,000 23,791,000
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAINS 3,000 1,598,000 (99,000) 1,333,000
EXTRAORDINARY GAIN FROM SETTLEMENT
OF DEBTS - - - 48,000
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES 3,000 1,598,000 (99,000) 1,381,000
PROVISION (BENEFIT) FROM
INCOME TAXES (63,000)\4\ - 510,000/8/ 152,000
------------- ------------- ------------ -------------
NET INCOME (LOSS) $ 65,000 $ 1,598,000 $ (609,000) $ 1,229,000
============= ============= ============ =============
NET INCOME PER COMMON SHARE $ .09
=============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,406,887
=============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
F-9
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
========================================
NOTE 1 - PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated statements of operations
are computed assuming the acquisitions of Anglo, Mid-America and Weissman were
consummated at the beginning of the applicable periods presented. The
adjustments relating to the pro forma consolidated balance sheet are computed
assuming the acquisitions of Mid-America and Weissman were consummated at March
31, 1996 for the March 31, 1996 balance sheet.
Although Mid-America trade accounts receivable, trade accounts payable and
accrued expenses were not acquired, they have been included in the March 31,
1996 pro forma balance sheet since the balances approximate estimated period end
balances and provide the reader with information regarding estimated pro forma
net working capital.
NOTE 2 - ACQUISITION OF SUBSIDIARIES
MID-AMERICA
- -----------
Reflects the acquisition of equipment, inventory, land and buildings for
assumption of debt and cash. The acquisition of Mid-America is recorded using
the purchase method.
WEISSMAN
- --------
Reflects the acquisition of accounts receivable, inventory, buildings, equipment
and land for note payable and cash. The acquisition of Weissman is recorded
using the purchase method.
NOTE 3 - ADDITIONAL DEPRECIATION AND AMORTIZATION
ANGLO AND WEISSMAN
- ------------------
Reflects additional depreciation of property and equipment due to the increased
cost of the assets acquired. Reflects amortization of goodwill using the
straight line method over 20 years for Anglo.
MID-AMERICA
- -----------
Adjusts depreciation of property and equipment due to the allocated cost of the
assets acquired.
F-10
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
========================================
NOTE 4 - UNACQUIRED ASSETS AND LIABILITIES
MID-AMERICA
- -----------
Removes liabilities that were not assumed by the Company.
WEISSMAN
- --------
Removes prepaid pension costs, accrued pension liabilities and other liabilities
not acquired or assumed in the acquisition.
NOTE 5 - NON-RECURRING EXPENSES
Removes non-recurring expenses paid to former officers and stockholders of the
acquired businesses for salaries and benefits that will not be incurred in the
future.
NOTE 6 - DUPLICATE TRANSACTIONS FOR ANGLO
Removes 20 days of operations for Anglo included in the historical operations of
the Company for the six months ended March 31, 1996. The assets and liabilities
of Anglo are included in the Company's consolidated balances at March 31, 1996.
NOTE 7 - NON-RECURRING REMEDIATION EXPENSES
ANGLO
- -----
Removes non-recurring equipment costs, outside labor costs, direct labor costs
and landfill costs incurred for remediation costs in compliance with the terms
of the sale agreement.
WEISSMAN
- --------
Removes estimated remediation costs in compliance with the terms of the sale
agreement that will not be incurred in the future.
F-11
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
========================================
NOTE 8 - PROVISION FOR INCOME TAXES
Recognizes utilization of net operating loss carryforward and records
alternative minimum income taxes.
NOTE 9 - INTEREST EXPENSE
Reflects interest expense for notes payable used to finance the acquisition of
Weissman.
NOTE 10 - WEIGHTED AVERAGE SHARES OUTSTANDING
On a pro forma basis, weighted average shares are adjusted to reflect primarily
the 227,693 shares of Common Stock issued in the acquisition of Anglo, 1,454,156
shares of Common Stock issued in private placements, 4,400,000 shares of
Common Stock to be sold in the public offering less 1,544,586 shares of Common
Stock to be repurchased with a portion of the offering proceeds and 471,576 net
shares issued primarily upon the exercise of warrants and options. Such
adjustments are assumed to be outstanding for the entire period for all periods
presented.
NOTE 11 - NON-COMPETE AND CONSULTING AGREEMENT
Reflects amortization of the non-compete and consulting agreement with the
president of Anglo over a six year term using the straight line method.
F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
We have audited the accompanying consolidated balance sheet of Recycling
Industries, Inc. and subsidiaries as of September 30, 1995 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year then ended. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 financial position of Recycling
Industries, Inc. and subsidiaries as of September 30, 1995 and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
DENVER, COLORADO
MAY 17, 1996
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
RECYCLING INDUSTRIES, INC.
DENVER, COLORADO
We have audited the accompanying consolidated balance sheet of Recycling
Industries, Inc. (formerly Environmental Recovery Systems, Inc.) and
subsidiaries as of September 30, 1994, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
two-year period ended September 30, 1994. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Recycling
Industries, Inc. and subsidiaries as of September 30, 1994, and the results of
their operations and their cash flows for each of the years in the two-year
period ended September 30, 1994, in conformity with generally accepted
accounting principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
NOVEMBER 3, 1995
F-14
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
========================================
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-----------------------------
1995 1994 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 184,000 $ 115,000 $ 1,240,000
Trade accounts receivable, pledged, less allowance for
doubtful accounts of $15,000, $25,000, and $10,000 1,026,000 898,000 2,149,000
Accounts receivable, related party 223,000 - 95,000
Inventories 497,000 243,000 2,076,000
Prepaid expenses 137,000 111,000 353,000
Other - 40,000 216,000
Deferred income taxes - - 500,000
------------- ------------- -------------
Total Current Assets 2,067,000 1,407,000 6,629,000
NOTE RECEIVABLE, related party - 859,000 -
PROPERTY, PLANT AND EQUIPMENT, net 6,686,000 6,590,000 8,421,000
DEFERRED INCOME TAXES, net 800,000 - 741,000
OTHER ASSETS 744,000 762,000 4,147,000
------------- ------------- -------------
$ 10,297,000 $ 9,618,000 $ 19,938,000
============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-15
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-----------------------------
1995 1994 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 61,000 $ 491,000 $ -
Notes payable-related parties - 8,000 1,927,000
Trade accounts payable 655,000 906,000 1,235,000
Trade accounts payable-related parties 73,000 87,000 140,000
Professional services payable - 255,000 -
Accrued liabilities:
Interest 22,000 33,000 13,000
Interest-related party 8,000 11,000 17,000
Payroll and other 107,000 544,000 267,000
Income taxes payable 86,000 - 86,000
Due to related parties - 276,000 -
Due to factor, related party 197,000 461,000 137,000
Current portion of long-term debt 227,000 2,502,000 94,000
Current portion of long-term debt, related parties 218,000 8,000 2,294,000
Current portion of obligation under capital lease 37,000 - 314,000
------------- -------------- -------------
Total Current Liabilities 1,691,000 5,582,000 6,524,000
------------- -------------- -------------
DEFERRED GAIN - 751,000 -
------------- -------------- -------------
LONG-TERM DEBT:
Long-term debt, net current portion 132,000 402,000 124,000
Long-term debt-related parties, net of current portion 1,979,000 117,000 945,000
Obligation under capital lease, net current portion 41,000 - 1,452,000
------------- -------------- -------------
Total Long-Term Debt 2,152,000 519,000 2,521,000
------------- -------------- -------------
Total Liabilities 3,843,000 6,852,000 9,045,000
------------- -------------- -------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized
Series A 13,000, 38,000 and 13,000 shares
issued and outstanding 1,312,000 3,612,000 1,312,000
Series B 300,000, 591,333 and -0- shares
issued and outstanding 450,000 887,000 -
Common stock, $.001 par value, 50,000,000 shares
authorized, 8,395,785, 3,005,704 and 10,055,193
shares issued and outstanding 8,000 3,000 10,000
Additional paid-in capital 13,120,000 8,269,000 17,909,000
Accrued salary payable in equity security - 246,000 -
Accumulated deficit (8,436,000) (10,251,000) (8,338,000)
------------- -------------- -------------
Total Stockholders' Equity 6,454,000 2,766,000 10,893,000
------------- -------------- -------------
$ 10,297,000 $ 9,618,000 $ 19,938,000
============= ============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-16
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
AND THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
========================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------- ----------------------------------
1995 1994 1993 1996 1995
--------------- --------------- ------------ --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales $ 13,812,000 $ 4,812,000 $ - $ 10,735,000 $ 7,090,000
Other income 41,000 19,000 - 28,000 27,000
--------------- --------------- ------------ --------------- ---------------
Total Revenues 13,853,000 4,831,000 - 10,763,000 7,117,000
--------------- --------------- ------------ --------------- ---------------
COSTS AND EXPENSES:
Cost of sales 10,869,000 4,110,000 - 9,352,000 5,323,000
Personnel 744,000 327,000 830,000 862,000 263,000
Professional services 527,000 553,000 432,000 264,000 290,000
Travel 39,000 60,000 43,000 60,000 19,000
Occupancy 83,000 50,000 60,000 28,000 25,000
Depreciation and amortization 258,000 258,000 357,000 101,000 124,000
Interest 407,000 203,000 156,000 245,000 198,000
Bad debt expense 151,000 25,000 - - -
Other general and administrative 477,000 179,000 - 238,000 190,000
Abandonment of projects - 208,000 549,000 - -
Research and development - - 64,000 - -
--------------- --------------- ------------ --------------- ---------------
Total Costs and Expenses 13,555,000 5,973,000 2,491,000 11,150,000 6,432,000
--------------- --------------- ------------ --------------- ---------------
INCOME (LOSS) BEFORE EQUITY IN
NET (LOSS) OF JOINT VENTURES,
EQUITY INVESTEE AND
EXTRAORDINARY GAIN 298,000 (1,142,000) (2,491,000) (387,000) 685,000
EQUITY IN NET (LOSS) OF JOINT
VENTURES AND EQUITY INVESTEE - - (467,000) - -
--------------- --------------- ------------ --------------- ---------------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN 298,000 (1,142,000) (2,958,000) (387,000) 685,000
EXTRAORDINARY GAIN FROM
SETTLEMENT OF DEBTS 806,000 218,000 475,000 48,000 222,000
--------------- --------------- ------------ --------------- ---------------
INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT) 1,104,000 (924,000) (2,483,000) (339,000) 907,000
(BENEFIT) FROM INCOME TAXES (711,000) - - (437,000) -
--------------- --------------- ------------ --------------- ---------------
NET INCOME (LOSS) 1,815,000 $ (924,000) $ (2,483,000) $ 98,000 $ 907,000
=============== =============== ============ =============== ===============
INCOME (LOSS) PER COMMON SHARE:
Before extraordinary item $ .17 $ (.46) $ (1.24) $ .01 $ .20
Extraordinary item .13 .09 .20 - .06
--------------- --------------- ------------ --------------- ---------------
NET INCOME (LOSS) PER
COMMON SHARE $ .30 $ (.37) $ (1.04) $ .01 $ .26
=============== =============== ============ =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,099,694 2,504,762 2,376,824 9,789,924 3,495,306
=============== =============== ============ =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-17
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995
AND THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
============================================
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1992 - $ - 2,367,728 $ 3,000 $ 5,905,000
Common stock issued
for services - - 20,000 - 149,000
Contribution of services - - - - 120,000
Dilution of predecessor
cost adjustment property
option - - - - 444,000
Net (loss) - - - - -
--------- ---------- ---------- --------- -----------
Balances, September 30, 1993 - - 2,387,728 3,000 6,618,000
Preferred stock issued
for debt 591,333 887,000 - - -
Preferred stock issued for
acquisition of NRI 38,000 3,612,000 - - -
Common stock issued for cash - - 30,000 - 56,000
Common stock issued
for services - - 39,600 - 242,000
Common stock issued for debt - - 548,376 - 1,351,000
Contribution to capital - - - - 2,000
Conversion of accrued salary - - - - -
Net (loss) - - - - -
--------- ---------- ---------- --------- -----------
Balances, September 30, 1994 629,333 4,499,000 3,005,704 3,000 8,269,000
Redemption of preferred stock
Series A (25,000) (2,300,000) - - -
Redemption of preferred stock
Series B and other equity for
option to CEO (291,333) (437,000) - - -
Common stock issued for
acquisition of MRI - - 120,000 - 1,200,000
Common stock issued during
private offering, net of
offering costs of $590,000 - - 3,746,400 4,000 2,778,000
Common stock issued to retire
debt - - 166,666 - 150,000
Common stock issued for
renegotiation of payment
terms for a stockholder loan - - 10,000 - -
Common stock issued for
services - - 10,000 - 25,000
Common stock issued for
interest on bridge loans - - 17,351 - 16,000
Common stock issued on exercise
of option to CEO - - 1,319,445 1,000 682,000
Common stock rounding due
to stock split - - 219 - -
Net income - - - - -
--------- ---------- ---------- --------- -----------
Balances, September 30, 1995 313,000 1,762,000 8,395,785 8,000 13,120,000
Common stock issued for
acquisition of Anglo
(Unaudited) - - 227,693 - 925,000
Conversion of preferred stock
series B (Unaudited) (300,000) (450,000) 12,000 - 450,000
Common stock issued in
private offering, net of
offering costs of $633,000
(Unaudited) - - 1,040,636 1,000 2,227,000
Conversion of bridge loans
(Unaudited) - - 323,523 1,000 1,137,000
Common stock issued for
cash (Unaudited) - - 55,556 - 50,000
Net income for the period
(Unaudited) - - - - -
--------- ----------- ---------- --------- -----------
Balances, March 31, 1996
(Unaudited) 13,000 $ 1,312,000 10,055,193 $ 10,000 $17,909,000
========= =========== ========== ========= ===========
<CAPTION>
OTHER
OPTION EQUITY ACCUMULATED
TO CEO SECURITY (DEFICIT) TOTAL
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Balances, September 30, 1992 $ - $ - $ (6,844,000) $ (936,000)
Common stock issued
for services - - - 149,000
Contribution of services - - - 120,000
Dilution of predecessor
cost adjustment property
option - - - 444,000
Net (loss) - - (2,483,000) (2,483,000)
----------- --------- ------------ -----------
Balances, September 30, 1993 - - (9,327,000) (2,706,000)
Preferred stock issued
for debt - - - 887,000
Preferred stock issued for
acquisition of NRI - - - 3,612,000
Common stock issued for cash - - - 56,000
Common stock issued
for services - - - 242,000
Common stock issued for debt - - - 1,351,000
Contribution to capital - - - 2,000
Conversion of accrued salary - 246,000 - 246,000
Net (loss) - - (924,000) (924,000)
----------- --------- ------------ -----------
Balances, September 30, 1994 - 246,000 (10,251,000) 2,766,000
Redemption of preferred stock
Series A - - - (2,300,000)
Redemption of preferred stock
Series B and other equity for
option to CEO 683,000 (246,000) - -
Common stock issued for
acquisition of MRI - - - 1,200,000
Common stock issued during - - -
private offering, net of
offering costs of $590,000 - - - 2,782,000
Common stock issued to retire
debt - - - 150,000
Common stock issued for
renegotiation of payment
terms for a stockholder loan - - - -
Common stock issued for
services - - - 25,000
Common stock issued for
interest on bridge loans - - - 16,000
Common stock issued on
exercise of option to CEO (683,000) - - -
Common stock rounding due
to stock split - - - -
Net income - - 1,815,000 1,815,000
----------- ---------- ------------ -----------
- - (8,436,000) 6,454,000
Balances, September 30, 1995
Common stock issued for
acquisition of Anglo
(Unaudited) - - - 925,000
Conversion of preferred stock
series B (Unaudited) - - - -
Common stock issued in
private offering, net of
offering costs of $633,000
(Unaudited) - - - 2,228,000
Conversion of bridge loans
(Unaudited) - - - 1,138,000
Common stock issued for
cash (Unaudited) - - - 50,000
Net income for the period
(Unaudited) - - 98,000 98,000
----------- ---------- ------------ -----------
Balances, March 31, 1996 $ - $ - $ (8,338,000) $10,893,000
=========== ========== ============ ===========
(Unaudited)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-18
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
AND THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
======================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------------------
1995 1994 1993 1996 1995
-------------- -------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss) $ 1,815,000 $ (924,000) $ (2,483,000) $ 98,000 $ 907,000
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 784,000 392,000 357,000 479,000 454,000
Equity in net loss of affiliates - - 467,000 - -
Extraordinary gain from settlement of debts (806,000) (218,000) (475,000) (48,000) (222,000)
Abandonment of projects - 208,000 549,000 - -
Contribution of services - - 120,000 - -
Issuance of stock for services 25,000 244,000 149,000 - -
Write-off acquisition costs - 16,000 - - -
Bad debt expense 151,000 25,000 - - -
Deferred income taxes (800,000) - - (441,000) -
Changes in assets and liabilities:
Trade accounts receivable (154,000) (923,000) - (1,123,000) (252,000)
Inventories (254,000) (243,000) - (213,000) 52,000
Prepaid expenses (26,000) (111,000) - (91,000) (74,000)
Other current assets 33,000 (40,000) 8,000 (216,000) 32,000
Accounts payable (290,000) 506,000 736,000 647,000 (6,000)
Accrued liabilities (451,000) 150,000 454,000 160,000 (62,000)
Income taxes payable 86,000 - - - -
-------------- -------------- ------------- ------------- -------------
Net Cash Provided (Used)
by Operating Activities 113,000 (918,000) (118,000) (748,000) 829,000
-------------- -------------- ------------- ------------- -------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Additions to engineering plans - - (66,000) - -
Additions to equipment (472,000) (25,000) - (302,000) (406,000)
Receivables-related party - - 72,000 128,000 (81,000)
Sale of equipment - 48,000 - - -
Collections on note receivable - 41,000 - - -
Changes to acquisition costs and goodwill (103,000) (263,000) (112,000) (604,000) 23,000
Non-compete agreement - - - (200,000) -
Advances (to) from affiliate - (398,000) - -
Investment in equity investee - (113,000) - -
Advances to related party (238,000) - - - -
Acquisition of Loef (113,000) - - - -
-------------- -------------- ------------- ------------- -------------
Net Cash (Used) in Investing Activities (926,000) (199,000) (617,000) (978,000) (464,000)
-------------- -------------- ------------- ------------- -------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings-related parties 321,000 632,000 676,000 1,593,000 -
Proceeds from other borrowings - 434,000 99,000 20,000 -
Principal payments on borrowings (2,756,000) (199,000) (40,000) (401,000) (2,298,000)
Principal payments on borrowings-related parties (383,000) (152,000) - (411,000) (281,000)
Principal payments on capital lease (34,000) - - (112,000) -
Proceeds from factor 7,335,000 2,450,000 - 3,934,000 3,364,000
Payments to factor (7,599,000) (1,989,000) - (3,994,000) (3,494,000)
Proceeds from issuance of common stock 3,998,000 56,000 - 2,278,000 2,782,000
Deferred offering costs - - - (125,000) (314,000)
-------------- -------------- ------------- ------------- -------------
Net Cash Provided (Used) by
Financing Activities 882,000 1,232,000 735,000 2,782,000 (241,000)
-------------- -------------- ------------- ------------- -------------
Increase in cash 69,000 115,000 - 1,056,000 124,000
CASH, beginning of period 115,000 - - 184,000 115,000
-------------- -------------- ------------- ------------- -------------
CASH, end of period $ 184,000 $ 115,000 $ - $ 1,240,000 $ 239,000
============== ============== ============= ============= =============
</TABLE>
See Note 21
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-19
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================
Information as to the Periods ended March 31, 1996 and 1995 is Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[A] GENERAL
-------
Recycling Industries, Inc. (RII or the Company, formerly known as Environmental
Recovery Systems, Inc.) is a Colorado corporation formed December 1988.
Prior to May 1994, the Company was a development stage enterprise engaged in
the development of the MSW Technology. Although the Company continues to own
this technology, the Company is no longer actively engaged in its development.
On May 10, 1994 the Company acquired a subsidiary and began metals recycling
operations (see Note 2[A]). All revenues during 1995 and 1994 were generated by
the recycling operations. On June 27, 1995 the Company changed its name to
Recycling Industries, Inc.
REVERSE STOCK SPLIT
- -------------------
Effective June 27, 1995, the Company completed a one-for-five reverse stock
split of its common stock, $.001 par value (Common Stock). All share and per
share amounts have been restated retroactively as a result of this reverse
split.
[B] ACCOUNTING POLICIES
-------------------
CONSOLIDATION
- -------------
The Company, its subsidiaries and joint ventures in which it exercises control
through majority ownership are consolidated, and all intercompany accounts and
transactions are eliminated. Joint ventures and investment in equity investees
are accounted for under the equity method of accounting, whereby the Company
recorded only its proportionate share of loss in the joint ventures and equity
investees. The Company currently has no active joint venture projects.
Nevada Recycling, Inc. (NRI), acquired by the Company in May 1994 (see Note
2[A]), operates a metals recycling facility in Las Vegas, Nevada, serving the
Las Vegas market and steel mills located throughout the western United States.
Recycling Industries of Texas, Inc. d/b/a Anglo Iron & Metal (Anglo), formed by
the Company to acquire the assets of Anglo Metals, Inc. in December 1995 (see
Note 2[C]), operates four metals recycling facilities in Brownsville, Harlingen,
McAllen and San Juan, Texas, serving steel mills and markets in the Rio Grande
Valley in southern Texas and northern Mexico.
Recycling Industries of Missouri, Inc. d/b/a Mid-America Shredding (Mid-
America), formed by the Company to acquire the assets of Mid-America Shredding,
Inc. in April 1996 (see Note 22), operates a metals recycling facility in Ste.
Genevieve, Missouri, serving midwestern steel mills and markets along the
Mississippi River.
F-20
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The acquisition of NRI and Anglo have been accounted for under the purchase
method of business combinations and, accordingly, the results of operations of
the acquired businesses are included in the Company's financial statements only
from the applicable date of acquisition.
UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------
In the opinion of management, the unaudited interim financial statements for the
six month periods ended March 31, 1996 and 1995 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ending March 31, 1996 are not necessarily indicative of the
results to be expected for the year ended September 30, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock Based
Compensation. FAS 123 encourages the accounting for stock based employee
compensation programs to be reported within the financial statements on a fair
value based method. If the fair based method is not adopted, then FAS 123
requires pro forma disclosure of net income and earnings per share as if the
fair value method had been adopted. The Company has not yet determined how FAS
123 will be implemented or its impact on the financial statements. FAS 123 is
effective for transactions entered into after December 15, 1995.
ACQUISITIONS COSTS
- ------------------
The Company has capitalized acquisition costs of $61,000, $164,000 and $200,000
at September 30, 1995 and 1994, and March 31, 1996 respectively, relating to
active letters of intent for potential acquisitions of operating metals
recycling companies. Acquisition costs are allocated to the net assets acquired
if the acquisition is successful, or are changed to operations if the
negotiations are discontinued. Acquisition costs of $72,000 were written off to
operations during 1994 for negotiations that were no longer active.
CONCENTRATION OF CREDIT RISK
- ----------------------------
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At September 30, 1995 and 1994, and March
31, 1996, accounts receivable balances from significant customers were
$699,000, $711,000 and $1,454,000, or 65%, 79% and 68%, respectively, of the
total accounts receivable balance. Ongoing credit evaluations of customers'
financial condition are performed and, generally, no collateral is required. The
Company maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's
F-21
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
expectations. Customers are located throughout the western region of the United
States and Mexico. Sales to one customer in Mexico comprised 23.9% of sales for
the six months ended March 31, 1996. There were no significant sales in Mexico
prior to the acquisition of Anglo.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying amounts of cash, accounts receivable, time deposits, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items. The fair value of notes payable and amounts due to
factor was estimated based on market values for debt with similar terms.
Management believes that the fair value of that debt approximates its carrying
value.
INVENTORIES
- -----------
Inventories consist primarily of ferrous and non-ferrous scrap metal. Inventory
costs include material, labor and plant overhead. Inventory is stated at lower
of average cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 7 to 15 years for equipment and 40 years for building and improvements.
Depreciation and amortization expense of property, plant and equipment was
$545,000, $147,000, $12,000 and $369,000 for the periods ended September 30,
1995, 1994 and 1993, and March 31, 1996 respectively. Maintenance and repairs
are charged to expense as incurred and expenditures for major improvements are
capitalized. When assets are retired or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation and any resulting
gain or loss is credited or charged to operations.
DEFERRED OFFERING COSTS
- -----------------------
Costs incurred in connection with the Company's current anticipated public
offering are deferred and will be charged against stockholders' equity upon the
successful completion of the offering or charged to expense if the offering is
not consummated.
RESEARCH AND DEVELOPMENT COSTS
- ------------------------------
Costs incurred in connection with research and development in relation to work
undertaken on new environmental technologies are charged to operations in the
year incurred. No research and development costs have been incurred since 1993.
F-22
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
- -------------------
Sales are recorded in the period of shipment.
NET INCOME (LOSS) PER COMMON SHARE
- ----------------------------------
Net income (loss) per common share is computed based upon the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Fully diluted and primary earnings per common share are the same for
each of the periods presented.
Dilutive common equivalent shares consist of stock options and warrants. In
loss periods, dilutive common equivalent shares are excluded as the effect would
be anti-dilutive.
INCOME TAXES
- ------------
Effective October 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of assets and liabilities
and their financial statement amounts at the end of each reporting period.
Valuation allowances will be established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense represents the
tax payable for the current period and the change during the period in deferred
tax assets and liabilities. Deferred tax assets and liabilities have been
netted to reflect the tax impact of temporary differences. The adoption of FAS
109 did not have a material effect on the Company's consolidated financial
statements, therefore, there was no cumulative effect of this change in
accounting for income taxes at October 1, 1992. There is also no effect on the
loss for the year ended September 30, 1993.
The Company had not recorded a deferred tax asset at September 30, 1994 and 1993
since it was more likely than not that the tax assets would not be realized. At
September 30, 1995 and March 31, 1996 the Company has recorded a net deferred
tax asset of $800,000 and $1,241,000 primarily reflecting the benefit of net
operating loss carryforwards, which expire in varying amounts between 2002 and
2009. Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
At September 30, 1995 and March 31, 1996 the Company has federal income tax loss
carryforwards of approximately $6,900,000 and $7,200,000 respectively, which if
not utilized to offset future taxable income, expire in the years 2002 through
2009.
F-23
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 1[B] - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
RECLASSIFICATIONS
- -----------------
Certain balances in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation. The reclassifications had no
effect on financial condition or results of operations.
NOTE 2 - ACQUISITIONS
[A] On May 10, 1994, the Company acquired 100% of the outstanding common stock
of NRI from Nevada Recycling Corporation (NRC) for 38,000 shares of the
Company's Series A convertible preferred stock, valued at $3,612,000. On that
date NRI became a wholly-owned subsidiary of the Company.
A summary of the assets purchased and liabilities assumed is as follows:
<TABLE>
<S> <C>
Land $ 1,340,000
Building 360,000
Machinery and equipment 5,025,000
Notes payable (3,113,000)
-----------
Net Book Value of Assets Purchased $ 3,612,000
===========
</TABLE>
On December 30, 1994, the Company and NRC agreed to restructure the terms of the
acquisition of NRI as follows:
(1) NRC returned to the Company 25,000 of the 38,000 shares of Series A
convertible preferred stock (see Note 17).
(2) The Company purchased from NRC its contingent right (granted under the May
10, 1994 acquisition agreement, to reacquire the stock of NRI) for
$2,300,000 and warrants to purchase 20,000 shares of Common Stock for $1.25
per share for a 10-year term. The $2,300,000 payment consists of a $300,000
note paid on February 28, 1995 and a $2,000,000 note payable in consecutive
monthly installments commencing March 31, 1995 on the basis of an eight-year
amortization with interest at the rate of 10% per year, with remaining
principal due January 10, 1997.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 2 - ACQUISITIONS (CONTINUED)
(3) The Company restructured the purchase of land and buildings for a purchase
price of $2,060,000 payable to $1,700,000 before February 28, 1995 with
interest of $19,000 per month, $20,000 plus accrued interest payable on each
of December 31, 1994, January 31, 1995 and February 28, 1995, and $300,000
payable in monthly installments commencing March 31, 1995 on the basis of an
eight-year amortization period with interest at the rate of 10% per year,
with remaining principal due January 10, 1997.
(4) The Company agreed to pay $637,052 of debts totaling $2,382,447 assumed on
the equipment purchased as part of the original NRI acquisition.
All of the above obligations are collateralized by the assets of NRI.
As a result of the restructuring, the Company treated the $2,300,000 payment
obligation as indebtedness incurred to retire the 25,000 shares of preferred
stock. The acquisition of NRI resulted in goodwill of $195,000 which will be
amortized using the straight-line method over 20 years.
[B] On December 30, 1994, the Company acquired Metal Recovery, Inc. (MRI) whose
sole asset is an indirect 19.6% limited partnership interest in a currently
inactive partnership engaged in the business of scrap metal recovery (the
Partnership). The acquisition of MRI resulted in goodwill of $22,000 which is
being written off over 20 years using the straight line method. The Company
acquired MRI from its three stockholders (the ACI Principals), who also hold the
13,000 shares of the Company's Series A preferred stock acquired by the ACI
Principals from the stockholders of NRC in a separate transaction. The purchase
price for MRI included 120,000 shares of Common Stock and the right to
additional shares of Common Stock upon the satisfaction of certain conditions
which have not been met. The 120,000 shares of Common Stock and 13,000 shares of
Series A preferred stock are referred to as the ACI Equity Securities. The
Company has agreed to assist the ACI Principals in liquidating the ACI Equity
Securities for at least $2,400,000 prior to September 30, 1996 by purchasing or
arranging for the sale of these securities, or including the ACI Equity
Securities in a registration statement prior to September 30, 1996 (ACI Sale
Obligation).
In connection with the restructuring of the acquisition of NRI, discussed above,
the Company has transferred a portion of MRI's interest in the Partnership to
NRC, and the ACI Principals caused the Partnership to redeem this interest for
$1,170,000 in partial satisfaction of the Company's February 28, 1995 payment
obligations. This amount has been treated as a loan to the Company.
The ACI Principals have the right to reacquire the Company's interests in MRI
and NRI in exchange for the ACI Equity Securities (the ACI Option) if the
Company:
1) defaults under the terms of the installment note, under (A);
2) fails to meet the ACI Sale Obligation; or
3) if the Company defaults in its other obligations under the various
agreements related to the acquisition of MRI or the restructuring of the
acquisition of NRI, under (A).
In addition, until the Company meets the ACI Sale Obligation, the Company is
subject to certain restrictions on its ability to operate NRI and MRI.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 2 - ACQUISITIONS (CONTINUED)
The unaudited pro forma summary financial statements which follow have been
prepared assuming that the exercise of the ACI Option occurred as of September
30, 1995 for purposes of the pro forma balance sheet and that the exercise of
the ACI Option occurred for purposes of the pro forma statement of operations.
In addition to combining the historical results of operations of the entities,
the pro forma calculations include adjustments for the estimated effect on the
Company's historical results of operations of the write-off of goodwill related
to the acquisition of MRI.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30 ,1995
ASSETS
------
<TABLE>
<CAPTION>
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
-------------- -------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets $ 2,067,000 $ (1,707,000) $ - $ 360,000
Other Assets 8,230,000 (7,475,000) (188,000) 567,000
-------------- -------------- ------------- ---------------
$ 10,297,000 $ (9,182,000) $ (188,000) $ 927,000
============== ============== ============= ===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
-------------- -------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current liabilities $ 1,691,000 $ (1,166,000) $ - $ 525,000
Long-term debt 2,152,000 (2,152,000) - -
Stockholders' equity
(deficit) 6,454,000 (5,864,000) (188,000) 402,000
-------------- -------------- ------------- ---------------
$ 10,297,000 $ (9,182,000) $ (188,000) $ 927,000
============== ============== ============= ===============
</TABLE>
F-26
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 2 - ACQUISITIONS (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
RECYCLING PRO FORMA
INDUSTRIES, ACI PRO FORMA SEPTEMBER 30,
INC. OPTION ADJUSTMENT 1995
-------------- ---------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 13,853,000 $ (13,847,000) $ - $ 6,000
Costs and expenses 13,555,000 (12,007,000) 168,000 1,716,000
-------------- ---------------- -------------- ----------------
Income (loss) before
extraordinary gain 298,000 (1,840,000) (168,000) (1,710,000)
Extraordinary gain from
settlement of debts 806,000 - - 806,000
(Benefit) from income taxes (711,000) 711,000 - -
-------------- ---------------- -------------- ----------------
Net income (loss) $ 1,815,000 $ (2,551,000) $ (168,000) $ (904,000)
============== ================ ============== ================
(Loss) Per Common Share:
Before extraordinary gain $ (.27)
Extraordinary gain .13
----------------
Net (loss) per common share $ (.14)
================
</TABLE>
[C] On December 11, 1995, the Company acquired substantially all of the assets
and the business of Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo). The
assets acquired from Anglo consisted of a heavy duty automotive shredder,
inventories, metal shearing equipment, balers, heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous metals.
The Company also purchased from Anglo certain real property, buildings and
leasehold improvements used in the metal recycling business.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in cash;
$1,865,000 note which is to be paid in ten monthly installments of $186,500
beginning in February 1996; a $446,000 secured promissory note payable in 60
consecutive monthly installments of $9,000, including interest; a $750,000
unsecured note payable in 72 equal consecutive monthly installments of $10,400;
and 227,693 shares of Common Stock valued at $925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease. The terms of the
sale-leaseback provide for 60 consecutive monthly lease payments of $41,000 with
a bargain purchase option at the end of the lease term. The lease contained
numerous covenants for maintaining certain financial rations and earnings levels
(see Note 20). The remaining $279,000 paid at closing was obtained from the
operating cash reserves and working capital of the Company.
F-27
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 2 - ACQUISITIONS (CONTINUED)
The Company signed a consulting and non-competition agreement with the president
of Anglo. The term of the non-compete portion is for six years and is valued at
$1,000,000 which will be amortized over the term of the agreement using the
straight line method. The consulting portion is for a term of six months and is
payable $5,000 per month.
RII also entered into a sublease agreement with Anglo for three yard facilities
for $2,500 a month through December 10, 2005.
The real property acquired from Anglo and the Common Stock issued by the Company
have been placed in escrow to provide for the remediation of environmental
contamination related to the operations of Anglo prior to the acquisition.
The purchase price of Anglo has been allocated as follows:
<TABLE>
<S> <C>
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
-----------
Total purchase price 6,065,000
Notes payable (3,061,000)
Common Stock (925,000)
-----------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
-----------
Cash paid from operating capital $ 279,000
===========
</TABLE>
The unaudited pro forma results of operations which follow assume that the
acquisitions of NRI and Anglo had occurred at the beginning of each period
presented.
<TABLE>
<CAPTION>
SEPTEMBER 30, PERIOD ENDED
--------------------------------------------
1995 1994 1993 MARCH 31, 1996
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 29,192,000 $ 24,214,000 $ 20,342,000 $ 13,571,000
Income before extraordinary items $ 1,038,000 $ (404,000) $ (3,391,000) $ 31,000
Net income (loss) $ 2,479,000 $ (186,000) $ (2,916,000) $ 374,000
Net income (loss) per common share $ .40 $ (.07) $ (1.12) $ .04
</TABLE>
F-28
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 3 - FORMER JOINT VENTURE
In 1993, the Company entered into a settlement with a former joint venture
$13,571,000partner in which the Company agreed to make a series of payments
totaling $ 31,000$622,000 by October 31, 1993. The Company subsequently
defaulted on its payment $ 374,000obligations. On June 30, 1994, the Company and
certain related parties entered $ .04 into a master agreement providing for the
settlement of all amounts owed to the former joint venture partner. Pursuant to
this agreement, the Company issued 145,000 shares of Common Stock for its
outstanding principal and penalty interest balance of $725,000. Such shares were
issued in connection with the 548,376 shares of Common Stock issued in 1994 on
the conversion of $1,351,000 in liablities (see Note 17).
NOTE 4 - ENGINEERING PLANS
The Company capitalizes all external direct costs associated with permitting and
plant facilities start-up which mainly include engineering, legal and consulting
fees, travel and other costs associated with developing projects and obtaining
permits. Internal costs associated with plant facilities start-up are expensed
as incurred. Capitalized project costs are being amortized over five years
using the straight-line method beginning with the earlier of the commencement of
plant operations or two years from the date the project begins accumulating
costs. During fiscal 1995, 1994 and 1993 the Company incurred amortization
costs of $217,000, $217,000 and $344,000, respectively.
Capitalized engineering plans are those costs related to active projects and
potential plant site locations. At the time a permit application is infeasible,
based upon management's determination, all costs associated with the project
which are not transferable to other projects are charged to operations. During
1994 and 1993, $208,000 and $549,000, respectively, of project start-up costs
were written off because the permit applications were determined to be
infeasible.
NOTE 5 - FACTORING AGREEMENTS
On May 4, 1994, the Company entered into an agreement with an unrelated third
party whereby such third party agreed to purchase the Company's trade accounts
receivable at 80% of face amount and to collect payments on the purchased
receivables from the Company's customers. The Company was charged an
administrative fee equal to 1% of the face amount of the purchased receivables
and a monthly finance charge in the amount of 3% of the average daily
outstanding balance of all purchased receivables. The Company was required to
repurchase any receivables not collected from customers within 90 days.
On August 12, 1994, the Company entered into an agreement, which replaced the
above factoring agreement, with a partnership comprised of the stockholders of
NRC who are also preferred stockholders of the Company, whereby the partnership
agreed to purchase the Company's trade accounts receivable at 85% of face value.
Under the terms of the factoring agreement, the partnership is entitled to a
finance charge of 1.5% per month of the average daily outstanding balance. The
Company is required to repurchase any receivables not collected from customers
within 90 days. The original term of the agreement was for a period of 18 months
and continues on a month-to-month basis thereafter unless terminated by either
party. Purchased receivables balances outstanding at September 30, 1995 and 1994
and March 31, 1996 were $197,000, $461,000 and $137,000, respectively. Accrued
finance
F-29
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 5 - FACTORING AGREEMENTS (CONTINUED)
charges at September 30, 1995 and 1994 and March 31, 1996 were $8,000, $11,000
and $17,000, respectively. Total finance charges for the years ended September
30, 1995 and 1994, and for the six months ended March 31, 1996 were $82,000,
$11,000 and $49,000, respectively.
NOTE 6 - INVENTORIES
Inventories which are pledged, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-----------------------------
1995 1994 1996
------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials $ 350,000 $ 167,000 $ 1,779,000
Finished goods 147,000 76,000 297,000
---------- ---------- ------------
$ 497,000 $ 243,000 $ 2,076,000
========== ========== ============
</TABLE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (substantially all of which are pledged) consists
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------------
1995 1994 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land $ 1,640,000 $ 1,340,000 $ 1,710,000
Building and improvements 365,000 365,000 372,000
Heavy machinery and
equipment 1,472,000 1,432,000 1,519,000
Automotive shredder 3,161,000 3,103,000 3,180,000
Assets under capital lease 118,000 - 1,918,000
Transportation equipment 561,000 443,000 712,000
Office equipment 121,000 114,000 131,000
----------- ----------- -------------
Total 7,438,000 6,797,000 9,542,000
Less accumulated depreciation
and amortization 752,000 207,000 1,121,000
----------- ----------- ----------
$ 6,686,000 $ 6,590,000 $ 8,421,000
=========== ============ =============
</TABLE>
F-30
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 8 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
--------------------------
1995 1994 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition costs $ 61,000 $ 164,000 $ 200,000
Goodwill, net of accumulated
amortization of $29,000 and
$7,000 and $40,000
(see Note 2) 188,000 168,000 2,544,000
Investment in affiliate, at cost 277,000 - 277,000
Engineering plans, net of
accumulated amortization of
$899,000, $682,000 and $930,000 188,000 405,000 157,000
Non-compete agreement, net
of accumulated amortization
of $56,000 - - 944,000
Patent rights 25,000 25,000 25,000
Other 5,000 - -
--------- --------- ----------
$ 744,000 $ 762,000 $4,147,000
========= ========= ==========
</TABLE>
INVESTMENT IN AFFILIATE
- -----------------------
Effective June 30, 1995 the Company acquired a 20% interest in The Loef Company,
Inc. (Loef), a ferrous and non-ferrous metals recycler. Under the terms of an
agreement with the 80% stockholder of Loef, the Company's interest will be
maintained at 20% if the Company pays $200,000 to the 80% stockholder before
June 30, 1996, otherwise the interest may be reduced to 15%.
Under the terms of the agreement, the Company paid certain expenses in
connection with the acquisition in the amount of $277,000 and extinguished
certain warrants (see Note 17). The acquisition of the Company's interest in
Loaf was recorded using the cost method of accounting.
F-31
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 9 - NOTE RECEIVABLE, RELATED PARTY
On April 11, 1994 the Company sold its 25% ownership interest in a formerly
wholly-owned subsidiary to Caside Associates (CA), a stockholder of the Company,
in exchange for a $2,000,000 note receivable. At September 30, 1994, the sales
price was renegotiated to $900,000. The note requires 6% monthly interest only
payments for two years and principal repayments are due quarterly from 1996 to
1998.
The gain on the sale was recognized using the cost-recovery method since the
collection of the sales price was not reasonably assured. Under the cost-
recovery method, gain on the sale is postponed until all costs are recovered,
then all receipts are recognized as profit. As a result of the sale, a deferred
gain in the amount of $751,000 has been recorded. At September 30, 1994, no
gain has been recognized since all costs had not yet been recovered.
As of September 30, 1995, management determined that the note receivable from CA
was permanently impaired. Therefore, the Company recorded an allowance for the
total remaining unpaid balance of $874,000 and removed the deferred gain on the
sale, recognizing a bad debt expense of $123,000.
NOTE 10 - INCOME TAXES
Pursuant to the terms of its acquisition of MRI, the Company included a
$3,500,000 capital gain realized prior to such acquisition on its consolidated
1994 tax return and utilized a portion of its net operating loss carryforward
generated in prior years to offset the capital gain. Management believes its
position has merit based on its interpretation of the Internal Revenue Code and
an opinion by its tax counsel. However, the Company has not obtained a prior
ruling from the Internal Revenue Service (IRS) and has no assurances that the
IRS will concur with its interpretation. If the IRS were to successfully
challenge the position taken on this issue, the Company could be required to pay
approximately $1,200,000 in additional income taxes plus penalties and interest
and the $3,500,000 net operating loss utilized on its consolidated 1994 tax
return would be available to offset future taxable income generated by the
Company.
During fiscal year 1995 and the period ended March 31, 1996, management
determined that the net operating loss generated from prior years in the amount
of $6,900,000 and $7,200,000 were more likely than not to be used in the near
future due to taxable income generated by NRI, Anglo and Mid-America. Therefore,
a net deferred tax asset of $800,000 and $1,241,000 has been recorded as of
September 30, 1995 and March 31, 1996. During 1995, net operating losses in the
amount of $3,700,000 were utilized to reduce taxable income. However,
alternative minimum tax of approximately $86,000 was payable for 1995 because of
the 90% alternative net operating loss limitation. Net operating loss
carryforwards available for future use through the year 2009 are $6,900,000 at
September 30, 1995 and $7,200,000 at March 31, 1996.
F-32
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 10 - INCOME TAXES (CONTINUED)
The components of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
---------------------------
1995 1994 1996
------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Total deferred tax assets $ 1,021,000 $ 2,293,000 $1,241,000
Less valuation allowance (221,000) (2,293,000) -
---------- ----------- ----------
800,000 - 1,241,000
Total deferred tax (liabilities) - - -
---------- ----------- ----------
Net deferred tax asset $ 800,000 $ - $1,241,000
========== =========== ==========
</TABLE>
The tax effects of temporary differences and net operating loss carryforwards
that give rise to deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
---------------------------
1995 1994 1996
-------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Temporary differences:
Property and equipment $(1,743,000) $(1,674,000) $(1,718,000)
Valuation allowance (221,000) (2,293,000) -
Research and development costs 78,000 78,000 78,000
Engineering plans 306,000 232,000 325,000
Goodwill 10,000 - 16,000
Allowance for doubtful accounts 3,000 9,000 3,000
Non-compete agreement - - 12,000
Alternative minimum tax credits - - 86,000
Net operating loss carryforwards 2,367,000 3,648,000 2,439,000
------------- ----------- -----------
$ 800,000 $ - $ 1,241,000
============= =========== ===========
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------- ----------------------------
1995 1994 1996 1995
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Current $ 89,000 $ - $ 4,000 $ -
Deferred (800,000) - (441,000) -
----------- ----------- ----------- --------------
$ (711,000) $ - $ (437,000) $ -
=========== =========== =========== ==============
</TABLE>
F-33
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 10 - INCOME TAXES (CONTINUED)
The components of deferred income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
---------------------------- -----------------------
1995 1994 1996 1995
-------------- ------------ ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Bad debt expense $ 6,000 $ (8,000) $ - $ 3,000
Depreciation expense 69,000 1,674,000 (25,000) 35,000
Engineering costs (74,000) (145,000) (19,000) (37,000)
Goodwill amortization (10,000) - (6,000) (5,000)
Accrued salaries - officer - 20,000 - -
Net operating loss carryforward 1,281,000 (482,000) (72,000) (776,000)
Valuation allowance (2,072,000) (1,059,000) (221,000) 780,000
Non-compete agreement - - (12,000) -
Alternative minimum
tax credits - - (86,000) -
------------- ----------- --------- ---------
$ (800,000) $ - $(441,000) $ -
============= =========== ========= =========
</TABLE>
Following is a reconciliation of the amount of income tax (benefit) expense that
would result from applying the statutory federal income tax rates to pre-tax
income and the reported amount of income tax expense:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------- -------------------------
1995 1994 1996 1995
-------------- ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Tax expense (benefit) at
federal statutory rates $ 374,000 $ (314,000) $ (115,000) $ (308,000)
Capital gains - MRI 1,190,000 - - 1,190,000
Change in valuation allowance (2,072,000) 480,000 (221,000) (780,000)
Other (203,000) (166,000) (101,000) (102,000)
------------- ---------- ---------- ----------
$ (711,000) $ - $ (437,000) $ -
============= ========== ========== ==========
</TABLE>
F-34
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 11 - ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales. Such
customers comprised the following percentages of revenues:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
--------------------------
1995 1994 1996
-------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer A 37.9% 29.9% 14.8%
Customer B 16.2% 19.7% 20.6%
Customer C 10.8% 18.7% 7.8%
Customer D - - 23.9%
</TABLE>
NOTE 12 - NOTES PAYABLE
Notes payable outstanding at September 30, 1995 and 1994 consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Notes to entity, interest at prime
(7.75% at September 30, 1994), for which
the Company is not accruing interest
(approximately $160,000 at September 30,
1995). The Company has received no
requests for payment since December 1989
and has recorded an allowance against
the note payable balance and recognized
a $300,000 gain on extinguishment of
debt (see Note 18).
$ - $ 300,000
Note to individuals, interest at 18%,
with principal due various dates through
January 1994 with certain notes cosigned
by an officer and director of the
Company, unsecured.
43,000 65,000
Note to an engineering firm, interest at
12%. The note was discharged in 1995
pursuant to a negotiated settlement (see
Note 18).
- 46,000
</TABLE>
F-35
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 12 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Note to an individual, interest at prime
plus 1% (9.5% at September 30, 1994)
with principal and all unpaid accrued
interest due in January 1993. Unsecured.
The note was paid in 1995.
Note to a law firm, interest at 10% to 12% - 50,000
principal and interest paid March 1996 18,000 30,000
------------- -------------
$ 61,000 $ 491,000
============= =============
</TABLE>
NOTE 13 - NOTES PAYABLE - RELATED PARTIES
During the year ended September 30, 1993 First Dominion Holdings, Inc. (FD), a
corporation wholly-owned by the Company's chief executive officer/majority
stockholder, advanced the Company $676,000 for working capital purposes. The
advance was non-interest bearing and due on demand. During the year ended
September 30, 1994, there were advances and repayments on the note and $887,000
of the balance was converted to 591,333 shares of Series B preferred stock (see
Note 17). At September 30, 1994 the balance on the note was $8,000. During 1995
the note was paid. During the six months ended March 31, 1996, FD advanced
$5,000 to the Company which remains outstanding at March 31, 1996.
The remaining balance of related parties notes payable at March 31, 1996
consists of $1,472,000 note payable (see Note 2[C] with an original obligation
balance of $1,865,000) related to the Anglo inventory acquisition and $450,000
of bridge loans. In November 1995 and January 1996, the Company borrowed
$1,575,000 of bridge financing represented by the notes payable-related parties
with interest at 10% per annum. Proceeds from the loans were used to finance the
Anglo acquisition and general corporate expenses. In January 1996, principal of
$1,125,000 and accrued interest of $13,000 were converted into 323,523 shares of
Common Stock. In connection with the bridge financing, the lenders were issued
warrants to purchase a total of 359,250 shares of Common Stock at $1.50 per
share, exercisable through the end of a three-year period commencing on the
effective date of a registration statement covering the underlying Common Stock.
If the Company defaults on repayment of the loans, the notes are convertible to
Common Stock at a conversion price of the lesser of $2.00 or 50% of the average
closing price for the last 30 days after the default. First Equity Capital
Securities, Inc. received a finders fee of $79,000 in connection with the bridge
loans.
F-36
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 14 - LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-----------------------------
1995 1994 1996
-------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to former owners of NRC,
interest at varying amounts with monthly
payments of $38,732; due through
February 2003; collateralized by the
assets of the Company. Notes were paid
as part of the restructure of NRI (see
Note 2).
$ - $ 2,429,000 $ -
Notes payable to financial institution;
principal and interest at the prime rate
plus 2%, respectively; due on demand; if
no demand is made, then in monthly
payments of $12,190 through 1997;
collateralized by equipment.
122,000 252,000 86,000
Notes payable to financing company;
principal and interest at 7.5%; due
October 1997; monthly payments of
$2,418; collateralized by equipment.
54,000 81,000 41,000
Note to a group of investors; at 5%;
principal and interest due December 31,
1995; unsecured.
125,000 125,000 -
Other obligations, principally payable
in monthly installments including
interest at 9.5% to 18%, collateralized
by various equipment.
58,000 17,000 91,000
------------ ------------ -------------
359,000 2,904,000 218,000
Less current portion 227,000 2,502,000 94,000
------------ ------------ -------------
Long-Term Debt $ 132,000 $ 402,000 $ 124,000
============ ============ =============
</TABLE>
F-37
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 14 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows for the years ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------------- ------------
(UNAUDITED)
<S> <C> <C>
1996 $ 227,000 $ -
1997 88,000 94,000
1998 25,000 71,000
1999 12,000 33,000
2000 7,000 15,000
Thereafter - 5,000
---------- ----------
$ 359,000 $ 218,000
========== ==========
</TABLE>
NOTE 15 - LONG-TERM DEBT - RELATED PARTY
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------------
1995 1994 1996
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
$2,000,000 note payable to NRC with 22
monthly payments of principal and
interest at 10%; due January 1997;
monthly payments of $30,000 and one
balloon payment in January 1997 of
$1,671,000; collateralized by stock,
property and equipment.
$ 1,902,000 $ - $1,813,000
$446,000 note payable to Anglo Metal,
Inc.; monthly payments of principal and
interest at 8% of $9,000; due December
2000; collateralized by real property
and buildings.
- - 428,000
$750,000 note payable to officer of
Anglo Metal, Inc.; monthly payments of
principal and interest at 9% of $70,000;
due December 2001.
- - 719,000
</TABLE>
F-38
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 15 - LONG-TERM DEBT - RELATED PARTY (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
---------------------- ------------
1995 1994 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Other notes due to related parties with
interest at 8.5% to 12%.
295,000 125,000 279,000
---------- ---------- ------------
2,197,000 125,000 3,239,000
Less current portion 218,000 8,000 2,294,000
---------- ---------- ------------
Long-Term Debt, Related Party $1,979,000 $ 117,000 $ 945,000
========== ========== ===========
</TABLE>
Maturities of long-term debt-related parties are as follows for the years
ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- ----------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
1996 $ 218,000 $ -
1997 1,979,000 2,294,000
1998 - 209,000
1999 - 215,000
2000 - 223,000
2001 - 204,000
2002 - 94,000
---------- ----------
$2,197,000 $3,239,000
========== ==========
</TABLE>
Under the terms of the $2,000,000 note payable to NRC the Company is required 1)
to maintain adequate insurance coverage for its facilities, equipment and
operations; 2) to maintain certain financial ratios; 3) to conduct the business
of NRI substantially as conducted in December 1994; and 4) to obtain prior
approval of NRC prior to incurring additional debt in excess of predetermined
amounts.
F-39
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 16 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to the financial statements, the following related party transactions have taken
place.
During 1993, a former subsidiary of the Company incurred legal fees of $60,000
to an attorney who is a stockholder of the Company.
During 1995, 1994 and the six months ended March 31, 1996, the Company purchased
raw materials from related entities in the amounts of $1,713,000, $594,000 and
$640,000, respectively. The purchase price of the raw materials approximates
the cost paid to other large bulk suppliers to the Company.
NOTE 17 - STOCKHOLDERS' EQUITY
Non-qualified Stock Options and Warrants
- ----------------------------------------
The Company has outstanding options and warrants to acquire an aggregate of
5,658,946 shares of the Company's Common Stock, substantially all of which have
exercise prices ranging from $.90 to $7.50 per share.
STOCK OPTIONS
- -------------
During 1992, the Company's Board of Directors adopted an incentive stock option
plan and a non-qualified stock option plan, which were both subsequently
approved by the stockholders. The stock option plans provide for 200,000 and
50,000 shares, respectively, to be reserved. Options under the non-qualified
stock option plan may be issued at such prices and at such terms as determined
by the Board of Directors. During 1994, 12,000 options were issued and are
exercisable at $6.25 per share.
F-40
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
1995 Stock Option Plan
- ----------------------
The 1995 Plan provides for the grant of stock options to employees, officers and
employee directors of the Company. An aggregate of 2,000,000 shares of Common
Stock are authorized for issuance under the 1995 Plan. Concurrently with the
adoption of the 1995 Plan by the Board of Directors on December 27, 1995,
options to acquire 750,000 shares of Common Stock at an exercise price of $2.87
per share were granted to certain officers of the Company. These options and
the 1995 Plan are subject to approval by the Company's shareholders at the 1996
annual meeting of shareholders. The 1995 Plan terminates on December 27, 2006.
Options granted under the 1995 Plan must have an exercise price of not less than
80% of the fair market value of the Common Stock on the date of grant, and their
term may no exceed ten years.
F-41
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
- ------------------------------------------
Director Stock Option Plan
- --------------------------
The Director Plan provides for the grant of stock options to existing and future
Independent Directors of the Company. Three individuals who were serving as
Independent Directors on December 27, 1995, each received an initial grant of
5,000 options (for a total of 15,000 option granted) under the Director Plan
having an exercise price of $2.87 per share, the fair market value per share of
the Common Stock on that date. These options and the Director Plan are subject
to approval by the Company's shareholders at the 1996 annual meeting of
shareholders. The Director Plan terminates on Decmeber 27, 2006. Options
granted under the Director Plan will be exercisable commencing six months after
the date of grant and continuing for five years from the date of grant.
F-42
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================
Information as to the Periods Ended March 31, 1996 and 1995 is Unaudited
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
- ------------
On June 1, 1993, the Company's Board of Directors adopted a Consulting and
Services Compensation Plan (Plan). The Plan provides for 60,000 shares of
Common Stock to be reserved which were contained in a registration statement
filed during June 1993. Under the terms of the Plan, stock options may be
granted in lieu of Common Stock under such terms as determined by the Company's
Board of Directors. At September 30, 1994 and 1993, 39,600 and 20,000 shares of
registered Common Stock were issued under the plan for $242,000 and $149,000 for
professional services, respectively.
On January 1, 1994, the Company's Board of Directors adopted a Consulting
Agreement (Agreement). The Agreement provides for 150,000 shares of Common
Stock to be issued for cash and/or services which were contained in a
registration statement filed during June of 1994. During 1994, 30,000 shares of
registered Common Stock were issued for $56,250 in professional services
provided under the Agreement.
During 1994, $1,351,000 of liabilities were converted to 548,376 shares of
Common Stock.
PREFERRED STOCK CONVERSION
On November 9, 1995, 300,000 shares of Series B preferred stock were converted
into 12,000 shares of Common Stock.
During 1993, the officer/majority stockholder of the Company converted accrued
salary in the amount of $120,000 to additional paid-in capital. During 1994, the
officer/majority stockholder of the Company converted accrued salary in the
amount of $246,000 to an equity security payable in the future at a price per
share to be determined at the time of issuance. During 1995, the equity security
was converted as partial compensation for the "W" Right.
PRIVATE PLACEMENT OFFERING DATED FEBRUARY 1, 1995 (FEBRUARY 1995 PRIVATE
- ------------------------------------------------------------------------
PLACEMENT)
- ----------
As of April 17, 1995, the closing date of the February Private Placement, the
Company received $1,984,000 (net of offering costs of approximately $218,000)
from the sale of 1,946,400 shares of Common Stock and warrants (Series G
Warrants) to acquire up to 1,236,878 shares of Common Stock, including $450,000
in bridge loans (including accrued interest) that were converted into units
offered under the February Private Placement.
The Series G Warrants are exercisable from the date of their issuance through
the three years from the effective date of the Company's initial registration
statement at $7.50 per share. Under certain conditions as set forth in the
warrant agreement, the Company may redeem the Series G Warrants prior to their
expiration, at a redemption price of $.25 per Series G Warrant upon not less
than 30 days prior written notice to the warrant holders.
In connection with the offering, the Company issued to the placement agent
139,828 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an
F-43
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
exercise price of $1.80. Upon exercise of the placement agent warrants, the
Company will issue up to 139,828 Series H Warrants each to purchase one share of
Common Stock at an exercised price of $7.50 per share. The Series H Warrants
are exercisable for a three year period commencing one year from the date of
issuance and are not redeemable by the Company.
PRIVATE PLACEMENT OFFERING DATED MAY 24, 1995 (MAY 1995 PRIVATE PLACEMENT)
- --------------------------------------------------------------------------
As of July 31, 1995, the closing date of the May Private Placement, the Company
received $1,248,000 (net of offering costs of approximately $372,000) from the
sale of 1,800,000 shares of Common Stock and warrants (Series G Warrants) to
acquire up to 900,000 shares of Common Stock. The Series G Warrants are
exercisable from the date of their issuance through the three years from the
effective date of the Company's initial registration statement at $7.50 per
share. Under certain conditions as set forth in the warrant agreement, the
Company may redeem the Series G Warrants prior to their expiration, at a
redemption price of $.25 per Series G Warrant upon not less than 30 days' prior
written notice to the warrant holders.
In connection with the offering, the Company issued to the placement agent
73,560 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an exercise price of $1.80.
Upon exercise of the placement agent warrants, the Company will issue up to
73,560 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $7.50 per share. The Series H Warrants are exercisable for a
three year period commencing one year from the date of issuance and are not
redeemable by the Company.
The Company has issued 2,136,878 Series G Warrants to date. No warrants have
been exercised to date.
PRIVATE PLACEMENT OFFERING DATED JANUARY 31, 1996 (JANUARY 1996 PRIVATE
- -----------------------------------------------------------------------
PLACEMENT)
- ----------
As of January 31, 1996, the closing date of the January Private Placement, the
Company received $2,228,000 (net of offering costs of approximately $633,000)
from the sales of 1,040,636 shares of Common Stock and warrants (Series J
Warrants) to acquire up to 682,078 shares of Common Stock, in addition
$1,138,000 in bridge loans (including accrued interest) were converted into
units offered under the January 31, 1996 Private Placement (see Note 13).
The Series J warrants are exercisable for a three-year period commencing on the
effectiveness of a registration statement covering the shares received upon
their exercise. The exercise price of the Series J warrants will be reduced to
$5.40 per share in the event that the Company fails to repurchase certain shares
of Common Stock by May 31, 1996 and will reduce by $.35 per share for each month
subsequent to September 1996 (June 1996 in the event such stock purchase is not
effected by May 31) in which a registration statement covering the shares
issuable upon exercise of the Series J Warrants is not effective.
In connection with the offering, the Company issued to the placement agent
65,445 warrants (placement agent warrants) to purchase two shares of Common
Stock and one Series H Warrant, which are exercisable for a three year period
commencing one year from the date of issuance, at an
F-44
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
exercise price of $2.75. Upon exercise of the placement agent warrants, the
Company will issue up to 65,445 Series H Warrants each to purchase one share of
Common Stock at an exercised price of $7.50 per share. The Series H Warrants
are exercisable for a three year period commencing one year from the date of
issuance and are not redeemable by the Company.
PREFERRED STOCK
- ---------------
Series A - The Company issued 13,000 shares, as restructured, of Series A
- --------
preferred stock in connection with the acquisition of NRI. Series A preferred
stock is without par value, is non-voting and has no liquidation preferences
with respect to any other class or series of the Company's common or preferred
stock. In addition, the holders of Series A preferred stock shall be entitled to
dividends on the same basis as holders of the Company's Common Stock. They are
convertible into Common Stock at a price per share on the date the Company files
a registration statement so that conversion of the 13,000 shares will equal
$1,040,000 (see Note 2[A]).
Series B - On March 31, 1994, the Company owed FD $887,000. On that date the
- --------
Company issued 591,333 shares of Series B preferred stock, no par value, in
exchange for that debt at $1.50 per share. The shares have voting rights under
limited conditions, are redeemable at $1.50 per share at the option of the
Company, and are convertible into Common Stock at one share of Common Stock for
each five shares of preferred stock.
On January 25, 1995, the Company exchanged 291,333 shares of Series B preferred
stock as partial consideration for the "W" right and on November 9, 1995, the
remaining 300,000 shares were converted into 12,000 shares of Common Stock.
W RIGHT
- -------
On January 25, 1995, the Company conditionally granted to an officer/majority
stockholder the right ("W" Right) to acquire shares of Common Stock
valued at $1,187,500
F-45
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
in exchange for: 1) the purchase of MSW technology owned by FD and the
officer/majority stockholder; 2) 291,333 Series B preferred shares owned by FD;
and 3) the forgiveness of $1,187,500 of accrued salary, royalties and other
amounts due to the officer/majority stockholder of which $246,000 was recorded
as accrued salary payable in equity security as of September 30, 1994. On August
8, 1995, the officer/majority stockholder exercised that "W" Right and was
issued 1,319,445 shares of Common Stock.
NOTE 18 - EXTRAORDINARY ITEMS
The Company owed $510,000 for professional services to a law firm. The Company
extinguished $475,000 of the debt in 1993 for $5,000 cash and a $30,000
promissory note. During 1993, the extinguishment of $475,000 has been recorded
as an extraordinary gain.
During 1994, the Company extinguished $347,000 of debt for $17,000 cash and
$112,000 in notes payable thereby recognizing an extraordinary gain of $218,000.
During 1995, the Company extinguished $896,000 of debt for $90,000 cash thereby
recognizing an extraordinary gain of $806,000.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
F-46
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 19 -COMMITMENTS AND CONTINGENCIES (CONTINUED)
F-47
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 19 -COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL LIABILITIES
- -------------------------
In connection with the recycling and processing of ferrous and non-ferrous
metals, the Company may come in contact with "hazardous materials" as that term
is defined under various environmental laws. Although the Company screens for
"hazardous materials" in its raw materials, certain items processed may
inadvertently contain such materials, which could result in contamination of the
waste by-products and premises. At this time the Company believes that it is in
substantial compliance with all applicable environmental laws. Due to the
nature of the Company's operations, changes in the environmental laws or
inadvertent improper disposal of a hazardous material may result in a violation
of such laws subjecting the Company to fines and responsibility for costs
attributable to remediation.
LONG-TERM DEBT
- --------------
In conjunction with the acquisition of MRI, previously discussed in Note 2[B],
the Company executed a promissory note on February 28, 1995 in the amount of
$1,200,000 payable to MRI, bearing interest at 8%, due February 28, 1998.
Accrued interest is payable on March 31, 1995, and on June 30, September 30,
December 31, and March 31 of each calendar year thereafter through maturity.
Under the terms of the note payable, the Company was required to transfer
$1,150,000 of the proceeds from the note payable to NRI and is prohibited from
obtaining any repayment from NRI until the ACI Option expires unexercised. If
the ACI Option is exercised, the note payable will no longer be due to MRI.
INSURANCE
- ---------
The Company partially self insures for casualty losses on property, plant and
equipment at its NRI subsidiary.
NOTE 20 - LEASES
OPERATING LEASES
- ----------------
On June 8, 1995, the Company entered into an operating lease agreement for
office space. The term of the lease is through June 2000, with monthly rent
expense beginning at $1,800 and increasing to $3,900 per month.
During December 1995, the Company entered into lease agreements for yard
facilities. The agreement with Anglo requires payments of $2,500 per month
through December 2005 (see Note 2[C]) and the other agreement requires annual
rent of $16,000 payable quarterly through December 2000.
F-48
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 20 - LEASES (CONTINUED)
Future minimum lease payments are as follows for the years ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
1996 $ 44,000 $ -
1997 45,000 90,000
1998 45,000 91,000
1999 46,000 92,000
2000 35,000 93,000
2001 52,000
Thereafter - 140,000
------------- -----------
$ 215,000 $ 558,000
============= ===========
</TABLE>
Rent expense for the years ended September 30, 1995, 1994, 1993 and the six
months ended March 31, 1996, was approximately $47,000, $48,000, $48,000 and
$42,000, respectively.
CAPITAL LEASES
- --------------
NRI leases certain equipment under a capital lease obligation through November
1997. The obligation under the capital lease has been recorded in the
accompanying financial statements at the present value of future minimum lease
payments, discounted at an interest rate of 10.5%.
The Company leases the equipment acquired from Anglo under a capital lease
obligation (see Note 2[C]). In connection with the lease agreement, the Company
issued a warrant to the leasing company to acquire 53,600 shares of the
Company's Common Stock at $5.00 per share exercisable over a period of three
years from the date of issuance. At March 31, 1996, the Company was in
violation with certain covenants under the capital lease obligation. The lessor
has granted the Company a waiver of lease covenant violations through April 1,
1997 and the Company anticipates negotiating with the lessor to amend the lease
agreement to revise the provisions for which the Company is not in compliance.
The capitalized cost, accumulated depreciation, and depreciation expense
relating to this equipment was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Capitalized cost $ 118,000 $ 1,918,000
Accumulated depreciation (6,000) (72,000)
------------- ------------
$ 112,000 $ 1,846,000
============= ============
Depreciation expense $ 6,000 $ 66,000
============= ============
</TABLE>
F-49
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 20 - LEASES (CONTINUED)
The future minimum lease payments under the capital lease and net present value
of future minimum lease payments are as follows for the year ending:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
-------------- -----------
(UNAUDITED)
<S> <C> <C>
1996 $ 44,000 $ -
1997 41,000 528,000
1998 6,000 512,000
1999 - 486,000
2000 - 486,000
2001 - 366,000
-------- ----------
Total future minimum payments 91,000 2,378,000
Amount representing interest (13,000) (612,000)
-------- ----------
Present value of future minimum lease payments 78,000 1,766,000
Less current portion 37,000 314,000
-------- ----------
$ 41,000 $1,452,000
======== ==========
</TABLE>
F-50
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 21 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR
NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SIX MONTHS ENDED
------------------------- ------------------------
SEPTEMBER 30, MARCH 31,
------------------------- ------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest $ 407,000 $ - $ 194,000 $ 222,000
=========== =========== =========== ===========
Stock issued for conversion
of bridge financing $ 150,000 $ - $ 1,137,000 $ 150,000
=========== =========== =========== ===========
Acquisition of subsidiaries
for stock $ - $ 6,725,000 $ 925,000 $ 1,200,000
=========== =========== =========== ===========
Purchase of equipment for
notes payable $ 56,000 $ 5,000 $ 25,000 $ 35,000
=========== =========== =========== ===========
Sale of 25% interest in
subsidiary for note
receivable $ - $ 900,000 $ - $ -
=========== =========== =========== ===========
Reversal of deferred gain
on sale of subsidiary $ 751,000 $ - $ - $ -
=========== =========== =========== ===========
Common stock issued for
relief of debt $ - $ 1,351,000 $ - $ -
=========== =========== =========== ===========
Preferred stock issued for
extinguishment
of debt $ - $ 887,000 $ - $ -
=========== =========== =========== ===========
Conversion of accrued
salary to equity $ - $ 246,000 $ - $ -
=========== =========== =========== ===========
Restructure of preferred
stock to debt $ 2,300,000 $ - $ - $ 2,300,000
=========== =========== =========== ===========
Issuance of common
stock to chief executive
officer $ 437,000 $ - $ - $ -
=========== =========== =========== ===========
Acquisition of equipment
under capital lease $ 113,000 $ - $ - $ 113,000
=========== =========== =========== ===========
Contract to acquire land
and building acquired
for note payable $ - $ - $ 446,000 $ -
=========== =========== =========== ===========
Acquisition of Anglo
inventory for note
payable $ - $ - $ 1,366,000 $ -
=========== =========== =========== ===========
Capital lease obligation
incurred to finance
Anglo acquisition $ - $ - $ 1,800,000 $ -
=========== =========== =========== ===========
Intangible acquired for a
note payable $ - $ - $ 750,000 $ -
=========== =========== =========== ===========
</TABLE>
F-51
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 22 - SUBSEQUENT EVENTS
PRIVATE PLACEMENT
On April 8, 1996 the Company completed a private placement. The Company received
$228,000 (net of offering costs of $20,000) from the sale of 90,000 shares of
Common Stock and warrants (Series J Warrants) to acquire up to 45,000 shares of
Common Stock at $7.50 per share. The Series J Warrants are exercisable for a
three-year period commencing on the effectiveness of a registration statement
covering the shares received upon their exercise. The exercise price of the
Series J Warrants will be reduced to $5.40 per share in the event that the
Company fails to repurchase certain shares of Common Stock by May 31, 1996 and
will reduce by $.35 per share for each month subsequent to September 1996 (June
1996 in the event such stock purchase is not effected by May 31) in which a
registration statement covering the shares issuable upon exercise of the Series
J warrants is not effective.
In connection with the offering, the Company issued to the placement agent 4,500
warrants (placement agent warrants) to purchase two shares of Common Stock and
one Series H Warrant, which are exercisable for a three year period commencing
one year from the date of issuance, at an exercise price of $2.75. Upon
exercise of the placement agent warrants, the Company will issue up to 4,500
Series H Warrants each to purchase one share of Common Stock at an exercised
price of $7.50 per share. The Series H Warrants are exercisable for a three
year period commencing one year from the date of issuance and are not redeemable
by the Company.
ACQUISITION OF MID-AMERICA
- --------------------------
On April 15,1996, the Company acquired substantially all of the assets
(excluding cash and accounts receivable) of Mid-America Shredding, Inc. The
assets acquired consist of real property, buildings, a heavy duty automotive
shredder, a wire chopping plant and heavy equipment and tools used in the
business of recycling ferrous and non-ferrous metals. The purchase price totaled
$1,925,000, settled through the assumption of outstanding bank debt of
$1,210,000, $660,000 cash paid at closing and a $55,000 note, payable over eight
months. The purchase price is allocated as follows:
<TABLE>
<S> <C>
Inventories $ 55,000
Land 300,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
Closing costs 10,000
------------
Total $ 1,925,000
============
</TABLE>
F-52
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=====================================
INFORMATION AS TO THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED
NOTE 22 - SUBSEQUENT EVENTS (CONTINUED)
AGREEMENT TO ACQUIRE WEISSMAN
- -----------------------------
In April 1996, the Company reached agreement for the purchase of the stock of
Weissman Iron and Metal for cash of $12,400,000, subject to adjustment at
closing. Weissman operates in the business of recycling ferrous and non-ferrous
metals in and around Waterloo, Iowa. The purchase price is anticipated to be
funded through a combination of a public offering of the Company's securities
and bank debt.
PROPOSED FINANCING AGREEMENT
- ----------------------------
In April 1996, the Company entered into a letter of intent for a $10,000,000 to
$11,000,000 financing agreement. Advances would be subject to certain asset
eligibility computations and interest would be at the Bank of America Reference
Rate plus 2% except for the over advance facility which would be plus 3%. The
agreement would be collateralized by a first security interest on all of the
Company's assets. Closing of the financing agreement is conditional upon
completion of the lender due diligence including, among other things,
appraisals, documentations and certain financial requirements.
PROPOSED PUBLIC OFFERING
- ------------------------
On March 27, 1996, the Company entered into a letter of intent with an
underwriter to sell 4,400,000 shares of the Company's Common Stock in a public
offering. Upon a registration statement being declared effective, the 4,400,000
shares would be sold along with 492,448 shares which would also be sold by
certain security holders.
F-53
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REPORT
ON THE SUPPLEMENTAL SCHEDULES
To the Board of Directors and Stockholders
Recycling Industries, Inc.
Denver, Colorado
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements, taken as whole. The schedules to the
consolidated financial statements referred to in the accompanying index are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements. Such information for the year ended September
30, 1995 has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements. In our opinion, such information
for the year ended September 30, 1995 is fairly stated in all material respects
in relation to the basic consolidated financial statements taken as a whole.
BDO SEIDMAN, LLP
DENVER, COLORADO
MAY 17, 1996
F-54
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REPORT
ON THE SUPPLEMENTAL SCHEDULES
To the Board of Directors and Stockholders
Recycling Industries, Inc.
Denver, Colorado
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements, taken as whole. The schedules to the
consolidated financial statements referred to in the accompanying index are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements. Such information for the year ended September
30, 1994 has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements. In our opinion, such information
for the year ended September 30, 1994 is fairly stated in all material respects
in relation to the basic consolidated financial statements taken as a whole.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
November 3, 1995
F-55
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
================================================
ASSETS
------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 126,000 $ 77,000
Prepaid expenses 8,000 28,000
Accounts receivable-related party 219,000 -
---------- ----------
Total Current Assets 353,000 105,000
Investment in subsidiaries 5,012,000 3,612,000
Advances to NRI 1,532,000 -
Property, plant and equipment,
net of accumulated depreciation
of $11,000 and $72,000 11,000 18,000
Note receivable, related party - 859,000
Engineering plans, net of accumulated
amortization of $1,107,000 and $890,000 188,000 405,000
Deferred tax asset 800,000
Investment, at cost 277,000 -
Acquisition costs 61,000 164,000
Goodwill, net of accumulated amortization of
$29,000 and $7,000 188,000 168,000
Other assets 30,000 25,000
---------- ----------
Total Assets $8,452,000 $5,356,000
========== ==========
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-56
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 61,000 $ 380,000
Note payable, related party - 8,000
Trade accounts payable 260,000 551,000
Professional services payable - 255,000
Accrued expenses 64,000 513,000
Income taxes payable 86,000 -
Current portion of long term debt 125,000 -
Current portion of long term debt, related party 182,000 -
------------ ------------
Total Current Liabilities 778,000 1,707,000
Deferred gain - 751,000
Long-term debt, net of current portion - 125,000
Long-term debt, related party, net of current portion 2,920,000 -
------------ ------------
Total Liabilities 3,698,000 2,583,000
------------ ------------
Preferred stock 1,762,000 4,499,000
Common stock 8,000 3,000
Additional paid-in capital 13,120,000 8,269,000
Accrued salary payable in equity security - 246,000
Accumulated (deficit) (10,136,000) (10,044,000)
------------ ------------
Total Stockholders' Equity 4,754,000 2,973,000
------------ ------------
$ 8,452,000 $ 5,556,000
============ ============
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-57
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
=======================================================
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
REVENUES:
Sales $ 37,000 $ -
Interest income 35,000 19,000
----------- -----------
72,000 19,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales 29,000 -
Personnel 312,000 204,000
Professional services 485,000 604,000
Travel 27,000 60,000
Occupancy 51,000 47,000
Other general and administrative 140,000 40,000
Depreciation and amortization 251,000 229,000
Bad debt expense 123,000 -
Interest 196,000 34,000
----------- -----------
1,614,000 1,218,000
----------- -----------
(LOSS) BEFORE EXTRAORDINARY GAIN (1,542,000) (1,199,000)
EXTRAORDINARY GAIN FROM SETTLEMENT OF DEBTS 739,000 218,000
----------- -----------
(LOSS) BEFORE INCOME TAXES (803,000) (981,000)
(BENEFIT) FROM INCOME TAXES (711,000) -
----------- -----------
NET (LOSS) $ (92,000) $ (981,000)
=========== ===========
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-58
<PAGE>
RECYCLING INDUSTRIES, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
=====================================================
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) $ (92,000) $ (981,000)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 246,000 230,000
Extraordinary gain from extinguishment of debt (806,000) (218,000)
Deferred income taxes (800,000) -
Write-off acquisition costs - 15,000
Bad debt expense 123,000 -
Issuance of stock for services 25,000 244,000
Changes in assets and liabilities:
Accounts receivable-related parties - (40,000)
Prepaid expenses 20,000 -
Advances to subsidiaries (632,000) -
Other assets (5,000) -
Accounts payable (316,000) 479,000
Accrued liabilities (103,000) (27,000)
Income taxes payable 86,000 -
----------- -----------
Net Cash (Used) in Operating Activities (2,254,000) (298,000)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Collections on note receivable - 41,000
Additions to acquisition costs and goodwill (103,000) (263,000)
Acquisition of Loef (113,000) -
Advances to related parties (234,000) -
----------- -----------
Net Cash (Used) in Investing Activities (450,000) (222,000)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from borrowings 150,000 323,000
Proceeds from borrowings-related parties - 356,000
Principal payments on borrowings-related parties (106,000) (137,000)
Proceeds from issuance of common stock 2,798,000 55,000
Principal payments on borrowings (89,000) -
----------- -----------
Net Cash Provided by Financing Activities 2,753,000 597,000
----------- -----------
Increase in Cash 49,000 77,000
CASH, beginning of period 77,000 -
----------- -----------
CASH, end of period $ 126,000 $ 77,000
=========== ===========
</TABLE>
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES" ARE AN INTEGRAL PART OF THESE STATEMENTS
SEE ACCOMPANYING NOTES TO CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
F-59
<PAGE>
FINANCIAL INFORMATION OF REGISTRANT
RECYCLING INDUSTRIES, INC.
SCHEDULE I
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
================================================
NOTE 1 - BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Condensed Financial Statements of the Registrant do not include all of the
information and notes normally included with financial statements prepared in
accordance with generally accepted accounting principles. It is, therefore,
suggested that these Condensed Financial Statements be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Registrant's Annual Report as referenced in Form 10-K. Part II, Item 8.
NOTE 2 - LONG-TERM DEBT
The components of long-term debt are as follows at September 30, 1995 and 1994:
5% note due December 1, 1995 $ 125,000
===========
F-60
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Anglo Metal, Inc.
Harlingen, Texas
We have audited the accompanying balance sheets of Anglo Metal, Inc. dba Anglo
Iron & Metal, as of December 31, 1995 and 1994 and the related statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three year period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anglo Metal, Inc. dba Anglo
Iron & Metal, as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
MARCH 22, 1996
F-61
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
============================
ASSETS
------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 146,000
Trade accounts receivable, pledged 641,000 660,000
Other receivables, related parties 70,000 75,000
Inventories 1,437,000 1,041,000
Prepaid expenses 56,000 52,000
---------- ----------
Total Current Assets 2,204,000 1,974,000
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization of
$703,000 and $614,000 1,300,000 1,332,000
---------- ----------
OTHER ASSETS:
Cash surrender value life insurance 116,000 111,000
Other 16,000 -
---------- ----------
Total Other Assets 132,000 111,000
---------- ----------
$3,636,000 $3,417,000
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-62
<PAGE>
ANGLO METAL, INC.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1995 AND 1994
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 218,000 $ -
Trade accounts payable 373,000 638,000
Line of credit, bank - 839,000
Accrued liabilities 34,000 53,000
Income taxes payable 140,000 -
Environmental cleanup liabilities 1,194,000 1,194,000
Due to Recycling Industries, Inc. 1,588,000 -
Current portion of long-term debt - 8,000
Current portion of capital lease - 64,000
------------ ------------
Total Current Liabilities 3,547,000 2,796,000
------------ ------------
LONG-TERM DEBT:
Long-term debt, less current portion - 226,000
Capital lease, less current portion - 46,000
------------ ------------
Total Long-Term Debt - 272,000
------------ ------------
Total Liabilities 3,547,000 3,068,000
------------ ------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 1,000,000 shares
authorized; 50,000 shares issued and outstanding 50,000 50,000
Retained earnings 39,000 299,000
------------ ------------
89,000 349,000
------------ ------------
Total Stockholders' Equity $ 3,636,000 $ 3,417,000
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-63
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
==============================
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES:
Sales $15,116,000 $12,128,000 $10,189,000
Brokerage 216,000 700,000 352,000
Other 7,000 38,000 20,000
----------- ----------- -----------
Total Revenues 15,339,000 12,866,000 10,561,000
----------- ----------- -----------
COST OF SALES AND EXPENSES:
Cost of sales 13,739,000 11,398,000 9,698,000
Cost of brokerage 181,000 600,000 324,000
Environmental cleanup costs - - 729,000
Personnel 414,000 346,000 422,000
Professional services 66,000 32,000 31,000
Depreciation and amortization 11,000 11,000 10,000
Interest 133,000 102,000 56,000
Other general and administrative 336,000 205,000 156,000
----------- ----------- -----------
Total Cost of Sales and Expenses 14,880,000 12,694,000 11,426,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 459,000 172,000 (865,000)
PROVISION FOR INCOME TAXES 140,000 - -
----------- ----------- -----------
NET INCOME (LOSS) $ 319,000 $ 172,000 $ (865,000)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-64
<PAGE>
ANGLO METAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
=======================================
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------------
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 50,000 $ 50,000 $ 1,290,000 $ 1,340,000
Net (loss) (865,000) (865,000)
Dividends paid (97,000) (97,000)
----------- ----------- ----------- -----------
Balance, December 31, 1993 50,000 50,000 328,000 378,000
Net income 172,000 172,000
Dividends paid (201,000) (201,000)
----------- ----------- ----------- -----------
Balance, December 31, 1994 50,000 50,000 299,000 349,000
Net income 319,000 319,000
Dividends paid (579,000) (579,000)
----------- ----------- ----------- -----------
Balance, December 31, 1995 50,000 $ 50,000 $ 39,000 $ 89,000
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-65
<PAGE>
ANGLO METAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
============================================
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss) $ 319,000 $ 172,000 $ (865,000)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 105,000 113,000 100,000
Changes in:
Trade accounts receivable 19,000 (335,000) 224,000
Other receivables, related parties 5,000 5,000 (24,000)
Inventories (396,000) (135,000) 92,000
Prepaid expenses (4,000) (24,000) 38,000
Bank overdraft 218,000 - (6,000)
Trade accounts payable (265,000) 73,000 (67,000)
Accrued liabilities 7,000 (32,000) (111,000)
Income taxes payable 140,000 - -
Environmental cleanup liabilities - - 729,000
------------ ------------- ------------
Net Cash Provided (Used) by Operating Activities 148,000 (163,000) 110,000
------------ ------------- ------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment (56,000) (162,000) (168,000)
Proceeds from sale of equipment - 2,000 -
Increase in deposits (16,000) - -
Increase in cash surrender value
life insurance (5,000) (8,000) (41,000)
------------ ------------- ------------
Net Cash (Used) by Investing Activities (77,000) (168,000) (209,000)
------------ ------------- ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Issuance of long-term debt 247,000 - -
Payments on long-term debt (36,000) (8,000) (3,000)
Advances on line of credit 250,000 1,452,000 637,000
Repayment on line of credit (49,000) (867,000) (712,000)
Payments on capital lease obligation (50,000) (58,000) (40,000)
Dividends paid (579,000) (201,000) 330,000
------------ ------------- ------------
Net Cash Provided (Used) by Financing Activities (217,000) 318,000 212,000
------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH (146,000) (13,000) 113,000
CASH, beginning of year 146,000 159,000 46,000
------------ ------------- ------------
CASH, end of year $ - $ 146,000 $ 159,000
============ ============= ============
CASH PAID FOR INTEREST $ 48,000 $ 102,000 $ 56,000
============ ============= ============
</TABLE>
See Note 13
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-66
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
- --------
Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo) was incorporated in the State
of Texas in December 1985. Anglo operates in the metals recycling industry
(purchasing, processing, selling and brokering ferrous and non-ferrous metals)
with its operations located in southern Texas. Anglo operates one of 12 heavy
duty automotive shredders located in Texas. Processed scrap is sold to steel
mill customers and other metals processors throughout the southern region of the
United States and northern Mexico.
SALE OF ANGLO
- -------------
On December 11, 1995, Anglo sold to Recycling Industries, Inc. (RII)
substantially all of the assets and the business of Anglo.
The assets sold consisted of a heavy duty automotive shredder, inventories,
metal shearing equipment, balers, heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. Certain real
property, buildings and leasehold improvements used in the metals recycling
business were also sold.
The sales price for Anglo was $6,065,000 comprised of: $2,079,000 in cash;
$1,865,000 note which is to be paid in eight equal monthly installments of
$233,000 over eight months beginning in February 1996; a $446,000 secured
promissory note payable in 60 consecutive monthly installments of $9,000,
including interest; a $750,000 unsecured note payable in 72 equal consecutive
monthly installments of $10,000, including interest; and 227,693 shares of RII
common stock valued at $925,000.
Of the cash received at the closing of the sale, $1,800,000 was obtained through
a sale-leaseback transaction with Ally Capital Corporation, collateralized by
all of the machinery and equipment sold, accounts receivable and inventory,
which has been recorded as a capital lease. The terms of the sale-leaseback
provide for 60 consecutive monthly lease payments of $41,000 with a bargain
purchase option at the end of the lease term. The lease contains numerous
covenants for maintaining certain financial ratios and earnings levels. The
remaining $279,000 paid at closing was obtained from the operating cash reserves
and working capital of RII.
RII signed a consulting and non-competition agreement with the president of
Anglo. The term of the noncompete portion is for a term of six years and is
valued at $1,000,000 which will be amortized over the term of the agreement
using the straight line method. The consulting portion is for a term of six
months and is payable $5,000 per month.
The real property sold and the common stock given by RII have been placed in
escrow to provide for the remediation of environmental contamination related to
the operations of Anglo prior to the acquisition.
F-67
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
===========================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Equipment under capital lease $ 1,800,000
Contract to acquire land and buildings 70,000
Covenant not to compete 1,000,000
Inventories 1,365,000
Purchase price in excess of net assets acquired 1,830,000
-----------
Total purchase price 6,065,000
Notes payable (3,061,000)
RII common stock (925,000)
-----------
Cash paid at closing 2,079,000
Capital lease obligation (1,800,000)
-----------
Cash from operating capital $ 279,000
===========
</TABLE>
CONCENTRATION OF CREDIT RISK
- ----------------------------
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1995 and 1994, accounts
receivable balances for three major customers were $336,476 and $320,335, or 54%
and 49%, respectively, of the total accounts receivable balance. Ongoing credit
evaluations of customers' financial condition are performed and, generally, no
collateral is required. Anglo does not maintain reserves for potential credit
losses since such past losses, in the aggregate, have not been significant;
therefore, the allowance for doubtful accounts receivable is zero at December
31, 1995 and 1994. Customers are located throughout the Southern region of the
United States and Mexico.
INVENTORIES
- -----------
Inventories consist primarily of ferrous and non-ferrous scrap metal. Inventory
costs include material, labor and plant overhead. Inventory is stated at lower
of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 5 to 20 years for equipment and 40 years for building and improvements.
Depreciation and amortization expense of property, plant and equipment was
$105,184, $113,060 and $100,419 for the years ended December 31, 1995, 1994 and
1993, respectively. Maintenance and repairs are charged to expense as incurred
and expenditures for major improvements are capitalized. When assets are
retired or otherwise disposed of, the property accounts are relieved of costs
and accumulated depreciation and any resulting gain or loss is credited or
charged to operations.
ENVIRONMENTAL EXPENDITURES
- --------------------------
Environmental expenditures that relate to current operations are capitalized if
the costs improve Anglo's property as compared to the condition of the property
when originally constructed or acquired or if the costs prevent environmental
contamination from future operations. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments are made or remedial efforts are probable and the cost
can be reasonably estimated.
F-68
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
===========================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
These amounts are generally accrued upon the completion of feasibility studies
or the settlement of claims, but in no event later than Anglo's commitment
to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
- ----------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and accrued
expenses approximate fair value because of the short maturity of these items.
The fair value of notes payable was estimated based on market values for debt
with similar terms. Management believes that the fair value of that debt
approximates its carrying value.
INCOME TAXES
- ------------
Anglo and its stockholders have elected under the Internal Revenue Code to be an
S-corporation for tax purposes. In lieu of corporate income taxes, the
stockholders of an S-corporation are taxed on their proportionate share of its
taxable income. Accordingly, no provision or liability for federal income taxes
has been included in these financial statements for Anglo for 1994 and 1993. On
January 1, 1995, Anglo terminated its S-corporation election.
Effective January 1, 1995, Anglo adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances will be established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the current period and the change during the period in
deferred tax assets and liabilities. Deferred tax assets and liabilities have
been netted to reflect the tax impact of temporary differences. The adoption of
FAS 109 and termination of the S-corporation election resulted in recognition of
a net deferred tax asset of $250,000. Anglo has not recorded a deferred tax
asset at January 1, 1995 or December 31, 1995 since it was more likely than not
that the tax assets would not be realized. Therefore, the adoption of FAS 109
and the termination of the S-corporation election did not have a material effect
on Anglo's financial statements and there was no cumulative effect of this
change in accounting for income taxes at January 1, 1995. There is also no
effect on net income for the year ended December 31, 1995.
CASH
- ----
For purposes of reporting cash flows, Anglo considers all funds with original
maturities of three months or less to be cash equivalents.
F-69
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 2 - INVENTORIES
Inventories, pledged, consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 766,000 $ 866,000
Finished goods 671,000 175,000
---------- ----------
$1,437,000 $1,041,000
========== ==========
</TABLE>
Included in inventory are $50,000 and $10,000 of indirect costs at December 31,
1995 and 1994, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Land $ 10,000 $ 10,000
Building and improvements 109,000 109,000
Heavy machinery and equipment 1,762,000 1,482,000
Transportation equipment 99,000 115,000
Asset under capital lease obligation - 208,000
Office equipment 23,000 22,000
---------- ----------
Total 2,003,000 1,946,000
Less accumulated depreciation
and amortization (703,000) (614,000)
---------- ----------
Net $1,300,000 $1,332,000
========== ==========
</TABLE>
NOTE 4 - CASH SURRENDER VALUE LIFE INSURANCE
Anglo is the beneficiary of a life insurance policy on the President of Anglo.
The face amount of the policy is $1,800,000. Anglo's cash surrender value was
$116,000 and $111,000 at December 31, 1995 and 1994, respectively. The policy is
collateral for bank debt.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists primarily of accrued salaries and related expenses at
December 31, 1995 and 1994.
F-70
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
===========================
NOTE 6 - LINE OF CREDIT
Anglo has a revolving line of credit with a bank for a maximum of $250,000
with interest at prime plus 1% (10% at December 31, 1995) collateralized by
equipment, inventory, accounts receivable, officer life insurance policy and
stockholder and officer personal guarantees. The balance was zero at December
1995 (see Note 8).
NOTE 7- LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Note payable to individual with original
principal of $245,000 and interest at 10%
per annum; monthly principal and interest
payments of $2,600; collateralized by a
$1,800,000 key man life insurance policy;
paid December 1995 (see Note 8).
$ - $222,000
Note payable to bank with original principal
amount of $17,200 and interest at 11% per
annum; monthly principal and interest
payments of $800; collateralized by
equipment; paid December 1995 (see Note 8).
- 12,000
-------- --------
234,000
Less current portion - 8,000
-------- --------
$ - $226,000
======== ========
</TABLE>
NOTE 8 - DEBT RESTRUCTURE
In connection with the sale of Anglo to RII, certain debt of Anglo was paid by
RII prior to December 31, 1995 and has been recorded in the financial statements
as advances from RII, a current liability. The following is a summary of the
debt restructure.
In December 1995, RII entered into an agreement with an unrelated entity
(BAF) whereby BAF advances 80% of the purchased trade accounts receivable
and collects payments on purchased receivables from Anglo's customers. BAF
charges RII an administrative fee equal to 1% of the face amount of the
purchased receivables and a monthly finance charge in the amount of 10% of
the average daily outstanding balance of all purchased receivables. RII is
required to repurchase any receivables not collected from customers within
90 days. The balance at December 31, 1995 was $11,000.
On December 13, 1995, RII entered into a capital lease with Ally Capital
Corporation for $1,800,000 of equipment acquired from Anglo (see Note 1).
The proceeds were used to pay off debt in the amount of $1,256,000 and
capital lease obligations of $60,000. The remaining balance of $484,000
was used to reduce a $750,000 note payable that was guaranteed by
Anglo.
F-71
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 9 - INCOME TAXES
The tax effects of temporary differences and net operating loss carryforwards
that give rise to deferred tax assets and (liabilities) at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Temporary differences:
Property and equipment $ (220,000)
Accrued environmental liabilities 362,000
Inventories 68,000
Valuation allowance (210,000)
----------
$ -
==========
The provision for income taxes consists of the following at December 31, 1995:
<CAPTION>
<S> <C>
Current $ 140,000
Deferred -
----------
$ 140,000
==========
The components of deferred income tax (benefit) expenses are as follows as of
December 31, 1995:
<CAPTION>
<S> <C>
Depreciation and amortization $ 40,000
Valuation allowance (40,000)
----------
$ -
==========
Following is a reconciliation of the amount of income tax (benefit) expense that
would result from applying the statutory federal income tax rates to pre-tax
income the reported amount of income tax expense for the year ended December 31,
1995:
<CAPTION>
<S> <C>
Tax expense (benefit) at federal statutory rates $ 170,000
Increase (decrease) resulting from:
Nondeductible items 8,000
Depreciation and amortization (40,000)
Other 2,000
----------
$ 140,000
==========
</TABLE>
F-72
<PAGE>
ANGLO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 10 - ECONOMIC DEPENDENCY
The Company is economically dependent on major customers for annual sales as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Customer A 26% 25% 34%
Customer B 18% 10% - %
Customer C 10% - % - %
Customer D 12% - % 12%
Customer E - % - % 11%
Customer F - % 12% - %
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LOAN GUARANTEE
- --------------
Anglo is guarantor of a note payable for its stockholders to a bank with an
original principal of $750,000; interest at 10.5% per annum; monthly principal
and interest payments of $8,000. The note is collateralized by equipment,
personal guarantees of Anglo stockholders and president, and assignment of key
man life insurance policy; due December 1988. The note balance is $207,000 and
$717,000 at December 31, 1995 and 1994. Of the cash received at closing,
$484,000 was paid directly to the note holder by RII (see Note 8). RII is not a
guarantor for the remaining outstanding principal.
LITIGATION
- ----------
Anglo Metal, Inc. and Anglo Iron & Metal are defendants in a lawsuit by the
State of Texas and Houston Lighting & Power, and Central Power & Light for
$924,000. Anglo is vigorously defending the case. A liability of $465,000 has
been recorded in the financial statements of Anglo. Under the terms of the
purchase agreement, RII shall not assume any liabilities of Anglo arising on or
before the closing date with respect to any action, event or occurrence.
Anglo is also a party to a number of lawsuits arising in the normal course of
business. In the opinion of management, the resolution of these matters will
not have a material adverse effect on Anglo's financial position.
ENVIRONMENTAL LIABILITIES
- -------------------------
Anglo is a party to proceedings before state and federal regulatory agencies
relating to environmental remediation issues. The assessment of the required
response and remedial costs associated with the cleanup is extremely complex.
Among the variables that management must assess are imprecise engineering
estimates, continually evolving governmental standards, potential recoveries
from insurance coverage and laws which impose joint and several liability.
During January 1993, Environmental Protection Agency (EPA) conducted an on site
investigation and discovered a violation of the Toxic Substance Control Act,
concerning illegal disposal of Poly Chlorinated Biphenyl (PCB) containing
capacitors. Anglo was assessed a $129,000 penalty and was ordered to remediate
the site and dispose of contaminated soil in accordance with EPA standards. The
initial engineering estimates for remediation and soil disposal are within the
range of $200,000 to $600,000. A liability for $729,000 has been recorded in the
Anglo financial statements. Under the terms of the acquisition of Anglo by RII,
the stock component of the purchase price has been escrowed for remediation
costs.
F-73
<PAGE>
ANGELO METAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES
- ------
Anglo leases facilities under non-cancelable operating lease through 2005. The
monthly lease payments are $4,000 per month for the term of the lease. Total
rental expense for each of the three years 1995, 1994 and 1993 was $47,000.
Anglo also leased equipment under a capital lease for $208,000 which was paid in
December 1995.
Future minimum lease payments are as follows at December 31,:
<TABLE>
<S> <C>
1996 $ 30,000
1997 30,000
1998 30,000
1999 30,000
2000 30,000
Thereafter 150,000
----------
$ 300,000
==========
</TABLE>
NOTE 12 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to the financial statements, the following related party transactions have taken
place.
Accounts receivable from related parties consist of advances made to one of the
officers of Anglo and to one of the stockholders. These advances are non-
interest bearing. The officer's balance was $59,000 and $64,000 for 1995 and
1994, respectively, and the stockholder's balance was $11,000 at the end of 1995
and 1994.
NOTE 13 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NON-CASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, the long term debt of $1,256,000 and
the capital lease of $60,000 were paid by RII.
During the year ended December 31, 1995, a capital lease in the amount of
$208,000 was entered into for the acquisition of equipment.
During the year ended December 31, 1995, $17,000 of equipment was acquired with
a note.
During the year ended December 31, 1995, $807,000 of the line of credit balance
was refinanced to a long-term installment note payable.
F-74
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Mid-America Shredding, Inc.
Ste. Genevieve, Missouri
We have audited the accompanying balance sheet of Mid-America Shredding, Inc.,
as of December 31, 1995 and the related statement of operations, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mid-America Shredding, Inc., as
of December 31, 1995 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
April 5, 1996
F-75
<PAGE>
MID-AMERICA SHREDDING, INC.
BALANCE SHEET
DECEMBER 31, 1995
=====================
<TABLE>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 30,000
Trade accounts receivable 87,000
Inventories 86,000
Prepaid expenses 16,000
-------------
Total Current Assets 219,000
PROPERTY, PLANT AND EQUIPMENT, net 2,886,000
-------------
$ 3,105,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable, bank $ 1,210,000
Trade accounts payable 82,000
Trade accounts payable, related party 133,000
Accrued liabilities 35,000
Current portion of long-term debt 20,000
-------------
Total Current Liabilities 1,480,000
LONG-TERM DEBT, less current portion 7,000
-------------
Total Liabilities 1,487,000
-------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000 shares authorized;
245 shares issued and outstanding -
Additional paid-in capital 3,055,000
Accumulated (deficit) (1,437,000)
-------------
Total Stockholders' Equity 1,618,000
-------------
$ 3,105,000
=============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-76
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
==================================
<TABLE>
<S> <C>
SALES $ 3,866,000
------------
COST OF SALES AND EXPENSES:
Cost of sales 3,587,000
Personnel 247,000
Professional services 6,000
Travel 1,000
Interest 125,000
Other general and administrative 23,000
------------
Total Cost of Sales and Expenses 3,989,000
------------
NET (LOSS) $ (123,000)
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-77
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
==================================
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
--------------------------
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 245 $ - $ 3,009,000 $ (1,314,000) $ 1,695,000
Contributed capital - - 46,000 - 46,000
Net (loss) - - - (123,000) (123,000)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 245 $ - $ 3,055,000 $ (1,437,000) $ 1,618,000
============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-78
<PAGE>
MID-AMERICA SHREDDING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
==================================
<TABLE>
<S> <C>
CASH FLOWS (TO) FROM OPERATING ACTIVITIES:
Net (loss) $(123,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 173,000
Changes in:
Accounts receivable 62,000
Inventories 192,000
Prepaid expenses 12,000
Trade accounts payable (72,000)
Trade accounts payable, related party 106,000
Accrued liabilities 22,000
---------
Net Cash Provided by
Operating Activities 372,000
---------
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
Purchase of property and equipment (484,000)
---------
Net Cash (Used) by
Investing Activities (484,000)
---------
CASH FLOWS (TO) FROM FINANCING ACTIVITIES:
Proceeds from note payable, bank 144,000
Payments on note payable, bank (20,000)
Payments on long-term debt (18,000)
Payment on amount due to former shareholder (5,000)
Capital contributions 26,000
---------
Net Cash Provided by
Financing Activities 127,000
---------
NET INCREASE IN CASH 15,000
CASH, beginning of year 15,000
---------
CASH, end of year $ 30,000
=========
CASH PAID FOR INTEREST $ 127,000
=========
See Note 10
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-79
<PAGE>
MID-AMERICA SHREEDDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
- --------
Mid-America Shredding, Inc. (Mid-America) was incorporated in the state of
Missouri in July 1989. Mid-America operates in the metals recycling industry
(purchasing, processing and selling ferrous and non-ferrous metals). Mid-
America operates a heavy duty automotive shredder to separate metals into
ferrous and non-ferrous metals. Insulated copper or aluminum wire is processed
through a wire chopping machine to produce clean copper or aluminum chops. Mid-
America operates in Ste. Genevieve, Missouri.
ACQUISITION OF MID-AMERICA SHREDDING, INC.
- ------------------------------------------
On April 15, 1996 the assets and business of Mid-America were sold to Recycling
Industries, Inc. (RII).
The assets sold by Mid-America consisted of real property, buildings,
inventories, a heavy duty automotive shredder, a wire chopping plant, heavy
equipment and tools used in the business of recycling ferrous and non-ferrous
metals.
The sales price for Mid-America was $1,925,000, comprised of $660,000 in cash, a
$55,000 note payable in eight equal monthly installments of $6,900, and the
assumption of Mid-America outstanding bank debt of $1,210,000.
The sale will be accounted for using the purchase method and the price will be
allocated as follows:
<TABLE>
<S> <C>
Inventories $ 55,000
Land 300,000
Buildings and improvements 560,000
Machinery and equipment 1,000,000
Closing costs 10,000
-----------
Total purchase price 1,925,000
Notes payable (1,265,000)
-----------
Cash paid at closing $ 660,000
===========
</TABLE>
F-80
<PAGE>
MID-AMERICA SHREEDDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
- -----------
Inventories consist primarily of ferrous and non-ferrous scrap metal. Inventory
costs for finished goods include material, labor and plant overhead.
Inventories are stated at lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 10 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $173,000 for the year ended December 31, 1995. Maintenance and
repairs are charged to expense as incurred and expenditures for major
improvements are capitalized. When assets are retired or otherwise disposed of,
the property accounts are relieved of costs and accumulated depreciation and any
resulting gain or loss is credited or charged to operations.
ENVIRONMENTAL EXPENDITURES
- --------------------------
Environmental expenditures that relate to current operations are capitalized if
the costs improve the Company's property as compared to the condition of the
property when originally constructed or acquired or if the costs prevent
environmental contamination from future operations. Expenditures that relate to
an existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments are made or remedial efforts are probable and the
cost can be reasonably estimated. These amounts are generally accrued upon the
completion of feasibility studies or the settlement of claims, but in no event
later than Mid-America's commitment to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
- ----------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and accrued
liabilities approximate fair value because of the short maturity of these items.
The fair value of the note payable, bank was estimated based on market values
for debt with similar terms. Management believes that the fair value of that
debt approximates its carrying value.
INCOME TAXES
- ------------
Effective July, 1989, Mid-America and its stockholders elected under the
Internal Revenue Code to an S-corporation for tax purposes. In lieu of
corporate income taxes, the stockholders of an S-corporation are taxed on their
proportionate share of Mid-America's taxable income. Accordingly, no provision
or liability for federal income taxes has been included in these financial
statements for Mid-America for 1995.
F-81
<PAGE>
MID-AMERICA SHREEDDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
- ----
For purposes of reporting cash flows, Mid-America considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2 - INVENTORIES
Inventories consist of the following at December 31, 1995:
<TABLE>
<S> <C>
Raw materials $ 74,000
Finished goods 12,000
----------
$ 86,000
==========
</TABLE>
Included in inventories are $2,000 of indirect costs at December 31, 1995.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, pledged, consists of the following at December
31, 1995:
<TABLE>
<S> <C>
Land and improvements $ 359,000
Building and improvements 163,000
Heavy machinery and equipment 1,703,000
Auto shredder mill 1,304,000
Transportation equipment 50,000
Office equipment 10,000
-----------
Total 3,589,000
Less accumulated depreciation
and amortization (703,000)
-----------
$ 2,886,000
===========
</TABLE>
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities consist primarily of accrued interest, accrued salaries and
related expenses at December 31, 1995.
F-82
<PAGE>
MID-AMERICA SHREEDDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
===========================
NOTE 5 - NOTE PAYABLE, BANK
<TABLE>
<S> <C>
Note payable to bank with interest payable
monthly at prime plus one and one-half
percent per annum (10% at December 31,
1995); collateralized by property and
equipment, accounts receivable and
inventories; due on demand; guaranteed by
stockholder.
$ 1,210,000
============
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following at
December 31, 1995:
Retail purchase contract for equipment
payable to the vendor with original
principal amount of $21,000 and interest
at 12% per annum; monthly principal and
interest payments of $1,000; due February
1997.
$ 13,000
Retail purchase contract for equipment
payable to the vendor with original
principal of $18,000 and interest at 12%
per annum; monthly principal and interest
payments of $846; due June 1997.
14,000
------------
27,000
Less current portion 20,000
------------
$ 7,000
============
The principal maturities for the long-term debts
are as follows:
1996 $ 20,000
1997 7,000
------------
$ 27,000
============
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASES
- ------
Mid-America has two operating leases with a railroad company for a spur rail
track and industrial property located in Zell, Missouri with annual lease
payments of $2,000. In addition, an office trailer was leased for the year for
$4,000. Total rent expense for 1995 was $6,000.
LETTER OF CREDIT
- ----------------
Mid-America has issued a letter of credit for $50,000 which expires on December
31, 1997. The local electric utility company constructed a power substation and
the letter of credit guarantees the utility company that the substation will be
used for its intended purpose by Mid-America. The letter of credit has not been
drawn upon as of December 31, 1995.
F-83
<PAGE>
MID-AMERICA SHREDDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
=====================
NOTE 8 - RELATED PARTY TRANSACTIONS
During 1995, Mid-America purchased $116,000 of equipment parts and repairs from
an electric supply company (a related party) which is owned by the majority
shareholder of Mid-America. At December 31, 1995, Mid-America owed the related
party $133,000.
NOTE 9 - ECONOMIC DEPENDENCY
Mid-America is economically dependent on three major customers for annual sales.
During 1995, the three customers accounted for 48%, 16% and 10% of sales volume,
respectively.
NOTE 10 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, $39,000 of equipment was acquired
through the issuance of long-term debt.
The majority shareholder contributed equipment in the amount of $20,000 in 1995.
F-84
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Weissman Industries, Inc.
Waterloo, Iowa
We have audited the accompanying balance sheets of Weissman Iron and Metal, a
Division of Weissman Industries, Inc. (the Division), as of December 31, 1995
and 1994 and the related statements of operations, changes in division equity
and cash flows for each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weissman Iron and Metal, a
Division of Weissman Industries Inc. as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
AJ. ROBBINS, PC.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
APRIL 21, 1996
F-85
<PAGE>
WEISSMAN IRON AND METAL
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
==========================
<TABLE>
<CAPTION>
ASSETS
------
1995 1994
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 9,000 $ 8,000
Trade accounts receivable 1,527,000 1,579,000
Other receivables 1,000 46,000
Inventories 1,327,000 1,031,000
Prepaid expenses 10,000 53,000
----------- -----------
Total Current Assets 2,874,000 2,717,000
PROPERTY, PLANT AND EQUIPMENT, net 5,452,000 5,140,000
----------- -----------
$ 8,326,000 $ 7,857,000
=========== ===========
LIABILITIES AND DIVISION EQUITY
-------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 39,000 $ 5,000
Trade accounts payable 983,000 612,000
Trade accounts payable, related party - 21,000
Accrued liabilities:
Payroll and related taxes 246,000 245,000
Pension termination costs 27,000 -
Environmental cleanup costs 30,000 -
Sales and property taxes 40,000 33,000
Other 31,000 20,000
----------- -----------
Total Current Liabilities 1,396,000 936,000
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY 6,930,000 6,921,000
----------- -----------
$ 8,326,000 $ 7,857,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-86
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
====================================
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Sales $16,207,000 $12,959,000 $9,378,000
Brokerage 2,956,000 1,352,000 241,000
Other 1,000 11,000 11,000
----------- ----------- ----------
Total Revenues 19,164,000 14,322,000 9,630,000
----------- ----------- ----------
COST OF SALES AND EXPENSES:
Cost of sales 12,235,000 9,075,000 7,456,000
Cost of brokerage 2,894,000 1,348,000 237,000
Personnel 654,000 564,000 396,000
Professional services 17,000 26,000 22,000
Other, general and administrative 305,000 270,000 282,000
Depreciation and amortization expense 7,000 7,000 7,000
Environmental cleanup costs 30,000 - -
----------- ----------- ----------
Total Cost of Sales and Expenses 16,142,000 11,290,000 8,400,000
----------- ----------- ----------
NET INCOME $ 3,022,000 $ 3,032,000 $1,230,000
=========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-87
<PAGE>
WEISSMAN IRON AND METAL
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
===========================================
<TABLE>
<S> <C>
Balance, December 31, 1992 $ 5,818,000
Net income 1,230,000
Unrecognized pension costs (64,000)
Distributions to related parties, net (635,000)
-----------
Balance, December 31, 1993 6,349,000
Net income 3,032,000
Recognized pension costs 64,000
Distributions to related parties, net (2,524,000)
-----------
Balance, December 31, 1994 6,921,000
Net income 3,022,000
Unrecognized pension costs (47,000)
Distributions to related parties, net (2,966,000)
-----------
Balance, December 31, 1995 $ 6,930,000
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-88
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
=============================================
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS (TO) FROM OPERATING ACTIVITIES:
Net income $ 3,022,000 $ 3,032,000 $ 1,230,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 312,000 261,000 220,000
Loss on disposal of equipment 20,000 6,000 2,000
Changes in:
Trade accounts receivable 52,000 (464,000) (618,000)
Other receivables (21,000) 30,000 (2,000)
Prepaid expenses 67,000 (5,000) (2,000)
Inventories (296,000) (66,000) (16,000)
Trade accounts payable 371,000 156,000 243,000
Accrued liabilities 66,000 47,000 106,000
Bank overdraft 34,000 5,000 -
Environmental cleanup costs 30,000 - -
----------- ----------- ----------
Net Cash Provided by Operating Activities 3,657,000 3,002,000 1,163,000
----------- ----------- ----------
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
Purchase of property and equipment (644,000) (648,000) (424,000)
----------- ----------- ----------
Net Cash (Used) by Investing Activities (644,000) (648,000) (424,000)
----------- ----------- ----------
CASH FLOWS (TO) FROM FINANCING ACTIVITIES:
Unrecognized pension costs (47,000) 64,000 (64,000)
Distributions to related parties (2,965,000) (2,525,000) (635,000)
----------- ----------- ----------
Net Cash (Used) by Financing Activities (3,012,000) (2,461,000) (699,000)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH 1,000 (107,000) 40,000
CASH, beginning of year 8,000 115,000 75,000
----------- ----------- ----------
CASH, end of year $ 9,000 $ 8,000 $ 115,000
=========== =========== ==========
CASH PAID FOR INTEREST $ - $ - $ 1,000
=========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-89
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993
================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
- --------
Weissman Industries, Inc. was incorporated in January 1975 in the State of
Iowa. Weissman Iron and Metal, a division of Weissman Industries, Inc.
(Weissman) operates in the metals recycling industry (purchasing, processing,
selling and brokering ferrous and non-ferrous metals) with its operations
located in Waterloo, Iowa. Weissman operates one of three heavy duty automotive
shredders in Iowa. Processed scrap is sold to steel mill customers located in
or around Waterloo, Iowa.
AGREEMENT TO SELL WEISSMAN
- --------------------------
The stockholders of Weissman Industries, Inc. have signed an agreement with
Recycling Industries, Inc. (RII) to sell the business of Weissman to RII,
through the sale of all the outstanding stock of Weissman Industries, Inc.
Prior to the sale of stock to RII, Weissman Industries, Inc. sold its other
operating divisions to unrelated entities. Since the other operations were
previously sold to unrelated entities, are not being acquired by RII and do not
effect Weissman, they are not included in the financial statements of Weissman.
Both RII and Weissman Industries, Inc. have agreed to jointly elect section
338(h)(10) treatment under the Internal Revenue Code so that the sale of
Weissman will be treated as an asset sale for federal and state income tax
purposes.
The assets to be sold consist of a heavy duty automotive shredder, metal
shearing equipment, Coreco aluminum furnace, heavy equipment, tools and rolling
stock, real property, buildings, inventories and accounts receivable used in the
business of recycling ferrous and non-ferrous metals.
The sale price for Weissman is $12,400,000 and is allocated as follows:
<TABLE>
<S> <C>
Trade accounts receivable $ 1,600,000
Inventories 900,000
Buildings and improvements 3,000,000
Automotive shredder 3,000,000
Heavy equipment 1,900,000
Equipment and rolling stock 1,200,000
Land 800,000
-----------
Total purchase price $12,400,000
===========
</TABLE>
BASIS OF PRESENTATION
- ---------------------
The accompanying financial statements include only the assets, liabilities,
equity and operations of the metals recycling division of Weissman Industries,
Inc. that is expected to be acquired by RII through a stock purchase agreement
upon the closing of a public offering of RII common stock.
F-90
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993
================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
- ----------------------------
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1995 and 1994, accounts
receivable balances for three major customers were $1,216,000 and $967,000, or
80% and 61%, respectively, of the total accounts receivable balance. Ongoing
credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. Weissman does not maintain reserves for
potential losses since such past losses, in the aggregate, have not been
significant; therefore, the allowance for doubtful accounts receivable is zero
at December 31, 1995 and 1994. Customers are located in the upper Midwest
region of the United States (in or around Waterloo, Iowa).
INVENTORIES
- -----------
Inventories consist primarily of ferrous and non-ferrous scrap metal. Inventory
costs for finished goods include material, labor and plant overhead. Inventory
is stated at lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated useful
lives of 5 to 20 years for equipment and 40 years for building and improvements.
Depreciation and amortization expense of property, plant and equipment was
$312,000, $261,000 and $220,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Maintenance and repairs are charged to expense as incurred
and expenditures for major improvements are capitalized. When assets are
retired or otherwise disposed of, the property accounts are relieved of costs
and accumulated depreciation and any resulting gain or loss is credited or
charged to operations.
ENVIRONMENTAL EXPENDITURES
- --------------------------
Environmental expenditures that relate to current operations are capitalized if
the costs improve the Company's property as compared to the condition of the
property when originally constructed or acquired or if the costs prevent
environmental contamination from future operations. Expenditures that relate to
an existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments are made or remedial efforts are probable and the
costs can be reasonably estimated. These amounts are generally accrued upon the
completion of feasibility studies or the settlement of claims, but in no event
later than the Company's commitment to a plan of action.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL STATEMENTS
- ----------------------------------
The carrying amounts of cash, accounts receivable, accounts payable, and accrued
expenses approximate fair value because of the short maturity of these items.
F-91
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993
================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
- ------------
Effective December 30, 1988, Weissman Industries, Inc. and its stockholders
elected under the Internal Revenue Code to be an S-corporation for tax purposes.
In lieu of corporate income taxes, the stockholders of an S-corporation are
taxed on their proportionate share of taxable income. Accordingly, no provision
or liability for federal income taxes has been included in these financial
statements.
Upon completion of the sale of Weissman Industries, Inc. to RII, the tax status
of the Weissman Industries, Inc. will change from an S-corporation to a taxable
entity. Due to the tax effect of the sale there will be no significant
differences between financial statement and tax basis of assets and liabilities
and therefore the sale will not generate a deferred tax asset or liability.
CASH
- ----
For purposes of reporting cash flows, Weissman considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2 - INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 544,000 $ 526,000
Finished goods 783,000 505,000
---------- ----------
$1,327,000 $1,031,000
========== ==========
</TABLE>
Included in inventory is $165,000 and $108,000 of indirect costs at December 31,
1995 and 1994, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Land $ 153,000 $ 153,000
Building and improvements 2,983,000 2,970,000
Heavy machinery and equipment 4,602,000 4,289,000
Roads and railroad tracks 184,000 178,000
Transportation equipment 863,000 757,000
Office equipment 58,000 58,000
---------- ----------
Total 8,843,000 8,405,000
Less accumulated depreciation 3,391,000 3,265,000
---------- ----------
$5,452,000 $5,140,000
========== ==========
</TABLE>
F-92
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 4 - ECONOMIC DEPENDENCY
Weissman is economically dependent on three major customers for annual sales as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Customer A 38% 32% 28%
Customer B 19% 22% 12%
Customer C 14% 16% 29%
</TABLE>
Weissman also purchased inventory from two of these customers as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Customer A 5% 6% 9%
Customer B 20% 19% 15%
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL LIABILITIES
- -------------------------
In November 1993, Weissman Industries, Inc. received a notice from the US
Environmental Protection Agency (EPA) that it may be a potentially responsible
party (PRP), along with hundreds of others, with regard to a recycling site in
Alabama which received a shipment of material from Weissman. Under the law, a
PRP may be ordered to perform response actions, may be liable for costs incurred
and may be required to pay damages for injury.
In October 1995, the EPA notified Weissman Industries, Inc. that since Weissman
had a lower volumetric ranking, EPA intends to offer a de minimus settlement to
Weissman Industries, Inc. after completing negotiations with larger ranking
PRPs. Weissman has recorded an accrual in the amount of $30,000 for a de minimus
settlement allowance.
The assessment of the required response and remedial costs associated with the
clean up is extremely complex. Among the variables that management must assess
are imprecise engineering estimates, continually evolving governmental
standards, potential recoveries from insurance coverage and laws which impose
joint and several liability.
SELF FUNDED EMPLOYEE HEALTH CARE PLAN
- -------------------------------------
Weissman maintains and self funds a health care plan for all full time employees
after 90 days of employment. A third party administrator is employed to control
costs. The maximum specific costs are covered by a reinsurance provider.
LOAN GUARANTEE
- --------------
Weissman's trade receivables and inventories are collateral for a line of credit
with a maximum of $1,000,000 maintained by Weissman Industries, Inc.. There was
$-0- and $775,000 outstanding under this line of credit as of December 31, 1995
and 1994, respectively.
F-93
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
==============================
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
UNION CONTRACT
- --------------
Substantially all of the labor force that works in the recycling operations in
the yard are members of the International Union of United Automobile, Aerospace
and Agricultural Implement Workers of America and work under a collective
bargaining agreement which expires November 30, 1996. Management has not yet
commenced negotiations, however, in the past have successfully negotiated
contract renewals.
TURNINGS AND BORINGS CONTRACT
- -----------------------------
On September 1, 1991, Weissman entered into a service agreement with a
significant customer to process the customer's turnings and borings for a term
of seven years for a range of $13 to $22 per ton based on the product plus
approximately $4,000 per month for reimbursement of equipment costs.
NOTE 6 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to the financial statements, the following related party transactions have taken
place.
Weissman purchases raw material inventory, sells miscellaneous services and pays
certain expenses to a related division of Weissman Industries, Inc. This
related division was sold to third parties in February 1995. The related party
transactions were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Purchase of inventory $ 31,000 $ 168,000 $ 99,000
Management fee charge $ 180,000 $ 180,000 $ 180,000
Sales of services, net $ 19,000 $ 205,000 $ 168,000
</TABLE>
The purchase of the raw material approximates the cost paid to other large bulk
suppliers of Weissman. Costs charged are based upon actual amounts paid by
Weissman.
The balances due from the other divisions are shown as distributions from
Division Equity.
NOTE 7 - RETIREMENT PLAN
Weissman Industries, Inc. has a defined benefit plan (the Plan) covering
substantially all of its employees. The Plan provides for payment of retirement
benefits commencing between the ages of 55 and 65. After meeting certain
qualifications, an employee acquires a vested right to future benefits. The
benefits payable under the Plan are generally determined on the basis of an
employee's length of service and earnings. Annual contributions to the Plan are
sufficient to satisfy legal funding requirements.
F-94
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANACIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
=============================
NOTE 7 - RETIREMENT PLAN (CONTINUED)
Benefits under the Plan were frozen on October 31, 1995 and effective December
30, 1995 the Plan was terminated. Upon receipt of a favorable Internal Revenue
Service determination letter and approval from Pension Guaranty Trust the assets
will be distributed to the participants. The termination was approved by the
union. The accrued loss due to curtailment at the termination date was $47,000.
Upon adoption of Financial Accounting Standard Number 87 (FAS 87) Employers'
Accounting for Pensions in 1989, the fair value of Plan assets exceeded
projected benefit liability by $83,000. This initial net asset is being
amortized over 9.4 years.
Plan assets consist of a Group Annuity Contract with Principal Financial Group.
Weissman pension activity consists of approximately 43% of the total Plan. The
following disclosures are for Weissman:
In accordance with FAS 87, Weissman was required to record an additional minimum
pension liability at December 31, 1995 and 1993. This amount represents the
excess of the accumulated benefit obligations over the fair value of Plan assets
and accrued pension liabilities. The liabilities have been offset by intangible
assets to the extent possible. Because the asset recognized may not exceed the
amount of unrecognized prior service cost, the balance of the liability at the
end of each period is reported as a separate reduction to Division Equity.
Amounts are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Intangible assets $ - $ - $ 4,000
Reduction to Division Equity 47,000 - 64,000
--------- --------- ---------
Additional minimum liability $ 47,000 $ - $ 68,000
========= ========= =========
</TABLE>
F-95
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANACIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
=============================
NOTE 7 - RETIREMENT PLAN (CONTINUED)
The net periodic pension cost for the years ended December 31, 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service costs - benefits earned
during the period $ 21,000 $ 25,000 $ 18,000
Interest cost on projected
benefit obligation 19,000 18,000 15,000
Actual return on assets (84,000) 15,000 (23,000)
Net amortization and deferral 60,000 (33,000) 3,000
--------- --------- ---------
Net periodic pension cost $ 16,000 $ 25,000 $ 13,000
========= ========= =========
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Discount rate 6.25% 7.25% 5.75%
Rate of increase in compensation
levels 5.26% 5.36% 6.00%
Expected long-term rate of
return on assets 7.75% 7.75% 7.75%
</TABLE>
The following table sets forth the plan's funded status and amounts recognized
in Weissman's balance sheet at December 31, 1995 and 1994 for its pension plan:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accrual present value of benefit obligation:
Vested benefit obligation $ 358,000 $ 237,000
========= =========
Accumulated benefit obligation $ 358,000 $ 244,000
========= =========
Projected benefit obligation $(358,000) $(268,000)
Plan assets at fair value 330,000 263,000
--------- ---------
Projected benefit obligation in excess
of plan assets (28,000) (5,000)
Items not yet recognized in earnings:
Unrecognized net loss 63,000 52,000
Unrecognized (net asset)
at January 1, 1989 (15,000) (22,000)
Unrecognized prior service cost - 3,000
Contributions made prior to year end - 6,000
Loss on curtailment (47,000) -
--------- ---------
Pension (liability) asset recognized in
the balance sheet $ (27,000) $ 34,000
========= =========
</TABLE>
F-96
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
ANY INFORMATION OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN RESPECT TO THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. HOWEVER, IN THE EVENT OF A MATERIAL
CHANGE, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
<TABLE>
<CAPTION>
_________________
TABLE OF CONTENTS Page
----------------- ----
<S> <C>
AVAILABLE INFORMATION....................................................... vi
PROSPECTUS SUMMARY.......................................................... 1
RISK FACTORS................................................................ 6
USE OF PROCEEDS............................................................. 10
PRICE RANGE OF THE COMMON STOCK............................................. 11
DIVIDEND POLICY............................................................. 12
CAPITALIZATION.............................................................. 12
DILUTION.................................................................... 13
SELECTED FINANCIAL INFORMATION.............................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 17
BUSINESS.................................................................... 28
MANAGEMENT.................................................................. 41
PRINCIPAL SHAREHOLDERS...................................................... 50
CERTAIN TRANSACTIONS........................................................ 52
SELLING SECURITYHOLDERS..................................................... 53
DESCRIPTION OF CAPITAL STOCK................................................ 55
SHARES ELIGIBLE FOR FUTURE SALE............................................. 58
UNDERWRITING................................................................ 61
LEGAL MATTERS............................................................... 62
EXPERTS..................................................................... 62
INDEX TO FINANCIAL STATEMENTS............................................... F-1
FINANCIAL STATEMENTS................................................ F-3 to F-96
</TABLE>
_________________
[logo]
RECYCLING INDUSTRIES, INC.
4,892,448 Shares of Common
Stock, $.001 Par Value
May ___, 1996
PROSPECTUS
PRIME CHARTER LTD.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee and the NASD fee.
<TABLE>
<S> <C>
Registration and filing fee $11,695
NASD filing fee 3,892
Nasdaq National Market listing fee 50,000
Printing and engraving 100,000
Accounting fees and expenses 200,000
Underwriter's Expense Allowance 363,000
Legal fees and expenses 225,000
Blue sky fees and expenses 50,000
Transfer Agent 15,000
Miscellaneous 6,413
----------
Total $1,025,000
==========
</TABLE>
ITEM 14 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification provided under the Company's Articles of Incorporation
The Colorado Business Corporation Act (the "CBCA") authorizes the
indemnification of and advancement of expenses to directors, officers,
employees, fiduciaries and agents of a Colorado corporation against liabilities
which they may incur in such capacities. Article V.B of the Company's Amended
and Restated Articles of Incorporation provides that the Company shall indemnify
and may advance expenses to its directors to the maximum extent permitted by the
CBCA and shall indemnify its officers, employees or agents who are not directors
to the maximum extent permitted by the CBCA or to a greater extent as may be
consistent with law and provided for by resolution of the Company's shareholders
or directors, or in a contract. A summary of the circumstances in which such
indemnification is allowable under the CBCA is provided below, but that
description is qualified in its entirety by reference to the relevant section of
the CBCA.
In general, the CBCA provides that any director may be indemnified against
liabilities (including the obligation to pay a judgment, settlement, penalty,
fine or reasonable expense)
II-1
<PAGE>
incurred in a proceeding and have expenses advanced for such a proceeding
(including any civil, criminal or investigative proceeding whether threatened,
pending or completed) to which the director was made a party because he is or
was a director, except that, if the proceeding is brought by or in the right of
the Company, indemnification is permitted only with respect to reasonable
expenses incurred in connection with the proceeding. The CBCA prohibits
indemnification of a director in connection with a proceeding brought by or in
the right of the Company in which a director is adjudged liable to the Company,
or in connection with any proceeding charging improper personal benefit to the
director in which the director is adjudged liable for receipt of an improper
personal benefit.
Indemnity may be provided only if the director's actions resulting in the
liability: (i) were taken in good faith; (ii) were reasonably believed to have
been in the Company's best interest with respect to actions taken in the
director's official capacity; (iii) were reasonably believed not to be opposed
to the Company's best interest with respect to actions other than those taken in
the director's official capacity; and (iv) with respect to any criminal action,
the director had no reasonable cause to believe his or her conduct was unlawful.
Indemnification may be awarded only after the applicable standard of conduct has
been met by the director to be indemnified as determined by (i) a majority vote
of directors not party to the proceeding comprising a quorum of the Board of
Directors or, if a quorum cannot be obtained, by committee thereof consisting of
two or more directors not party to the proceeding; (ii) by independent legal
counsel selected by the Board of Directors; or (iii) by the shareholders.
The CBCA further provides that unless limited by the Company's articles of
incorporation, a director or officer who is wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a party, is entitled to
receive indemnification against reasonable expenses, including attorneys' fees,
incurred in connection with the proceeding. The Company's Amended and Restated
Articles of Incorporation do not limit the foregoing provisions.
The Company may indemnify or advance expenses to an officer, employee,
fiduciary or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract. The provision of indemnification to persons other than
directors is subject to such limitations as may be imposed on general public
policy grounds.
Upon petition by a director or officer, a court may order the Company to
indemnify such director or officer against liabilities arising in connection
with any proceeding. A court may order the Company to provide such
indemnification, whether or not he was entitled to indemnification by the
Company. To order indemnification, the court must determine that the director or
officer is fairly and reasonably entitled to indemnification in light of the
circumstances. With respect to liability incurred by a director or officer, or
in any proceeding
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<PAGE>
where liability results on the basis that a personal benefit was received
improperly, a court may only require that the director or officer be indemnified
as to reasonable expenses incurred.
The CBCA specifies that any provisions for indemnification of or advances
for expenses to directors which may be contained in the Company's articles of
incorporation, bylaws, resolutions of its shareholders or directors, or in a
contract (except for insurance policies) shall be valid only to the extent such
provisions are consistent with the CBCA and any limitations upon indemnification
set forth in the articles of incorporation.
The CBCA also grants the power to the Company to purchase and maintain
insurance policies which protect any director, officer, employee, fiduciary or
agent against any liability asserted against or incurred by them in such
capacity arising out of their status as such. Such policies may provide for
indemnification whether or not the corporation would otherwise have the power to
provide for it. No such policies have been obtained by the Company.
Article V.A of the Company's Amended and Restated Articles of Incorporation
provides for the elimination of personal liability for monetary damages for the
breach of fiduciary duty as a director except for liability (i) resulting from a
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (iii) for approving payment of a
dividend, a stock repurchase, a distribution of assets to shareholders during
liquidation or the making or guaranteeing of a loan to a director, to the extent
that any such actions are illegal under the CBCA; or (iv) for any transaction
from which a director derives an improper personal benefit. This Article further
provides that the personal liability of the Company's directors shall be
eliminated or limited to the fullest extent permitted by the CBCA.
Indemnification Provided in Connection with the Offering
The Company and the Underwriter have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act, and, if
such indemnifications are unavailable or insufficient, the Company and the
Underwriter have agreed to damage contribution agreements between them based
upon relative benefits received from this offering and relative fault resulting
in such damages.
The Selling Securityholders and the Company have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
Indemnification Provided in Connection with Private Placements of the Company's
Securities
The placement agent for and investors in the private placements of the
Company's securities occurring in February and May, 1995 and January and March,
1996, have agreed to
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<PAGE>
indemnify, to the extent permitted by law, the Company, its directors, its
officers and each person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be stated in a
registration statement, prospectus, private placement memorandum or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information or affidavits relating to such investors or the
placement agent furnished to the Company for use therein.
ITEM 15 - RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold its securities in the
following transactions pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) of the Securities
Act for transactions not involving a public offering and Rule 506 of Regulation
D promulgated thereunder. The Company believes that each purchaser in such
transactions was an accredited investor within the meaning of Regulation D. The
share amounts and prices set forth below have been adjusted to reflect the
Company's one-for-five reverse split of the Common Stock effective June 27,
1995:
1. Between September 30, 1992 and September 30, 1994, the Company issued
567,291 shares of Common Stock to various creditors in exchange for the
cancellation of $1,040,249 of indebtedness owed to such creditors by the
Company.
2. In connection with the Company's acquisition of its Las Vegas, Nevada
facility on May 12, 1994, the Company issued 38,000 shares of Series A
Convertible Preferred Stock valued at $2,500,000 to Nevada Recycling
Corporation, in partial payment of the purchase price for such acquisition. On
December 27, 1994, 25,000 of those shares were cancelled pursuant to a
restructuring of the terms of the Nevada facility acquisition. In connection
with such restructuring, the Company issued to Nevada Recycling (i) a $2,300,000
secured promissory note payable by the Company, (ii) 120,000 shares of the
Company's Common Stock valued at $1,200,000 and (iii) warrants to purchase
20,000 shares of Common Stock at an exercise price of $1.25 per share.
3. On May 13, 1994, the Company issued 591,333 shares of Series B
Convertible Preferred Stock to First Dominion Holdings, Inc. ("First Dominion"),
a corporation owned and controlled by Thomas J. Wiens, the Company's chief
executive officer, in satisfaction of
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<PAGE>
outstanding indebtedness payable to First Dominion in the amount of
approximately $880,000 incurred prior to March 31, 1994.
4. On July 15, 1994, the Company issued an option to acquire 360,000
shares of Common Stock to Caside Associates (the "Caside Option"). The exercise
price of the Caside Option was originally $2.50 per share. On January 25, 1995,
the exercise price was reduced to $.90 per share and the Company issued to
Caside Associates warrants to purchase 180,000 shares of the Company's Common
Stock at $7.50 per share. The Caside Option was subsequently exercised with
respect to 55,556 shares of Common Stock.
5. From September through December 1994, in connection with approximately
$459,000 of bridge loan financing provided to the Company by unaffiliated
lenders, the Company issued to the lenders warrants to acquire 39,880 shares of
Common Stock at an exercise price of $.90 per share. In April 1995, $450,000 of
bridge loans plus accrued interest were converted into 510,000 shares of Common
Stock and warrants to purchase 255,000 shares of Common Stock at an exercise
price of $7.50 per share.
6. On January 25, 1995, the Company granted NCO Investors III, L.P.
warrants to purchase a total of 100,000 shares of Common Stock in consideration
for lending the Company $125,000 and in consideration for financial consulting
services rendered. These warrants were cancelled on June 30, 1995 in connection
with the Company's acquisition of a 20% interest in The Loef Company. NCO
Investors III, L.P. and its affiliates own the remaining 80% interest in The
Loef Company.
7. On January 25, 1995, the Company granted Nagelvoort & Co. warrants to
purchase a total of 300,000 shares of Common Stock in exchange for services
rendered to the Company in connection with the financing of a proposed
acquisition. These warrants were cancelled on June 20, 1995 in connection with
the termination of the relationship between the Company and Nagelvoort & Co.
8. On January 25, 1995, the Company repurchased 291,333 shares of the
Company's Series B Convertible Preferred Stock, acquired the rights to certain
technology and received forgiveness of certain accrued obligations in exchange
for consideration of $750,000. In connection with this transaction, the Company
granted to Thomas J. Wiens the right to acquire Common Stock valued at
$1,187,000 at a purchase price equal to the lesser of 50% of the market value of
the Common Stock or $.90 per share. Upon exercise of this right on August 8,
1995, Mr. Wiens purchased 1,319,445 shares of Common Stock at $.90 per share.
9. From February 1, 1995 through April 17, 1995, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 1,200 shares of Common Stock and Series C warrants
to purchase 600 shares of Common
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<PAGE>
Stock at an exercise price of $7.50 per share, at an offering price of $1,080
per unit. Pursuant to this private placement, the Company sold 2,473,711 shares
of Common Stock and 1,295,876 warrants, including units issued in connection
with the cancellation of bridge debt described in paragraph 5 above, to 34
accredited investors. In connection with the private placement, the Company
issued to First Equity Capital Securities, Inc. 139,828 Placement Agent's
Warrants, each to acquire two shares of Common Stock and one Series H Warrant at
an exercise price of $1.80. Each Series H Warrant entitles the holder to acquire
one share of Common Stock at an exercise price of $7.50 per share.
10. From May 24, 1995 through July 31, 1995, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 1,200 shares of Common Stock and Series E warrants
to purchase 600 shares of Common Stock at an exercise price of $7.50 per share,
at an offering price of $1,080 per unit. Pursuant to this private placement, the
Company sold 1,800,000 shares of Common Stock and 900,000 warrants to 42
accredited investors. In connection with the private placement, the Company
issued to First Equity Capital Securities, Inc. and certain selected dealers,
73,560 Placement Agent's Warrants, each to acquire two shares of Common Stock
and one Series H Warrant at an exercise price of $1.80. Each Series H Warrant
entitles the holder to acquire one share of Common Stock at an exercise price of
$7.50 per share.
11. In connection with the Company's acquisition of its southern Texas
facilities, on December 11, 1995, the Company issued 227,693 shares of Common
Stock valued at $925,000 to Anglo Metal, Inc., in partial payment of the
purchase price for that acquisition. In addition, in connection with the
equipment financing for the acquisition, the Company issued to Ally Capital
Corporation a warrant to acquire up to 53,600 shares of Common Stock at an
exercise price of $5.00 per share.
12. During December 1995 and January 1996, the Company borrowed $1,500,000
of bridge financing and issued to the bridge lenders Series I warrants to
acquire 359,250 shares of Common Stock at a purchase price of $1.50 per share,
exercisable through the end of a three-year period commencing on the effective
date of a registration statement covering the shares issuable upon their
exercise.
13. In December 1995, the holders of the Company's then outstanding Series
C and Series E warrants agreed to amend the terms of these warrants and related
registration rights, and to sell a specified percentage of the shares of Common
Stock acquired by them in the February 1995 and May 1995 private placements,
discussed above, to the Company for $3.40 per share. To evidence the amended
terms of the Series C and Series E warrants, the Company issued to each of the
holders of such warrants Series G warrants to replace all outstanding Series C
and Series E warrants.
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<PAGE>
14. From January 17, 1996 through January 31, 1996, the Company conducted
a private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 2,000 shares of Common Stock and Series J warrants
to purchase 1,000 shares of Common Stock at an exercise price of $7.50 per
share, at an offering price of $5,500 per unit. Pursuant to this private
placement, the Company sold 1,364,156 shares of Common Stock and 682,079
warrants, including units issued upon the conversion of certain bridge
financing, to 60 accredited investors. In connection with the private placement,
the Company issued to First Equity Capital Securities, Inc. and certain selected
dealers, 65,445 Placement Agent's Warrants, each to acquire two shares of
Common Stock and one Series H Warrant at an exercise price of $2.75. Each Series
H Warrant entitles the holder to acquire one share of Common Stock at an
exercise price of $7.50 per share.
15. From February 15, 1996 through April 8, 1996, the Company conducted a
private placement through First Equity Capital Securities, Inc. as Placement
Agent, of units consisting of 2,000 shares of Common Stock and Series J warrants
to purchase 1,000 shares of Common Stock at an exercise price of $7.50 per
share, at an offering price or $5,500 per unit. Pursuant to this private
placement, the Company sold 90,000 shares and 45,000 warrants to nine accredited
investors. In connection with the private placement, the Company issued to First
Equity Capital Securities, Inc. and certain selected dealers, 4,500 Placement
Agent's Warrants, each to acquire two shares of Common Stock and one Series H
Warrant at an exercise price of $2.75. Each Series H Warrant entitles the holder
to acquire one share of Common Stock at an exercise price of $7.50 per share.
With respect to the sales of unregistered securities described in
paragraphs 2 through 15 above, based on representations made to the Company and
further investigation by the Company, the Company believes that (i) each
purchaser was an accredited investor as that term is defined under Rule 501(a)
of Regulation D promulgated under the Securities Exchange Act of 1934, as
amended ("Regulation D"), or (ii) alone, or with their purchaser representative
(as that term is defined in Rule 501(h) of Regulation D), had sufficient
knowledge and experience in financial and business matters that he was capable
of evaluating the merits and risks of an investment in the Company.
ITEM 16(A) - EXHIBITS
(a) The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of Dealer Agreement.**
3.1 Amended and Restated Articles of Incorporation.*
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.2 Amended and Restated Bylaws.*
4.1 Form of Common Stock Certificate.*
4.2 Certificate of Designations, Rights and Preferences for the
Series A Convertible Preferred Stock of Recycling Industries,
Inc. with Amendment.*
4.3 Form of Series G Warrant Agreement.*
4.4 Form of Series G Registration Rights Agreement.*
4.5 Form of Series I Warrant Agreement.*
4.6 Form of Series J Warrant Agreement.*
4.7 Form of Series J Registration Rights Agreement.*
4.8 Form of 1995 Placement Agents Warrant Agreement.*
4.9 Form of Underwriter Warrant Agreement.**
4.10 Form of 1995 Placement Agents Registration Rights Agreement.*
4.11 Form of 1996 Placement Agents Warrant Agreement.*
4.12 Form of 1996 Placement Agents Registration Rights Agreement.***
5.1 Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC.***
10.1 Agreements Related to the Acquisition of Nevada Recycling, Inc.:
10.1.1 Bill of Sale and Assumption Agreement dated April 30, 1995
between Nevada Recycling Corporation and Nevada Recycling,
Inc., incorporated by reference to Exhibit (d)(1) to the
Company's Current Report on Form 8-K filed May 12, 1994,
reporting an event of May 10, 1994, Commission file No.
0-20179;
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1.2 Real Estate Installment Sale Agreement dated May 10, 1994 by
and between Recycling Industries, Inc. and Nevada Recycling
Corporation, incorporated by reference to Exhibit (d)(2) to
the Company's Current Report on Form 8-K filed May 12, 1994,
reporting an event of May 10, 1994, Commission file No.
0-20179;
10.1.3 Stock Exchange Agreement dated May 10, 1994 between
Recycling Industries, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (d)(3) to the Company's
Current Report on Form 8-K filed May 12, 1994, reporting an
event of May 10, 1994, Commission file No. 0-20179; and
10.1.4 Sale and Security Agreement dated May 10, 1994 by and among
Recycling Industries, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (d)(4) to the Company's
Current Report on Form 8-K filed May 12, 1994, reporting an
event of May 10, 1994, Commission file No. 0-20179.
10.2 Agreements related to the Restructuring of the Acquisition of
Nevada Recycling, Inc.:
10.2.1 Termination, Restructuring and Purchase Agreement, effective
December 30, 1994, between Recycling Industries, Inc., NR
Holdings, Inc., Nevada Recycling, Inc. and Nevada Recycling
Corporation, incorporated by reference to Exhibit (c)(2) to
the Company's Current Report on Form 8-K reporting an event
of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179;
10.2.2 Purchase Agreement, dated December 30, 1994, between NR
Holdings, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (c)(3) to the Company's
Current Report on Form 8-K reporting an event of December
30, 1994, as amended April 3, 1995 on Form 8-K/A, as further
amended May 1, 1995 on Form 8-K/A-2 and as further amended
June 5, 1995 on Form 8-K/A-3, Commission File No. 0-20179;
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2.3 Real Estate Installment Sale Agreement, dated December 30,
1994, between NR Holdings, Inc. and Nevada Recycling
corporation, incorporated by reference to Exhibit (c)(4) to
the Company's Current Report on Form 8-K reporting an event
of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179;
10.2.4 Security and Option Agreement, effective December 30, 1994,
between Recycling Industries, Inc., NR Holdings, Inc.,
Nevada Recycling, Inc. and Nevada Recycling Corporation,
incorporated by reference to Exhibit (c)(5) to the Company's
Current Report on Form 8-K reporting an event of December
30, 1994, as amended April 3, 1995 on Form 8-K/A, as further
amended May 1, 1995 on Form 8-K/A-2 and as further amended
June 5, 1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.5 $2,000,000 Promissory Note; December 30, 1994, from NR
Holdings, Inc. to Nevada Recycling Corporation, incorporated
by reference to Exhibit (c)(6) to the Company's Current
Report on Form 8-K reporting an event of December 30, 1994,
as amended April 3, 1995 on Form 8-K/A, as further amended
May 1, 1995 on Form 8-K/A-2 and as further amended June 5,
1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.6 $300,000 Promissory Note; December 30, 1994, from NR
Holdings, Inc. to Nevada Recycling Corporation, incorporated
by reference to Exhibit (c)(7) to the Company's Current
Report on Form 8-K reporting an event of December 30, 1994,
as amended April 3, 1995 on Form 8-K/A, as further amended
May 1, 1995 on Form 8-K/A-2 and as further amended June 5,
1995 on Form 8-K/A-3, Commission File No. 0-20179;
10.2.7 ERS Corporate Guaranty, dated December 30, 1994, by
Recycling Industries, Inc., incorporated by reference to
Exhibit (c)(8) to the Company's Current Report on Form 8-K
reporting an event of December 30, 1994, as amended April 3,
1995 on Form 8-K/A, as further amended May 1, 1995 on Form
8-K/A-2 and as further amended June 5, 1995 on Form 8-K/A-3,
Commission File No. 0-20179;
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2.8 NRI Corporate Guaranty, dated December 30, 1994, by Nevada
Recycling, Inc., incorporated by reference to Exhibit (c)(9)
to the Company's Current Report on Form 8-K reporting an
event of December 30, 1994, as amended April 3, 1995 on Form
8-K/A, as further amended May 1, 1995 on Form 8-K/A-2 and as
further amended June 5, 1995 on Form 8-K/A-3, Commission
File No. 0-20179; and
10.2.9 Subscription to Shares of NR Holdings, Inc., dated December
30, 1994, for 100 Shares of Common Stock, incorporated by
reference to Exhibit (c)(10) to the Company's Current Report
on Form 8-K reporting an event of December 30, 1994, as
amended April 3, 1995 on Form 8-K/A, as further amended May
1, 1995 on Form 8-K/A-2 and as further amended June 5, 1995
on Form 8-K/A-3, Commission File No. 0-20179.
10.3 Agreements Related to the Acquisition of Metal Recovery, Inc.:
10.3.1 Memorandum of Understanding dated January 18, 1995 between
Recycling Industries, Inc., the ACI Principals, Sierra
Holdings Limited Partnership, Military Scrap, L.P. and
Thomas J. Wiens, incorporated by reference to Exhibit
(c)(1) to the Company's Current Report on Form 8-K reporting
an event of December 30, 1994, as amended April 3, 1995 on
Form 8-K/A, as further amended May 1, 1995 on Form 8-K/A-2
and as further amended June 5, 1995 on Form 8-K/A-3,
Commission File No. 0-20179;
10.3.2 ACI Option Agreement dated February 28, 1995 by and between
Recycling Industries, Inc., Ralph Paglieri, Peter Lukesch
and Scott Fischer;*
10.3.3 Option Agreement by and between Thomas J. Wiens, Ralph
Paglieri, Peter Lukesch and Scott Fischer;*
10.3.4 Pledge and Hypothecation Agreement by and among Recycling
Industries, Inc., Nevada Recycling Corporation, Ralph
Paglieri, Peter Lukesch and Scott Fischer. *
10.4 Warrant Solicitation Agreement between First Equity Capital
Securities, Inc. and Recycling Industries, Inc.*
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.5 Placement Agency Agreement dated February 1, 1995 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.6 Placement Agency Agreement dated June 6, 1995 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.7 Placement Agency Agreement dated January 17, 1996 between First
Equity Capital Securities, Inc. and Recycling Industries, Inc.*
10.8 Amended and Restated Stock Acquisition Agreement dated July 10,
1995 by and among Recycling Industries, Inc., Thomas J. Wiens and
First Dominion Holdings, Inc.*
10.9 Agreements related to the Acquisition of Anglo Iron & Metal
10.10.1 Asset Purchase Agreement dated December 1, 1995 by and among
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal and Robert
C. Rome, incorporated by reference to the Company's current
report on Form 8-K reporting an event of December 11, 1995,
as Amended April 15, 1996 on Form 8-K/A, Commission File No.
0-20179.
10.10.2 First Addendum dated December 11, 1995 to the Asset Purchase
Agreement dated December 1, 1995 by and among Recycling
Industries of Texas, Inc., Recycling Industries, Inc., Anglo
Metal, Inc. d/b/a Anglo Iron & Metal and Robert C. Rome,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.3 Inventory Purchase Agreement dated December 11, 1995 by and
between Recycling Industries of Texas, Inc. and Anglo Metal,
Inc. d/b/a Anglo Iron & Metal, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
10.10.4 Consulting and Non-Compete Agreement dated December 11, 1995
by and between Recycling Industries of Texas, Inc. and
Robert C. Rome,
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.5 Real Estate Purchase Contract dated December 11, 1995 by and
between Recycling Industries of Texas, Inc. and Anglo Metal,
Inc. d/b/a Anglo Iron & Metal, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
10.10.6 Form of Proposed Remediation Escrow Agreement by and between
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.7 Escrow Agreement dated December 11, 1995 by and between
Recycling Industries of Texas, Inc., Recycling Industries,
Inc., Anglo Metal, Inc. d/b/a Anglo Iron & Metal, Robert C.
Rome and Stewart Title of Hidalgo County, Inc., incorporated
by reference to the Company's current report on Form 8-K
reporting an event of December 11, 1995, as Amended April
15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.8 Master Lease Agreement dated December 12, 1995 by and among
Ally Capital Corporation as lessor and Recycling Industries
of Texas, Inc. and Recycling Industries, Inc. as co-lessees,
incorporated by reference to the Company's current report on
Form 8-K reporting an event of December 11, 1995, as Amended
April 15, 1996 on Form 8-K/A, Commission File No. 0-20179.
10.10.9 Equipment Schedule to the Master Lease Agreement dated
December 12, 1995 by and among Ally Capital Corporation as
lessor and Recycling Industries of Texas, Inc. and Recycling
Industries, Inc. as co-lessees, incorporated by reference to
the Company's current report on Form 8-K reporting an event
of December 11, 1995, as Amended April 15, 1996 on Form
8-K/A, Commission File No. 0-20179.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.11 Agreements Related to the Acquisition of Mid-America Shredding,
Inc.:
10.11.1 Asset Purchase Agreement dated February 16, 1996 by and
among Recycling Industries of Missouri, Inc., Recycling
Industries, Inc., Mid-America Shredding, Inc. and Linda
Lawton incorporated by reference to Exhibit 10.1 to the
Company's current report on Form 8-K reporting an event of
April 15, 1996, Commission File No. 0-20179.
10.11.2 Assumption Without Release and Modification Agreement, dated
April 15, 1996, by and among Mid-America Shredding, Inc.,
Recycling Industries of Missouri, Inc., Recycling
Industries, Inc., Linda F. Lawton, Personal Representative
of the Estate of Robert L. Lawton, Deceased and Linda Lawton
incorporated by reference to Exhibit 10.2 to the Company's
current report on Form 8-K reporting an event of April 15,
1996, Commission File No. 0-20179.
10.11.3 Security Agreement, dated April 15, 1996, between Recycling
Industries of Missouri, Inc. and Southwest Bank of St. Louis
incorporated by reference to Exhibit 10.3 to the Company's
current report on Form 8-K reporting an event of April 15,
1996, Commission File No. 0-20179.
10.11.4 Continuing Unlimited Guaranty Agreement dated April 15,
1996, between Recycling Industries, Inc. and Southwest Bank
of St. Louis incorporated by reference to Exhibit 10.4 to
the Company's current report on Form 8-K reporting an event
of April 15, 1996, Commission File No. 0-20179.
10.11.5 Loan Agreement dated April 8, 1992, between Mid-America
Shredding, Inc. and Southwest Bank of St. Louis incorporated
by reference to Exhibit 10.5 to the Company's current report
on Form 8-K reporting an event of April 15, 1996, Commission
File No. 0-20179.
10.11.6 Promissory Note dated February 8, 1996, between Mid-America
Shredding, Inc. and Southwest Bank, Inc. incorporated by
reference to Exhibit 10.6 to the Company's current report on
Form 8-K reporting an event of April 15, 1996, Commission
File No. 0-20179.
10.12 Agreements Related to the Acquisition of Weissman Industries,
Inc.:
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.12.1 Stock Purchase Agreement by and among Wesley J. Weissman,
Walt Weissman, Wayne Weissman, Nancy Sarles, Recycling
Industries of Iowa, Inc., and Recycling Industries, Inc.**
10.13 Form of Share Repurchase Offer and Agreement.*
10.14 Form of Series I Warrant Exchange Offer and Agreement.***
18.1 Letter from AJ. Robbins, P.C. dated April 11, 1996, addressed to
the Securities and Exchange Commission, incorporated by reference
to the Company's current report on Form 8-K/A reporting an event
of March 25, 1996, Commission File No. 0-20179.
21.1 List of the subsidiaries of Recycling Industries, Inc.*
23.1 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC -
see Exhibit 5.1
23.2 Consent of AJ. Robbins, P.C.**
23.3 Consent of BDO Seidman, LLP**
24 Power of Attorney - See Signature Page of Registration Statement
27 Financial Data Schedule**
</TABLE>
____________
* Previously filed.
** Filed herewith
*** To be filed by amendment.
ITEM 16(B) - FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements for the years ended September 30, 1995
and 1994 and for the six months ended March 31, 1996.
ITEM 17 - UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (a) to include any
prospectus required by section
II-15
<PAGE>
10(a)(3) of the Securities Act; (b) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and (c) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions discussed under Item 14 -
Indemnification of Directors and Officers, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, State of
Colorado, on May 24, 1996.
RECYCLING INDUSTRIES, INC.
By/s/ Thomas J. Wiens
--------------------------------
Thomas J. Wiens, Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of Recycling Industries, Inc., by virtue of their signatures appearing
below, hereby constitute and appoint Thomas J. Wiens, with full power of
substitution, as attorney-in-fact in their names, places and steads to execute
any and all amendments to this Registration Statement on Form S-1 in the
capacities set forth opposite their names below and hereby ratify all that said
attorney-in-fact may do by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Thomas J. Wiens Principal Executive May 24, 1996
- -----------------------------
Thomas J. Wiens Officer and Director
/s/ Michael I. Price Director May 24, 1996
- -----------------------------
Michael I. Price
/s/ Jerome B. Misukanis Principal Financial May 24, 1996
- -----------------------------
Jerome B. Misukanis and Accounting
Officer and Director
/s/ Graydon H. Neher Director May 24, 1996
- -----------------------------
Graydon H. Neher
/s/ Barry Plost Director May 24, 1996
- -----------------------------
Barry Plost
</TABLE>
<PAGE>
EXHIBIT 1.2
PRIME CHARTER LTD.
810 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
MASTER SELECTED DEALER AGREEMENT
--------------------------------
May __, 1996
Ladies and Gentlemen:
In connection with certain public offerings of securities after the date
hereof for which Prime Charter Ltd. ("Prime Charter" or "we") is acting as
underwriter or representative or one of the representatives of the members of
the underwriting syndicate, Prime Charter may invite you to participate as a
selected dealer. This will confirm our mutual agreement as to the general terms
and conditions applicable to such participation.
1. Applicability of this Agreement. From time to time on or after the
-------------------------------
date hereof Prime Charter may be responsible (acting or our own account or for
the account of an underwriting or similar group or syndicate) for managing or
otherwise implementing the sale to selected dealers ("Selected Dealers") of
securities offered publicly pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), or offered pursuant
to an exemption from registration thereunder. The terms and conditions of this
Agreement shall be applicable to any such offering in which we have invited you
to participate as a Selected Dealer and have expressly informed you that the
terms and conditions of this Agreement shall apply. This Agreement shall not
apply to any offering of securities effected wholly outside the United States of
America. Any offering to which the terms and conditions of this Agreement apply
is herein referred to as an "Offering", and the securities offered in an
Offering are herein referred to as the "Securities" with respect to such
Offering. In the case of any Offering in which we are acting for the account of
an underwriting or similar group or syndicate ("Underwriters"), the terms and
conditions of this Agreement shall be for the benefit of, and binding upon, such
Underwriters, including, in the case of any Offering in which we are acting with
others as representatives of Underwriters, such other representatives. Some or
all of the Underwriters in any Offering may be included among the Selected
Dealers.
The following provisions of this Agreement shall apply separately to each
Offering.
2. Conditions of Offering; Acceptance and Purchase. Any Offering will be
-----------------------------------------------
subject to delivery of the Securities and their acceptance by us and any other
Underwriters, will be subject to prior sale, to the approval of all legal
matters by counsel and the satisfaction of other conditions, and may be made on
the basis of a reservation of Securities or an allotment against
<PAGE>
subscription. We reserve the right to reject any acceptance in whole or in part,
to make allotments and to close the subscription books at any time without
notice. You agree to act as principal in purchasing any Securities.
We shall invite you to participate in an Offering and in connection
therewith shall advise you of the particular method and supplementary terms and
conditions of the Offering (including the amount of Securities to be allotted to
you, the amount of Securities reserved for purchase by the Selected Dealers, the
period of such reservation and the information as to prices and offering date
referred to in Section 3(b) hereof). Such invitation and additional information,
to the extent applicable and then determined, shall be conveyed to you in a
telecopy, telex or other written form of communication (any communication in any
such form being herein referred to as a "written communication"). Such written
communication will include instructions for advising us of your acceptance of
such invitation. Any such additional information, to the extent applicable but
not determined at the time such invitation is conveyed to you, will be conveyed
to you in a subsequent written communication. To the extent such supplementary
terms and conditions are inconsistent with any provision herein, such terms and
conditions shall supercede any such provision, and you, by your acceptance,
shall be bound thereby. If we have received your acceptance, a subsequent
written communication from us shall state that you may reject your allotment of
Securities by notifying us prior to the time and in the manner specified in such
written communication. Unless otherwise indicated in any such written
communication, acceptances and other communications by you with respect to an
Offering should be sent to Prime Charter Ltd., 810 Seventh Avenue, New York, New
York 10019, Attention: Syndicate Department.
Unless you are otherwise notified by us, Securities purchased by you shall
be paid for on such date as we shall determine on one day's prior notice to you,
by certified or official bank check or checks drawn on a New York Clearing House
bank and payable in next day funds, in an amount equal to the Offering Price (as
hereinafter defined) or, if we shall so advise you, at such Offering Price less
the Concession (as hereinafter defined), and payable to or upon the order of
Prime Charter Ltd., 810 Seventh Avenue, New York, New York 10019, against
delivery of the Securities. If Securities are purchased and paid for at such
Offering Price, such Concession will be paid after the termination of the
provisions of Section 3(b) hereof with respect to such Securities.
Unless you are notified by us, payment for and delivery of Securities
purchased by you shall be made through the facilities of the Depository Trust
Company, if you are a member, unless you have otherwise notified us within two
days after the date the Securities are first released for public offering or, if
you are not a member, settlement may be made through a correspondent who is a
member pursuant to instructions you may send to us on or before the third
business day preceding the closing for the sale of the Securities.
3. Offering Documents.
------------------
-2-
<PAGE>
a. Registration Statement and Prospectus. With respect to each Offering
-------------------------------------
of Securities, Prime Charter shall provide you with such number of copies of any
prospectus subject to completion, the prospectus and any amendment or supplement
to any of the foregoing as you may reasonably request for the purposes
contemplated by the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the applicable rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder. You shall
familiarize yourself with the terms of the Securities and the other terms of the
Offering reflected in any such preliminary prospectus, amendment or supplement.
You agree that in purchasing Securities in an Offering you will rely upon no
statements whatsoever, written or oral, other than the statements in the
preliminary prospectus, prospectus, amendment or supplement delivered to you by
us. You understand that you will not be authorized by the issuer or any seller
other than the issuer, any guarantor or any insurer of Securities to give any
information or to make any representation not contained in a preliminary
prospectus or the prospectus, as amended or supplemented, in connection with the
Offering of such Securities. You represent and warrant that you are familiar
with Securities Act Release No. 4968 and Rule 15c2-8 under the Exchange Act (or
any successor release or provision) and any applicable foreign laws (and
applicable rules and regulations thereunder) and agree that you will deliver all
preliminary prospectuses and prospectuses required for compliance therewith. You
agree to make a record of your distribution of each preliminary prospectus and
prospectus (including dates, numbers of copies and persons to whom sent) and you
shall, if requested by us, furnish a copy of an amended or supplemented
preliminary prospectus or prospectus to each person to whom you have furnished a
previous preliminary prospectus or prospectus and, if also requested by us,
indicate to each such person the changes reflected in such amended or
supplemented preliminary prospectus or prospectus.
b. Offer and Sale to the Public. With respect to any offering of
----------------------------
Securities, Prime Charter shall inform you by a written communication of the
public offering price, if any, the selling concession to Selected Dealers, the
reallowance (if any) to other dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance.
The public offering price, selling concession and reallowance (if any) at any
time in effect with respect to an Offering are hereinafter referred to,
respectively, as the "Offering Price," the "Concession" and the "Reallowance."
With respect to each Offering of Securities, until the provisions of this
Section 3(b) shall be terminated pursuant to Section 4 hereof, you agree to
offer Securities to the public only at the Offering Price, except that if a
Reallowance is in effect, a reallowance from the Offering Price not in excess of
such Reallowance may be allowed. If such Offering is subject to the By-Laws,
rules and regulations of the National Association of Securities Dealers, Inc.
(the "NASD"), such Reallowance may be allowed only as consideration for services
rendered in distribution to dealers which are actually engaged in the investment
banking or securities business, which execute the written agreement prescribed
by Section 24(c) of Article III of the NASD's Rules of Fair Practice and which
are either members in good standing of the NASD or are foreign banks, dealers or
institutions not eligible for membership in the NASD who represent to you that
they will promptly reoffer such Securities at the Offering Price and will abide
by the conditions with respect to foreign banks, dealers and institutions set
forth in Section 3(d) hereof. Any dealer
-3-
<PAGE>
which is allowed any Reallowance hereby agrees that such amount will be retained
and not reallowed in whole or in part. Upon our request, you will advise us of
the identity of any dealer to which you allowed a Reallowance and any
Underwriter or dealer from which you received a Reallowance,
c. Over-Allotment, Stabilization, Unsold Allotments. We may, with
------------------------------------------------
respect to any Offering, be authorized (i) to over-allot in arranging for sales
of Securities to Selected Dealers and to institutions and other retail
purchasers and, if necessary, to purchase Securities or other securities of the
issuer at such prices as we may determine for the purpose of covering such over-
allotments and (ii) for the purpose of stabilizing the market in the Securities,
to make purchases and sales of Securities or of any other securities of the
issuer or any guarantor or insurer of the Securities as we may advise you by
written communication or otherwise, in the open market or otherwise, for long or
short account, on a when-issued basis or otherwise, at such prices, in such
amounts and in such manner as we may determine. You agree that upon our request
at any time and from time to time prior to the termination of the provisions of
Section 3(b) hereof with respect to any Offering, you will report to us the
amount of Securities purchased by you pursuant to such Offering which then
remain unsold by you and will, upon our request at any such time, sell to us for
our account or the account of one or more Underwriters such amount of such
unsold Securities as we may designate at the Offering Price less an amount to be
determined by us not in excess of the Concession. If, prior to the later of (i)
the termination of the provisions of Section 3(b) hereof with respect to any
Offering or (ii) the covering by us of any short position created by us in
connection with such Offering for our account or the account of one or more
Underwriters, we purchase or contract to purchase for our account or the account
of one or more Underwriters in the open market or otherwise any Securities
purchased by you under this Agreement as part of such Offering, you agree to pay
to us on demand an amount equal to the Concession with respect to such
Securities (unless you shall have purchased such Securities pursuant to Section
2 hereof at the Offering Price, in which case we shall not be obligated to pay
such Concession to you pursuant to Section 2 hereof) plus, in each case,
transfer taxes, broker's commissions or dealer's mark-ups, if any, and accrued
interest, amortization of original issue discount or accumulated dividends, if
any, paid in connection with such purchase or contract to purchase.
d. NASD. The provisions of this Section 3(d) shall apply to any Offering
----
subject to the By-Laws, rules and regulations of the NASD.
You represent and warrant that you are a dealer actually engaged in the
investment banking or securities business and you are either a member in good
standing of the NASD or, if you are not such a member, you are a foreign bank,
dealer or institution not eligible for membership in the NASD which agrees to
make no sales within the United States of America, its territories or
possessions or to persons who are citizens thereof or residents therein (other
than through us) and to comply with all applicable rules of the NASD, including
the NASD's Interpretation with Respect to Free-Riding and Withholding, in making
sales outside the United States of America. You agree that, in connection with
any purchase or sale of any of the Securities wherein a selling concession,
discount or other allowance is received or granted, (i) you will comply with the
-4-
<PAGE>
provisions of Section 24 of Article III of the NASD's Rules of Pair Practice and
(ii) if you are a non-NASD member broker or dealer in a foreign country, you
will also comply, (A) as though you were an NASD member, with the provisions of
Sections 8 and 36 of Article III of the NASD's Rules of Fair Practice and (B)
with Section 25 thereof as that Section applies to a non-NASD member broker or
dealer in a foreign country. You represent that you are fully familiar with the
above provisions of the NASD's Rules of Fair Practice.
You represent, by your participation in an Offering, that neither you nor
any of your directors, officers, partners or "persons associated with" you (as
defined in the By-Laws of the NASD) nor, to your knowledge, any "related person"
(as defined in the By-laws of the NASD, which definition includes counsel,
financial consultants and advisors, finders, members of the selling or
distribution group, and any other persons associated with or related to any of
the foregoing) or any broker-dealer (i) within the last eighteen months has
purchased in private transactions, or intends before, at or within six months
after the commencement of the Offering of the Securities, to purchase in private
transactions, any securities (including warrants or options) of the issuer, its
parent (if any), any guarantor or insurer of the Securities or any subsidiary of
any of the foregoing or (ii) within the last twelve months had any dealings with
the issuer, any guarantor or insurer of the Securities, any seller other than
the foregoing or any subsidiary or controlling person of any of the foregoing
(other than in connection with the syndicate agreements relating to such
Offering) as to which documents or information are required to be filed with the
NASD pursuant to its Interpretation with Respect to Review of Corporate
Financing.
If we inform you that the NASD views the Offering as subject to Schedule E
to the By-Laws of the NASD, you agree that you shall, to the extent required,
offer the Securities in compliance with such Schedule and the NASD's
interpretation thereof.
If we inform you that the NASD views the Securities as interests in a
direct participation program, you agree that you shall, to the extent required,
offer the Securities in compliance with the NASD's interpretation of Section 34
of its Rules of Fair Practice.
e. Relationship among Underwriters and Selected Dealers. We shall have
----------------------------------------------------
full authority to take such action as we may deem advisable in respect of all
matters pertaining to an Offering. We may buy Securities from or sell
Securities to any Underwriter or Selected Dealer and, with our consent, the
Underwriters (if any) and the Selected Dealers may purchase Securities from and
sell Securities to each other at the Offering Price less all or any part of the
Concession. You are not authorized to act as agent for us or any Underwriter or
the issuer, any seller other than the issuer, or any guarantor or insurer of any
Securities in offering Securities to the public or otherwise.
Neither we nor any Underwriter shall be under any obligation to you except
for obligations assumed hereby or in any written communication from us to you in
connection with an Offering. Furthermore, neither we nor any Underwriter shall
be under any liability for or in respect of the validity, value or delivery of,
or title to, any Securities or any securities issuable upon exercise,
-5-
<PAGE>
conversion or exchange of any Securities; the form of, or the statements
contained in, or the validity of the registration statement, any preliminary
prospectus, the prospectus, or any amendment or supplement to any of the
foregoing or materials incorporated by reference in any of the foregoing, or
letters or instruments executed by or on behalf of the issuer, any seller other
than the issuer, any guarantor or insurer of the Securities or any other party;
the form or validity of any contract or agreement under which any Securities may
be issued or which governs the rights of holders of any Securities; the form or
validity of any agreement for the purchase of the Securities or any agreement
among underwriters; the performance by the issuer, any seller other than the
issuer, any guarantor or insurer of the Securities and any other parties of any
agreement on its or their parts; the qualification for sale in any jurisdiction
of any Securities or securities issuable upon exercise, conversion or exchange
of any Securities or the legality for investment of the Securities or such
securities under the laws of any jurisdiction; or any matter in connection with
any of the foregoing; provided, however, that nothing in this paragraph shall be
-------- -------
deemed to relieve us or any Underwriter from any liability imposed by the
Securities Act.
Nothing herein contained or contained in any written communication from us
shall constitute the Selected Dealers an association or partners with us or any
Underwriter or with one another or, in the case of an Offering involving the
public distribution of the Securities through two or more underwriting
syndicates, with any underwriter or manager participating in any such syndicate.
If the Selected Dealers, among themselves or with the Underwriters and/or such
other underwriters or managers, should be deemed to constitute a partnership for
federal income tax purposes, then you elect to be excluded from the application
of Subchapter K, Chapter I, Subtitle A of the Internal Revenue Code of 1986, as
amended, and agree not to take any position inconsistent with that election.
You authorize us, in our discretion, to execute and file on your behalf such
evidence of that election as may be required by the Internal Revenue Service.
In connection with an Offering, you shall be liable for your proportionate
amount of any tax, claim, demand or liability that may be asserted against you
alone or against one or more Selected Dealers participating in such Offering, or
against us or the Underwriters and/or such other underwriters or managers, if
any, based upon the claim that the Selected Dealers, or any of them, constitute
an association, an unincorporated business or other entity, including, in each
case, your proportionate share of any expense incurred in defending against any
such tax, claim, demand or liability.
f. Legal Qualifications. It is understood that neither we nor any
--------------------
Underwriter assumes any responsibility with respect to the right of any Selected
Dealer to offer or to sell Securities in any jurisdiction, notwithstanding any
"Blue Sky" memorandum or survey or any other information that we or any other
Underwriter may furnish as to the jurisdictions under the securities laws of
which it is believed the Securities may be sold. You authorize us to file with
the Department of State of the State of New York a Further State Notice with
respect to the Securities, if necessary.
If you propose to offer Securities outside the United States of America,
its territories or its possessions, you will take, at your own expense and risk,
such action, if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which you propose to offer
-6-
<PAGE>
Securities.
g. Compliance with Law. You agree that in selling Securities pursuant to
-------------------
any Offering (which agreement shall also be for the benefit of the issuer, any
seller other than the issuer and any guarantor or insurer of such Securities)
you will comply with the applicable provisions of the Securities Act and the
Exchange Act, the applicable rules and regulations of the Commission thereunder,
the applicable rules and regulations of the NASD, the applicable rules and
regulations of any securities exchange or other self-regulatory organization
having jurisdiction over the offering and the applicable federal state or
foreign laws, rules and regulations specified in Section 3 hereof.
You represent and agree that in connection with each Offering to which this
Agreement applies, you will comply with the provisions of Rule lOb-6 (or any
successor provision) under the Exchange Act, as amended or interpreted from time
to time by the Commission. You represent that you are fully familiar with the
provisions of said Rule.
4. Termination. This Agreement may be terminated by either party hereto
-----------
upon five business days' written notice to the other party; provided, however,
that with respect to any Offering, if we receive any such notice from you after
you have agreed to participate as a Selected Dealer in any Offering, this
Agreement shall remain in full force and effect as to such Offering and shall
terminate with respect to such Offering in accordance with the provisions of the
following paragraph.
Unless this Agreement or any provision hereof is earlier terminated by us,
and except as we may advise you in a written communication, the terms and
conditions of this Agreement will cease to be applicable to your participation
in an Offering at the close of business of the forty-fifth day after the date
the Securities are first released for public offering unless sooner terminated
by us; provided, however, that the provisions of this Agreement that contemplate
-------- -------
obligations surviving the termination of its effectiveness shall survive such
termination with respect to any Offering.
5. Amendments. This Agreement may be amended or supplemented by us by
----------
written notice to you and without need for further action on your part and,
except for amendments or supplements set forth in a written communication to you
relating solely to a particular Offering, any such amendment or supplement to
this Agreement shall be effective with respect to any Offering effected after
this Agreement is so amended or supplemented. Each reference herein to "this
Agreement" shall, as appropriate, be to this Agreement as so amended or
supplemented.
6. Successors and Assigns. This Agreement shall be binding on, and inure
----------------------
to the benefit of, the parties hereto and the other persons specified in
Sections 1 and 3 hereof, and the respective successors and assigns of each of
them.
7. Applicable Law. This Agreement and the terms and conditions set forth
--------------
herein
-7-
<PAGE>
with respect to any Offering, together with such supplementary terms and
conditions with respect to such Offering as may be contained in any written
communication to you in connection therewith, shall be governed by and construed
in accordance with the laws of the State of New York.
8. Notices. Any notice from us to you shall be deemed to have been duly
-------
given if conveyed to you by written communication or telephone (followed by
written confirmation) at the address set forth at the end of this Agreement, or
at such other address as you shall have advised us in writing. Any notice from
you to us shall be deemed to have been duly given if conveyed to us by written
communication or telephone (followed by written confirmation) at:
Prime Charter Ltd.
810 Seventh Avenue
New York, New York 10019
Attention: Syndicate Department
Telephone: (212) 977-0600
Telecopier: (212) 977-0640
Please confirm, by signing and returning this Agreement to us, your
acceptance of and agreement to the terms and conditions of this Agreement (as
amended and supplemented from time to time pursuant to Section 5 hereof),
together with and subject to any supplementary or alternative terms and
conditions contained in any written communication from us in connection with any
Offering, all of which shall constitute a binding agreement between you and us,
individually or as a representative of any Underwriters. Your subscription to,
or your acceptance of any reservation of any Securities pursuant to an Offering
shall constitute (i) confirmation that your representations and warranties set
forth in this Agreement are true and correct as of the times or for the persons
specified herein, (ii) confirmation that your agreements set forth in this
Agreement have been and will be fully performed by you to the extent and at the
times required hereby and (iii) acknowledgement that you have requested and
received from
-8-
<PAGE>
us sufficient copies of each preliminary prospectus and the prospectus with
respect to such Offering in order to comply with your undertakings contained in
Section 3(a) hereof.
Very truly yours,
PRIME CHARTER LTD.
By:_____________________________
Name:
Title:
CONFIRMED as of the date first above written:
_____________________________________________
By:__________________________________________
(If signer is not an officer or partner, please
attach evidence of authorization.)
Title:_______________________________________
Address: ___________________________________
___________________________________
___________________________________
-9-
<PAGE>
Prime Charter Ltd.
810 Seventh Avenue
New York, New York 10019
Dear Sirs or Madams:
We hereby agree to purchase ___________________ shares of common stock (such
shares, the "Securities") of Recycling Industries, Inc. in connection with the
offering (the "Offering") of the Securities, in accordance with the terms and
conditions stated in the Master Selected Dealer Agreement (the "Dealer
Agreement") executed by us.
We hereby (i) confirm that our representations and warranties set forth in the
Dealer Agreement are true and correct as of the times or for the persons
specified therein, (ii) confirm that our agreements set forth in the Dealer
Agreement have been and will be fully performed by us to the extent and at all
times required by the Dealer Agreement and (iii) acknowledge that we have
requested and received from you sufficient copies of each preliminary prospectus
and prospectus with respect to the Offering in order to comply with our
undertakings contained in Section 3(a) of the Dealer Agreement.
______________________________
Name of Selected Dealer
______________________________
Authorized Representative
Address: ___________________
___________________
___________________
Dated:_______________________
<PAGE>
EXHIBIT 4.9
DRAFT 5/22/96
WARRANT AGREEMENT
BETWEEN
RECYCLING INDUSTRIES, INC.
AND
PRIME CHARTER LTD.
DATED AS OF JUNE __, 1996
<PAGE>
WARRANT AGREEMENT dated as of June __, 1996, between RECYCLING INDUSTRIES,
INC., a Colorado corporation (the "Company"), and PRIME CHARTER LTD. ("Prime
Charter").
The Company proposes to sell to Prime Charter warrants (the "Warrants") to
purchase an aggregate of 450,105 shares (the "Warrant Shares") of the Company's
common stock, par value $0.01 per share (the "Common Stock"), in connection with
a public offering by the Company of 4,892,448 shares of Common Stock, including
492,448 shares of Common Stock to be sold by certain selling security holders
but not including an overallotment option granted to Prime Charter to purchase
up to 733,867 additional shares of Common Stock (the "Offering") pursuant to a
registration statement (the "Registration Statement") on Form S-1 (File No. 333-
4574) filed by the Company with the Securities and Exchange Commission.
THEREFORE, in consideration of the mutual undertakings contained herein,
the Company and Prime Charter hereby agree as follows:
1. Issuance of Warrants; Form of Warrant; Execution of Warrants. The
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Company shall issue, sell and deliver the Warrants to Prime Charter or, at Prime
Charter's direction, to bona fide officers or partners of Prime Charter (in each
case to a person the issuance and sale to whom is exempt from registration under
federal and any applicable state securities laws), for an aggregate purchase
price of $4,501.05, concurrently with the initial closing (the "Closing") under
the underwriting agreement dated June __, 1996 (the "Underwriting Agreement")
between the Company and Prime Charter relating to the Offering. The Warrants,
together with the purchase and assignment forms to be printed on the reverse
thereof or attached thereto, shall be substantially in the form of Exhibit A
attached hereto. The Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of its present or any future Chairman or
President, under its corporate seal affixed or in facsimile, and attested by the
manual or facsimile signature of its Secretary or Assistant Secretary.
2. Registration. The Warrants shall be numbered and shall be registered
------------
in a Warrant register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant (the "Holder") as the owner in fact thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to or interest in such Warrants on the part of any other person. The
Warrants shall be registered initially in the name of "Prime Charter Ltd." in
such denominations as Prime Charter may request in writing to the Company;
provided, however, that prior to the Closing, Prime Charter may designate that
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the Warrants be issued in varying amounts directly to its bona fide officers or
partners (in each case to a person the issuance and sale to whom would be exempt
from registration under federal and any applicable state securities laws) and
not to Prime Charter. Such designation may only be made by Prime Charter if
such issuances would not violate the interpretation of the Board of Governors of
the National Association of Securities Dealers, Inc. relating to the review of
corporate financing arrangements.
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<PAGE>
3. Transfer of Warrants.
--------------------
3.1. Restrictions. The Warrants may not be sold, assigned, transferred,
------------
pledged or hypothecated for a period of twelve (12) months after June __, 1996
(the "Effective Date"), except to Prime Charter or bona fide officers or
partners of Prime Charter. Subsequent to the expiration of such twelve (12)
month period, the Warrants shall only be transferable as follows: the Warrants
may be transferred to no more than eight (8) individuals or entities (any such
individual or entity, a "Transfer"), which Transferee is controlling, controlled
by or under common control with Prime Charter (hereinafter referred to as an
"Affiliate"), or an officer, director or employee of, or investor with, Prime
Charter or any Affiliate thereof. All Transferees shall agree not to
subsequently transfer a Warrant without the consent of the Company. Any
transfers in excess of the foregoing numerical limitation must be consented to
by the Company, other than transfers by will or pursuant to the laws of descent
and distribution. The Warrants shall be transferable only on the, books of the
Company maintained at its principal executive office (the "Company Office") upon
delivery thereof duly endorsed by the Holder or by the Holder's duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
the original power of attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and remain with the Company. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and remain with the Company in its discretion.
3.2. Registration of Transfer. Upon any registration of transfer, the
------------------------
Company shall deliver a new Warrant or Warrants to the persons entitled thereto.
The Warrants may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person, unless the Holder or
Holders thereof shall furnish to the Company evidence of compliance with the
Securities Act of 1933, as amended (the "Act"), in accordance with the
provisions of Section II of this Warrant Agreement.
4. Exercise of Warrants; Term of Warrants.
--------------------------------------
4.1. Price and Term. Each Warrant shall entitle the Holder thereof to
--------------
purchase from the Company one share of Common Stock at a purchase price per
share of $[6.60] (or at such adjusted purchase price as may be established from
time to time pursuant to the provisions of Section 8 hereof), payable in full at
the time of exercise of the Warrant. Except as the context otherwise requires,
the term "Exercise Price" as used in this Warrant Agreement shall mean the
purchase price for one Warrant Share, reflecting all appropriate adjustments
made in accordance with Section 8 hereof. Each Warrant may be exercised for a
four-year period commencing on the first anniversary of the Effective Date. No
Warrant granted herein shall be exercisable after 5:00
-2-
<PAGE>
p.m. Eastern Time on the fifth anniversary of the Effective Date (the
"Expiration Date"). After the Expiration Date, any unexercised Warrants shall be
void and all rights of Holders with respect thereto shall cease.
4.2. Payment and Exercise. The Exercise Price may be paid: (a) in cash
--------------------
in the amount of the aggregate Exercise Price then in effect for the number of
Warrants being exercised, (b) by surrender to the Company of Warrant Shares or
shares of Common Stock having a Fair Market Value (as defined below) on the date
of exercise equal to the aggregate Exercise Price then in effect for the number
of Warrants being exercised, (c) by a surrender of Warrants covering a number of
Warrant Shares having a Fair Market Value, net of the applicable Exercise Price
then in effect therefor, equal to the aggregate Exercise Price then in effect
for the number of Warrants being exercised, or (d) by a combination of the
aforementioned methods of payment. For purposes of this Agreement, the "Fair
Market Value" per Warrant Share or share of Common Stock on a given date shall
be: (i) if the Common Stock is listed on a national securities exchange or
included on the Nasdaq National Market, the closing price per share of Common
Stock on such date (or, if there was no trading on such date, on the next
preceding day on which there was trading); (ii) if the Common Stock is not
listed on a national securities exchange or included on the Nasdaq National
Market, but the "bid" and "asked" prices per share of Common Stock are provided
by Nasdaq (or the National Quotation Bureau Incorporated or any similar
organization), the average of the closing bid and asked price per share of
Common Stock on such date (or, if there was no trading in the Common Stock on
such date, on the next preceding day on which there was trading) as provided by
such organization; and (iii) if the Common Stock is not traded on a national
securities exchange and the bid and asked prices per share are not provided by
Nasdaq (or the National Quotation Bureau Incorporated or any similar
organization), as determined by the agreement of the parties in good faith or,
in the absence of such agreement, as determined pursuant to arbitration under
the auspices of the American Arbitration Association.
During the period specified in and subject to the provisions of this
Section 4, Warrants may be exercised by their surrender at the Company's
principal executive office with the Election to Purchase form set forth on (or
attached to) the Warrant duly completed and executed, accompanied by payment of
the Exercise Price for the Warrant Shares. Payment for the Warrant Shares shall
be made (a) if payment is to be made in cash, by payment in full to the Company
of the aggregate Exercise Price in effect at the time of the exercise, together
with any taxes payable pursuant to Section 5 hereof, for each share of Common
Stock with respect to which Warrants are being exercised, which amounts shall be
paid in full in United States currency, by a bank cashier's check payable to the
order of the Company or by wire transfer to an account designated by the
Company, (b) if payment is to be made through a surrender of shares of Common
Stock, by surrender of certificates duly endorsed for transfer (with all
transfer taxes paid or provided for), and (c) if payment is to be made by a
surrender of Warrants, by surrender of certificates representing such Warrants.
Promptly after the exercise of any Warrants, the Company shall issue a
certificate or certificates for the number of full Warrant Shares to which the
Holder is entitled, registered in accordance with the instructions set forth in
the Election to Purchase,
-3-
<PAGE>
together with cash as provided in Section 10 of this Warrant Agreement payable
in respect of fractional shares. All Warrant Shares shall be duly authorized and
validly issued, fully paid, nonassessable and free of preemptive rights, and
free from all taxes, liens and charges other than those created by the Holder.
Certificates representing such Warrant Shares shall be delivered by the Company
in such names and denominations as are required for delivery to, or in
accordance with the instructions of, the Holder.
4.3. Record Holder. Each person in whose name any such certificate for
-------------
Warrant Shares is issued shall for all purposes be deemed to have become the
holder of record of the Warrant Shares represented thereby on the date upon
which such Warrants were surrendered for exercise, accompanied by payment of the
Exercise Price as aforesaid, irrespective of the date of issuance or delivery of
such certificate for Warrant Shares; provided, however, that if, at the date of
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the surrender of such Warrants and payment of the Exercise Price, the transfer
books for the Warrant Shares or other class of stock purchasable upon the
exercise of such Warrants shall be closed, the certificates for the Warrant
Shares or for shares of such other class of stock in respect of which such
Warrants are then exercised shall be issuable as of the date on which such books
shall next be opened (whether before or after the Expiration Date) and, until
such date, the Company shall be under no duty to deliver any certificate for
such Warrant Shares or for shares of such other class of stock; provided,
--------
further, that the transfer books of record, unless otherwise required by law,
- -------
shall not be closed at any one time for a period longer than twenty (20) days.
4.4. Replacement Warrant. The Warrants shall be exercisable, at the
-------------------
election of the Holder thereof, in full or from time to time in part and, in the
event that less than all of the surrendered Warrants are exercised, the Company
shall execute and mail, by first-class mail, within five business days after the
date upon which the Warrants were exercised, to the Holder of such Warrants or
such other person as shall be designated in the election to purchase, a new
Warrant representing the number of full Warrants not exercised. In no event
shall a fraction of a Warrant be exercised, and the Company shall distribute no
fractions of Warrants under this or any other Section of this Warrant Agreement.
5. Payment of Taxes. The Company shall promptly pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of any
Warrants, but any transfer taxes that may be payable in connection with the
issuance of Warrants or certificates for Warrant Shares in any name other than
that of the Holder of the Warrant surrendered shall be paid by such Holder and,
if any such tax would otherwise be payable by the Company, no such issuance or
delivery shall be made unless and until the person requesting such issuance has
paid to the Company the amount of any such tax, or it is established to the
reasonable satisfaction of the Company that any such tax has been paid.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
-----------------------------
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the lost, stolen or
-4-
<PAGE>
destroyed Warrant, a new Warrant of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence reasonably satisfactory to
the Company of such loss, theft or destruction of such Warrant, together with an
appropriate agreement regarding indemnification of the Company relating to the
issuance of a replacement warrant. Applicants for such substitute Warrants shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company shall at all times
-----------------------------
reserve and keep available for issuance upon the exercise of the Warrants a
number of its authorized but unissued shares of Common Stock that will be
sufficient to permit the exercise in full of all outstanding Warrants. American
Securities Transfer, Inc., the transfer agent for the Common Stock (the
"Transfer Agent"), and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of Warrants shall be
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be sufficient for such purpose. The
Company will keep a copy of this Warrant Agreement on file with the Transfer
Agent and with every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of Warrants. The Company shall supply
the Transfer Agent (and any such subsequent transfer agent) with duly executed
stock certificates for such purpose and will provide or otherwise make available
any cash that may be payable as provided in Section 10 hereof. All Warrants
surrendered upon the exercise thereof shall be canceled and such canceled
Warrants shall constitute sufficient evidence of the number of shares of Common
Stock (or other shares of capital stock) that have been issued upon the exercise
of the Warrants. After the Expiration Date, no shares shall be subject to
reservation in respect of any unexercised Warrants.
8. Adjustments.
-----------
8.1. Adjustment of Number of Warrant Shares. The number of Warrant
--------------------------------------
Shares that the Holder of a Warrant shall be entitled to receive upon each
exercise thereof shall be determined by multiplying:
(a) the number of Warrant Shares that would otherwise (but for the
provisions of this Section 8) be issuable upon such exercise, as designated
by the Holder hereof pursuant to Section 4; by
(b) a fraction of which the numerator is $[6.60] and the
denominator is the Exercise Price in effect on the date of such exercise;
provided, however, that no adjustment pursuant to this Section 8 shall occur as
- -------- -------
a result of the following (collectively, the "Excluded Issuances"): (i) the
issuance of shares of Common stock pursuant to the Underwriting Agreement, (ii)
the issuance of Warrant Shares upon the exercise of the Warrants, (iii) the
issuance or exercise of options granted to directors, employees and consultants
of the Company or any of its affiliates (as defined in the rules and regulations
adopted
-5-
<PAGE>
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereinafter referred to as "Company Affiliates") under a plan or plans adopted
by the COmpany's Board of Directors and approved by its stockholders, or (iv)
the issuance of shares of Common Stock or any securities convertible or
exchangeable into or exercisable for Common Stock to any corporation or other
entity (or the stockholders or other holders of instruments or securities
representing ownership of a voting or equity interest in such corporation or
entity) which merges into the Company or from which the Company acquires assets
or securities and some or all of the consideration consists of equity securities
of the Company, provided that the number of shares of Common Stock or securities
convertible into shares of Common Stock issued in connection with such a
transaction shall not constitute, on a fully diluted basis (calculated
subsequent to the closing of such transaction), more than twenty percent (20%)
of the outstanding Common Stock of the Company.
8.2. Adjustment of Exercise Price.
----------------------------
8.2.1. Initial Exercise Price. The Exercise Price, which initially will
----------------------
be $[6.60], shall be adjusted and readjusted from time to time as provided in
this Section 8 and, as so adjusted or readjusted, shall remain in effect until a
further adjustment or readjustment thereof is required by this Section 8;
provided, however, that there shall be no adjustment of the Exercise Price due
- -------- -------
to the Excluded Issuances.
8.2.2. Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company, at any time or from time to time after the Effective Date, shall issue
Additional Shares of Common Stock (as defined below), including Additional
Shares of Common Stock deemed to be issued pursuant to Section 8.3, without any
consideration therefor in connection with a dividend or other distribution on
Common Stock (including, without limitation, any distribution of Common Stock
(or securities that are convertible into or exchangeable or exercisable for
Common Stock, in each case without the payment of any consideration) by way of
dividend, spin-off, reclassification or corporate rearrangement), then, and in
each such case, the Exercise Price shall be reduced, subject to Section 8.5,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction of which:
(a) the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such issue, and
(b) the denominator shall be the number of shares of Common Stock
outstanding immediately after such issue.
For purposes of this Section 8.2.2, (i) immediately after any Additional Shares
of Common Stock shall be deemed to be issued pursuant to Section 8.3, such
Additional Shares of Common Stock shall be deemed to be outstanding, and (ii)
treasury shares shall not be deemed to be outstanding. "Additional Shares of
Common Stock" shall mean all shares of Common Stock (including treasury
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<PAGE>
shares) issued (or deemed to be issued pursuant to Section 8.3) by the Company
(other than Excluded Issuances) after the date hereof, whether or not
subsequently reacquired or retired by the Company.
8.2.3. Dividends and Distributions. In case the Company shall at any time
---------------------------
after the Effective Date declare, order, pay or make a dividend or other
distribution on the Common Stock (including without limitation any distribution
of stock or other securities, property or options by way of dividend, spin-off,
reclassification, or corporate rearrangement) then, and in each such case, the
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or other distribution shall be reduced,
subject to Section 8.5, effective as of the close of business on such record
date, to a price (calculated to the nearest cent) determined by multiplying such
Exercise Price by a fraction of which:
(a) the numerator shall be the Exercise Price in effect
immediately prior to the close of business on such record date minus the
value of such dividends or other distributions (as determined in good faith
by the Board of Directors of the Company) applicable to one share of Common
Stock, and
(b) the denominator shall be such Exercise Price in effect
immediately prior to the close of business on such record date.
provided, however, that no such reduction shall be made pursuant to this Section
- -------- -------
8.2.3 for a dividend payable in Additional Shares of Common Stock, or a dividend
payable in cash or other property and declared out of the earned surplus (i.e.,
retained earnings) of the Company (excluding any portion thereof resulting from
a revaluation of property). For purposes of the foregoing, a dividend payable
other than in cash shall be considered payable out of earned surplus only to the
extent that such earned surplus is charged an amount equal to the fair value of
such dividend at the time of declaration as determined in good faith by the
Board of Directors of the Company.
8.3. Treatment of Stock Dividends, Stock Splits, etc. In case the
-----------------------------------------------
Company at any time after the Effective Date shall fix a record date for the
determination of holders of any class of securities entitled to receive any
dividend or other distribution on any class of stock of the Company payable in
Common Stock, or shall otherwise effect any subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock, then,
and in each such case, Additional Shares of Common Stock shall be deemed to be
issued (a) in the case of any such dividend or other distribution, immediately
after the close of business on such record date, or (b) in the case of any such
subdivision, at the close of business on the day immediately prior to the day
upon which such corporate action shall have become effective.
8.4. Adjustments for Combinations, etc. In case the outstanding shares
---------------------------------
of Common
-7-
<PAGE>
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be increased
proportionately.
8.5 Minimum Adjustment of Exercise Price. If the amount of any
------------------------------------
adjustment of the Exercise Price required pursuant to this Section 8 would be
less than $0.01, such amount shall be carried forward, and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment that, together with such amount and any other amount or amounts so
carreid forward, shall aggregate at least $0.01.
9. Consolidation, Merger, Sale of Assets, Reorganization, etc.
-----------------------------------------------------------
9.1. General Provisions. In case the Company at any time after the
------------------
Effective Date (a) shall consolidate with or merge into any other Person (as
defined below) and shall not be the continuing or surviving Person of such
consolidation or merger, or (b) shall permit any other Person to consolidate
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, Common
Stock or Other Securities (as defined below) shall be changed into or exchanged
for cash, stock or other securities or any other property, or (c) shall
transfer, directly or indirectly through transactions involving any of or all
its subsidiaries, all or substantially all its properties and assets to any
other Person or (d) shall effect a capital reogranization or reclassification of
Common Stock or Other Securities (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment of the Exercise Price is provided in Sections 8.2.2 or 8.3),
then, and in the case of each such transaction, the Company shall make proper
provision such that, upon the terms and in the manner provided in Section 8, the
Holder of this Warrant, upon the exercise hereof at any time after the
consummation of each such transaction, shall be entitled to receive, at the
Exercise Price in effect immediately prior to such consummation, in lieu of the
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation, the highest amount of cash, securities or other property
to which such Holder would actually have been entitled as a stockholder upon
such consummation if such Holder had exercised this Warrant in full immediately
prior thereto, subject to adjustments subsequent to such consummation as nearly
equivalent as possible to the adjustments provided for in Section 8 and this
Section 9; provided, however, that if prior to the consummation of such
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transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock, and if the Holder of this Warrant, by written notice to the Company (in
compliance with Section 15) signed on or before the date immediately preceding
the date of expiration of such purchase, tender or exchange offer, declares an
intention to exercise this Warrant in whole or in part, such Holder shall be
entitled, upon consummation of such offer, to receive upon exercise the highest
amount of cash, securities or other property to which such Holder would actually
have been entitled as a stockholder if such Holder had exercised this Warrant
prior to the expiration of such purchase, tender or exchange
-8-
<PAGE>
offer, and if all shares of Common Stock which such Holder would have owned as a
result of such exercise had been purchased pursuant to such purchase, tender or
exchange offer, subject to adjustments from and after the consummation of such
purchase, tender or exchange offer as nearly equivalent as possible to the
adjustments provided for in Section 8. "Person" shall mean an individual, a
corporation, a patnership, a trust, an unincorporated organization or a
government or any agengy or political subdivision thereof. "Other Securities"
shall mean any stock (other than Common Stock) of the Company or of any other
Person that the Holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or that at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to this Section 9 or otherwise.
9.2. Assumption of Obligation. Notwithstanding anything contained in this
------------------------
Warrant Agreement to the contrary, the Company shall not effect any of the
transactions described in subdivisions (a) through (d) of Section 9.1 unless,
prior to the consummation thereof, each Person (other than the Company) that may
be required to deliver any cash, stock or other securities or other property
upon the exercise of this Warrant as provided herein shall assume, by written
instrument delivered to the Holder of the Warrants, (a) the obligations of the
Company under this Warrant Agreement and the Warrants (and if the Company shall
survive the consummation of any such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant Agreement and the Warrants) and (b) the
obligation to deliver to such Holder such cash, stock or other securities or
other property as such Holder may be entitled to receive in accordance with the
provisions of this Section 9. Such Person shall have similarly delivered to the
Company an opinion of counsel for such Person, stating that this Warrant
Agreement and the Warrants shall continue in full force and effect after any
such transaction and that the terms hereof (including, without limitation, all
of the provisions of Section 8 and this Section 9.2) and thereof shall be
applicable to the cash, stock or other securities or other property that such
Person may be required to deliver upon any exercise of the Warrants or the
exercise of any rights pursuant hereto or thereto.
9.3. Other Dilutive Events. The Board of Directors of the Company shall
---------------------
have an ongoing obligation to determine in good faith whether any event has
occurred as to which the provisions of Section 9 shall not be strictly
applicable, but with respect to which the failure to make any adjustment to the
Exercise Price would not fairly protect the purchase rights represented by this
Warrant in accordance with the intent and principles of that Section. In each
case in which such determination shall be made, the Company shall appoint a firm
of independent public accountants reasonably acceptable to Prime Charter or the
holders of a majority-in-interest of the Warrants, which shall give its opinion
upon the adjustments, if any, consistent with the intent and principles
established in Sections 8 and 9, necessary to preserve without dilution the
purchase rights represented by this Warrant Agreement and the Warrants. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the
Holder of the Warrants and shall make the adjustments described therein.
-9-
<PAGE>
9.4. No Dilution or Impairment. The Company shall not, by amendment of
-------------------------
its articles of incorporation or by-laws or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue, sale, grant or
assumption of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Agreement or
the Warrants, but will at all times, whether or not requested to do so, in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holders of the Warrants against dilution or other impairment. Without limiting
the generality of the foregoing, the Company agrees that it shall take all such
reasonable action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of stock upon
the exercise of all Warrants from time to time outstanding.
9.5. Notice, Evidence of Adjustments. Whenever the Exercise Price is
-------------------------------
adjusted as herein provided, the Company shall promptly cause a notice setting
forth the adjusted Exercise Price and adjusted number of Warrant Shares issuable
upon exercise of each Warrant to be mailed to the Holders, at their last address
appearing in the Warrant register, and shall cause a certified copy thereof to
be mailed to the Transfer Agent. The Company shall retain a firm of independent
public accountants of recognized standing selected by the Board of Directors
(who may be the regular accountants employed by the Company) to make any
computation required by Section 8, and a certificate signed by such firm shall
accompany said notice and shall be conclusive evidence of the correctness of
such adjustment.
10. Fractional Interests. The Company shall not be required to issue
--------------------
fractions of shares of Common Stock on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of Warrant Shares that shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a share
of Common Stock would, except for the provisions of this Section 10, be issuable
on the exercise of any Warrant (or specified portions thereof), the Company
shall purchase such fraction for an amount in cash equal to the same fraction of
the Fair Market Value of one share of Common Stock on the date of exercise.
11. Restrictions on Dispositions. The Warrant Shares have not been
----------------------------
registered under the Act pursuant to the Registration Statement. Prime Charter
represents and warrants to the Company that it understands that (a) the Warrant
and the Warrant Shares may not be transferred except pursuant to (i) an
effective registration statement under the Act, or (ii) any available exemption
from registration under the Act permitting such disposition of securities and an
opinion of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available and (b) the Warrants may not be
transferred except in accordance with the provisions of Section 3 and pursuant
to an effective registration statement under the Act relating thereto or
pursuant to any available exemption from registration under the Act permitting
such disposition of securities and an opinion of counsel, reasonably
satisfactory to counsel for the
-10-
<PAGE>
Company, that an exemption from such registration is available.
12. Certificates to Bear Legends. The Warrants shall be subject to a
----------------------------
stop-transfer order and the certificate or certificates therefor shall bear the
following legend:
NEITHER THE WARRANTS NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR MAY BE
SOLD OR TRANSFERRED PRIOR TO JUNE __, 1997 (SUBJECT TO CERTAIN LIMITED
EXCEPTIONS). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE
WARRANTS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE
WARRANT AGREEMENT DATED AS OF JUNE __, 1996 BETWEEN RECYCLING INDUSTRIES, INC.
AND PRIME CHARTER LTD., PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT RELATING THERETO OR PURSUANT TO ANY AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT PERMITTING SUCH DISPOSITION OF SECURITIES AND AN
OPINION OF COUNSEL, REASONABLY SATISFACTOR TO COUNSEL FOR THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
The Warrant Shares or other securities issued upon exercise of the Warrants
shall be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear a legend in
substantially the following form:
THE WARRANT SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, OR (ii) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO
THE DISPOSITION OF SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION FROM REGISTRAT1ON UNDER THE ACT IS
AVAILABLE.
13. Registration Rights.
-------------------
13.1. Demand Registration. Upon written request of the Holder(s) of at
-------------------
least a majority of the then-outstanding Warrants (including Warrant Shares, if
issued) made at any time within the period commencing one year and ending five
years after the Effective Date, the Company shall file within a reasonable
period of time and, in any event, within ninety days after receipt of such
-11-
<PAGE>
written request, at its sole expense, on no more than one occasion a
registration statement under the Act registering the Warrant Shares for sale to
the public. Within fifteen days after receiving any such notice, the Company
shall give notice to the other Holders of the Warrants and the Warrant Shares
advising that the Company is proceeding with such registration statement, and
offering to include therein the Warrant Shares of such other Holders. The
Company shall not be obligated to include the Warrent Shares of any such other
Holder in such registration unless such other Holder shall accept such offer by
notice in writing to the Company within fifteen days after receipt of such
notice from the Company. The Holders of Warrants and Warrant Shares shall have
priority over all other securities to be included in such registration, and no
other securities shall be entitled to participate in such registration if the
inclusion of such securities would have a material adverse effect on the
marketing of the Warrant Shares. The Company shall use its best efforts, through
its officers, directors, auditors and counsel in all matters necessary or
advisable, to file and cause such registration statement to become effective as
promptly as practicable and to remain effective for a period of ninety days
thereafter, to reflect in the registration statement financial statements that
are prepared in accordance with Section 10(a)(3) of the Act, and to amend or
supplement such registration statement to reflect any facts or events arising
that, individually or in the aggregate, represent a material change in the
information set forth in the registration statement to enable any Holders of
Warrants to exercise Warrants and/or sell the underlying Warrant Shares during
such ninety day period. If any registration pursuant to this Section 13.1 is an
underwritten offering, the Holders of a majority of the Warrants and/or Warrant
Shares to be included in such registration will select an underwriter (or
managing underwriter if such offering should be syndicated) approved by the
Company, such approval not to be unreasonably withheld. Notwithstanding anything
in this Warrant Agreement to the contrary, the Company shall be entitled to
postpone for a reasonable period of time (not exceeding ninety days) the filing
or effectiveness of any registration statement otherwise required to be prepared
and filed by it pursuant to this Section 13.1 if the Company's Board of
Directors determines, in its reasonable discretion, that such registration and
offering would adversely affect any financing, acquisition, corporate
reorganization or other material transaction involving the Company and the
Company promptly gives the Holders written notice of such determination
specifying the grounds therefor and an estimate of the anticipated delay. If the
Company shall so postpone the filing of a registration statement, a majority-in-
interest of the requesting Holders shall have the right to withdraw the request
for demand registration by giving written notice to the Company within thirty
days after receipt of the notice of postponement. No registration shall be
counted as the demand registration to which the Holders are entitled pursuant to
this Section 13.1 unless the Holders are able to register and sell at least 90%
of the Warrant Shares requested to be included therein.
13.2. Piggyback Registration. If, at any time within the period
----------------------
commencing one year and ending five years after the Effective Date, the Company
proposes to register any securities under the Act in a primary registration on
behalf of the Company and/or in a secondary registration on behalf of holders of
such securities, and the registration form to be used may be used for
registration of the Warrant Shares, the Company shall give prompt written notice
(which,
-12-
<PAGE>
in the case of a registration pursuant to the exercise of demand registration
rights other than those provided in Section 13.1 above, shall be within ten
business days after the Company's receipt of notice of such exercise and, in any
event, shall be at least thirty (30) days prior to the date of such filing) to
the Holders of Warrants and/or Warrant Shares (regardless of whether some of the
Holders shall have theretofore availed themselves of the demand right provided
in Section 13.1 hereof) at the address(es) appearing on the records of the
Company of its intention to effect registration and shall offer to include in
such registration such number of Warrant Shares with respect to which the
Company has received written requests for inclusion therein within ten business
days after receipt of such notice from the Company. This Section 13.2 is not
applicable to any registration statement to be filed by the Company on Forms S-4
or S-8 or any successor forms. The Company shall not be obligated to cause to be
effective any registration statement as to which it has given notice to the
Holders of Warrants and/or Warrant Shares and shall have discretion to withdraw
any such registration without liability to Holders of Warrants and/or Warrant
Shares.
Notwithstanding the foregoing, if the managing underwriter of the offering
being registered shall determine in good faith and advise the Company in writing
that the distribution of the Warrant Shares requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company, then the Company and the managing underwriter may reduce the number of
Warrant Shues to be registered on a pro-rata basis proportionate to the
reduction of all other holders of securities participating in such registration
pursuant to the exercise of piggyback registration rights. In such event, the
Company may reduce the number of Warrant Shares to be registered to zero as long
as long as no other securities are registered in such registration statement
pursuant to an exercise of piggyback registration rights.
13.3. Other Rights. In addition to the rights above provided, the Company
------------
will cooperate with the Holders of the Warrants and/or Warrant Shares in
preparing and signing any registration statement or notification on Form I-A
promulgated under the Act (if the Company is eligible to use such form at such
time) in addition to the registration statements and notifications discussed
above that are required in order to sell or transfer the Warrant Shares and will
supply all information required therefor, but such additional registration
statement or notification shall be at the Holders' cost and expense unless the
Company elects to register or qualify additional shares of the Common Stock, in
which case the cost and expense of such registration statement or notification
will be pro rated between the Company and the Holders according to the aggregate
sales price of the securities being issued. Notwithstanding the foregoing, the
Company will not be required to file a registration statement or notification on
Form I-A pursuant to this Section 13.3 at a time when the audited financial
statements required to be included therein are not available, which time shall
be deemed to be the period commencing forty-five days prior to the end of a
fiscal year of the Company and ending ninety days after the end of such fiscal
year. Notwithstanding anything in this Warrant Agreement to the contrary, the
Company shall be entitled to postpone for a reasonable period of time (not
exceeding ninety days) the filing or
-13-
<PAGE>
effectiveness of any registration statement otherwise required to be prepared
and filed by it pursuant to this Section 13.3 if the Company determines, in its
sole discretion, that such registration and offering would adversely affect any
financing, arquisition, corporate reorganization, or other material transaction
involving the Company and the Company promptly gives the Holders written notice
of such determination specifying the grounds therefor and an estimate of the
anticipated delay.
13.4. Action to be Taken by the Company. In connection with the
---------------------------------
registration of Warrant Shares in accordance with Section 13 hereof, the Company
shall:
(a) Bear the expenses of any registration under Sections 13.1 or
13.2, including but not limited to legal, accounting and printing fees,
including the fees and disbursements of one legal counsel retained by the
Holders of Warrant Shares; provided, however, that in no event shall the
-------- -------
Company be obligated to pay any underwriters' discount or commission
payable in respect of such Warrant Shares, payment of which shall be the
sole responsibility of the Holders of the Warrant Shares;
(b) Use its best efforts to register or qualify the Warrant Shares
for offer or sale under state securities or blue sky laws of such
jurisdictions in which the participating Holders propose to offer Warrant
Shares, and to do any and all other acts and things that may be necessary
or advisable to enable the Holders to consummate the proposed sale,
transfer or other disposition of such securities in any jurisdiction,
provided, however, that the Company shall not be required to qualify as a
-------- -------
foreign corporation in connection with such qualification if not otherwise
required to do so; and
(c) Indemnify each Holder of Warrant Shares for any liability,
cost or expense arising out of any untrue statement of material fact
contained in such registration statement or any omission of material fact
required in order to make the statements contained in such registration
statement not misleading (other than misstatements or omissions contained
in materials supplied by the Holders in writing for inclusion in the
registration statement) and enter into an underwriting agreement, in
customary form, with the underwriter(s) for any underwritten offering of
Warrant Shares.
13.5. Securities Law Compliance. The Company covenants that it will
-------------------------
timely file all reports required to be filed by it under the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). So long as
the Company is subject to the periodic reporting requirements of the Exchange
Act, the Company covenants to make publicly available such information as may be
necessary to permit the sale of Warrant Shares without registration under the
Act pursuant to the exemption provided by Rule 144 under the Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Securities and Exchange Commission. Upon the request of any
Holder of Warrants or Warrant Shares at any time, the Company will deliver to
such Holder or such Holder's prospective transferee such
-14-
<PAGE>
information as may be necessary to permit the sale of Warrants or Warrant Shares
pursuant to Rule 144A under the Act, as such rule may be amended from time to
time. Upon request of any Holder of Warrants or Warrant Shares, the Company will
deliver to such Holder a written statement as to whether it has complied with
such information requirements.
14. Notices to Holders.
------------------
14.1. Nothing contained in this Warrant Agreement or in any of the
Warrants shall be construed as conferring upon the Holders thereof the right to
vote or to receive dividends or to consent or to receive notice as stockholders
in respect of the meetings of stockholders or the election of directors of the
Company or any other matter, or any rights whatsoever as stockholders of the
Company; provided, however, that in the event that a meeting of stockholders
-------- -------
shall be called to consider and take action on a proposal for the voluntary
dissolution of the Company (other than in connection with a consolidation,
merger, or sale of all, or substantially all, of its property, assets, business
and goodwill as an entirety), the Company shall cause a notice thereof to be
sent by first-class mail, postage prepaid, at least twenty days prior to the
date fixed as a record date or the date of closing of the transfer books in
relation to such meeting, to each registered Holder of Warrants at such Holder's
address appearing on the Warrant register; but failure to mail or to receive
such notice or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such voluntary dissolution. If
such notice shall have been so given and if such a voluntary dissolution shall
be authorized at such meeting or any adjournment thereof, then from and after
the date on which such voluntary dissolution shall have been duly authorized by
the stockholders, the purchase rights represented by the Warrants and all other
rights with respect thereto shall cease and terminate.
14.2. In the event the Company intends to:
(a) make any distribution on or to holders of its Common Stock
generally (or other securities that may be purchasable in lieu thereof upon
the exercise of Warrants), including, without limitation, any dividend or
distribution from earned surplus, any dividend or distribution of stock,
assets or evidences of indebtedness, any distribution to be made in
connection with a consolidation or merger in which the Company is the
surviving corporation or any distribution of shares of stock of any
corporation at least a majority of whose outstanding stock is owned by the
Company.
(b) issue Additional Shares of Common Stock, or subscription
rights or warrants to holders of its Common Stock generally, or
(c) consolidate with or merge into another corporation, or sell or
convey its property as an entirety or substantially as an entirety to
another corporation,
then the Company shall cause a notice of its intention to take such action to be
sent by first-class
-15-
<PAGE>
mail, postage prepaid, at least twenty days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such distribution, issuance, or proposed consolidation,
merger, sale or conveyance, to each registered Holder of Warrant at such
Holder's address appearing on the Warrant register, but failure to mail or to
receive such notice or any defect therein or in the mailing thereof shall not
affect the validity of any action taken in connection with such distribution,
issuance, or proposed consolidation, merger, sale or conveyance, or issuance.
15. Notices. Any notice or demand required by this Warrant Agreement to
-------
be given or made by the Holder to or on the Company shall be sufficiently given
or made if sent by first-class or registered mail, postage prepaid, or by
facsimile transmission addressed as follows:
Recycling Industries, Inc.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
(303) 790-7372 (phone)
(303) 790-4252 (fax)
Attention: Chief Executive Officer
Any notice or demand required by this Warrant Agreement to be given or made by
the Company to or on the Holder of any Warrant shall be sufficiently given or
made, whether or not such Holder receives the notice, if sent by first-class or
registered mail, postage prepaid, addressed to such Holder at his last address
as shown on the books of the Company.
16. Governing Law. The validity, interpretation and performance of this
-------------
Warrant Agreement, of each Warrant issued hereunder and of the respective terms
and provisions thereof shall be governed by the law of the State of New York
without giving effect to principles of conflicts of law.
17. Counterparts. This Warrant Agreement may be executed in any number of
------------
counterparts, each of which so executed shall be deemed to be an oiginal; but
such counterparts shall together constitute but one and the same instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Warrant Agreement as of
the date first set forth above.
RECYCLING INDUSTRIES, INC.
By:________________________________
Name: Thomas J. Wiens
Title: Chairman of the Board
PRIME CHARTER LTD.
By:_________________________________
Name: Sylvan Schetter
Title: Vice Chairman
-17-
<PAGE>
EXHIBIT A
(Form of Warrant)
NEITHER THE WARRANTS NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR MAY BE
SOLD OR TRANSFERRED PRIOR TO JUNE __, 1997 (SUBJECT TO CERTAIN LIMITED
EXCEPTIONS). SUCH SECURITIES MAY NOT BE OFFERRED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE
WARRANTS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE
WARRANT AGREEMENT DATED AS OF JUNE __, 1996 BETWEEN RECYCLING INDUSTRIES, INC.
AND PRIME CHARTER LTD., PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT RELATING THERETO OR PURSUANT TO ANY AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT PERMITTING SUCH DISPOSITION OF SECURITIES AND AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
No._______________ _______ Warrants
Void After 5:00 p.m. New York City Time
On June __, 2001
RECYCLING INDUSTRIES, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received PRIME CHARTER LTD., or registered
assigns, is the registered Holder of the number of Warrants set forth above,
each Warrant entitling the owner thereof to purchase any any time from June __,
1997 until 5:00 p.m., New York City time on June __, 2001 (the "Expiration
Date"), one fully paid and nonassessable share of common stock, par value $0.001
per share ("Common Stock"), of Recycling Industries, Inc., a Colorado
corporation (the "Company"), at a purchase price per share (the "Exercise
Price") initially equal to $[6.60] upon presentation and surrender of this
Warrant Certificate with the Form of Election to Purchase (attached hereto) duly
executed. The number of Warrants evidenced by this Warrant
-18-
<PAGE>
Certificate (and the number of shares that may be purchased upon exercise
thereof, any such shares of Common Stock being referred to as "Warrant Shares")
set forth above, and the Exercise Price per share set forth above, are the
number and Exercise Price as of the date of original issuance of the Warrant,
based on the shares of Common Stock of the Company as constituted at such date.
As provided in the Warrant Agreement referred to below, the Exercise Price and
the number or kind of shares that may be purchased upon the exercise of the
Warrants evidenced by this Warrant Certificate are subject to modification and
adjustment upon the happening of certain events.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated as of June __,
1996 (the "Warrant Agreement") between the Company and Prime Charter Ltd., which
Warrant Agreement is hereby incorporated herein by referenre and made a part
hereof and to which reference is hereby made for a full description of the
rights, limitations of rights, duties and immunities hereunder of the Company
and the Holders of the Warrant Certificates. Copies of the Warrant Agreement
are on file at the principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the Holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such Holder to purchase. If this Warrant
Certificate shall be exercised in part, the Holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
The Exercise Price may be paid: (a) in cash in the amount of the aggregate
Exercise Price then in effect for the number of Warrants being exercised, (b) by
surrender to the Company of Warrant Shares or shares of Common Stock having a
Fair Market Value (as defined in the Warrant Agreement) on the date of exercise
equal to the aggregate Exercise Price then in effect for the number of Warrants
being exercised, (c) by surrender of Warrants representing a number of Warrant
Shares with a Fair Market Value (net of the applicable Exercise Price therefor)
equal to the aggregate Exercise Price then in effect for the number of Warrants
being exercised, or (d) by a combination of the aforementioned methods of
payment.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
No Holder of this Warrant Certificate shall be entitled to vote or to
receive dividends or to consent or to receive notice as a stockholder at the
meetings of stockholders for the election of directors of the Company or any
other matter, or to any rights whatsoever as stockholder of the
-19-
<PAGE>
Company, except as may be provided in the Warrant Agreement, until the Warrant
or Warrant evidenced by this Warrant Cerdficate shall have been exercised and
the Warrant Shares shall have become deliverable as provided in the Warrant
Agreement.
If this Warrant Cerfificate shall be surrendered for exercise within any
period during which the transfer books for the Common Stock or other class of
stock purchasable upon the exercise of this Warrant are closed for any purpose,
the Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of said transfer
books.
IN WITNESS WHEREOF, Recycling Industries, Inc. has caused the signature (or
facsimile signature) of its Chairman and Secretary to be printed hereon and its
corporate seal (or facsimile) to be printed hereon.
Dated: June ___, 1996
RECYCLING INDUSTRIES, INC.
By:_____________________________
Name:
Title:
(Corporate Seal)
Attest:
___________________________
Secretary
-20-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered Holder if
such Holder desires to transfer the Warrant Certificates).
TO RECYCLING INDUSTRIES, INC.
FOR VALUE RECEIVED, __________________________ hereby sells assigns and
transfers unto _______________________ this Warrant Certificate, togetther with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ______________________________, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
DATED: ________________, 19__
Signature______________________________
Signature Guaranteed:
NOTICE:
The Signature of the foregoing assignment must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
-21-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if Holder desires to exercise the Warrants evidenced by the
within Warrant Certificate).
TO RECYCLING INDUSTRIES, INC.:
The undersigned hereby (1) irrpvocably elects to exercise _________________
Warrants represented by this Warrant Certificate to purchase ____ shares of
Common Stock issuable upon the exercise of such Warrants, (2) makes payment in
full of the aggregate Exercise Price for such Warrants by enclosure of a bank
cashier's check or money order thcrefor or by surrendering Warrants, Warrant
Shares or shares of Common Stock for application to the aggregate Exercise
Price, upon condition that new Warrants be issued to the undersigned for the
balance of the Warrants remaining, and (3) requests that certificates for shares
be issued in the name of:
(Please insert social security or other
identifying number) ______________
______________________________________
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Cerfificate, a new Warrant Cerfificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security or other
identifying number _______________
______________________________________
(Please print name and address)
Dated: __________________, 19__
______________________________
Signature
-22-
<PAGE>
(Signature must conform in all respects to name of holder as specified on the
face of this Warrant Certificate)
Signature Guaranteed:
-23-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports dated:
<TABLE>
<CAPTION>
REPORT DATE: FINANCIAL STATEMENTS OF:
------------ ------------------------
<S> <C>
March 22, 1996 Anglo Metal, Inc.
dba Anglo Iron & Metal
April 5, 1996 Mid-America Shredding, Inc.
April 21, 1996 Weissman Iron & Metal,
a Division of Weissman Industries, Inc.
November 3, 1995 Recycling Industries, Inc.
</TABLE>
and to the reference made to our firm under the caption "Experts" included in
or made part of this S-1 Registration Statement.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
MAY 23, 1996
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Recycling Industries, Inc.
Denver, Colorado
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated May 17, 1996, relating to the
consolidated financial statements of Recycling Industries, Inc. which is
contained in that Prospectus and of our report dated May 17, 1996 relating to
the supplemental schedules which are contained in the Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO SEIDMAN, LLP
Denver, Colorado
May 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED AS
PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (Registration No. 333-4574) TO
WHICH THIS SCHEDULE IS AN EXHIBIT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,240,000
<SECURITIES> 0
<RECEIVABLES> 2,254,000
<ALLOWANCES> 10,000
<INVENTORY> 2,076,000
<CURRENT-ASSETS> 6,629,000
<PP&E> 8,790,000
<DEPRECIATION> 369,000
<TOTAL-ASSETS> 19,938,000
<CURRENT-LIABILITIES> 6,524,000
<BONDS> 0
0
1,312,000
<COMMON> 10,000
<OTHER-SE> 9,571,000
<TOTAL-LIABILITY-AND-EQUITY> 19,938,000
<SALES> 10,735,000
<TOTAL-REVENUES> 10,763,000
<CGS> 9,352,000
<TOTAL-COSTS> 9,352,000
<OTHER-EXPENSES> 1,553,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245,000
<INCOME-PRETAX> (387,000)
<INCOME-TAX> (437,000)
<INCOME-CONTINUING> 50,000
<DISCONTINUED> 0
<EXTRAORDINARY> 48,000
<CHANGES> 0
<NET-INCOME> 98,000
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
