<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No. )
Recycling Industries, Inc.
--------------------------------
(Name of Issuer)
Recycling Industries, Inc.
--------------------------------
(Name of Person(s) Filing Statement)
Series G Common Stock Purchase Warrants
Series J Common Stock Purchase Warrants
----------------------------------------------
(Title of Class of Securities)
Not Applicable
--------------------------------
(CUSIP Number of Class of Securities)
Luke F. Botica
Vice Chairman
Recycling Industries, Inc.
9780 South Meridian Boulevard, Suite 180
Englewood, Colorado 80112
(303) 790-7372
With Copies To:
Gerald Raskin, Esq.
John W. Kellogg, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
(303) 571-1400
---------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
March 9, 1998
-------------------------------------
(Date Tender First Published,Sent or Given to Security Holders)
CALCULATION OF FILING FEE
Transaction Valuation: $3,865,781* Amount of Filing Fee: $773
* Fee calculated pursuant to Section 13(e)(3) of the Exchange Act and Rule
0-11 promulgated thereunder, based upon the aggregate value of the shares of
the Issuer's Common Stock to be issued in the transaction, using the closing
market price of the Common Stock as reported on NASDAQ NMS on March 5, 1998
of $5.813 per share.
[ ] Check box if any part of the fee is offset as provided by Rule 0-1 l(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number or the Form
or Schedule and the date of its filing.
Amount Previously Paid: _________________________________
<PAGE>
Form, or Registration No.: ________________________________
Filing Party: _____________________________________________
Date Filed: ____________________________________________
-2-
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Recycling Industries, Inc., a Colorado
corporation (the "Issuer"). The principal executive offices of the Issuer are
located at 9780 South Meridian Boulevard, Suite 180, Englewood, Colorado 80112.
(b) The Issuer is seeking to exchange each of its outstanding Series G
Common Stock Purchase Warrants (the "Series G Warrants") and Series J Common
Stock Purchase Warrants (the "Series J Warrants)(collectively the Series G
Warrants and the Series J Warrants are referred to as the "Warrants") for
.2517291 shares of the Issuer's common stock, $.001 par value per share (the
"Common Stock"). As of February 5, 1998, there were 2,070,878 Series G
Warrants and 570,944 Series J Warrants outstanding, all of which expire on
December 27, 1999.
The terms and conditions of the exchange offer are set forth in the
Issuer's March 9, 1998 Offering Circular (the "Offering Circular"), and the
related Letter of Transmittal (the"Exchange Offer"). Copies of the Offering
Circular and the Letter of Transmittal are filed as Exhibits (a)(1) and
(a)(2), respectively to this Schedule 13E-4. Officers, directors and
affiliates of the Issuer who are holders of the Warrants may participate in
the Exchange Offer on the same terms as all other holders of Warrants.
Directors of the Company who own an aggregate of 18,000 Warrants have
indicated that they intend to participate in the Exchange Offer.
(c) There is currently no established trading market for the Warrants.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration being offered in the Exchange Offer consists of
.2517291 shares of Common Stock for each Warrant as further described and
incorporated by reference to the Offering Circular under the captions
"Summary -- The Exchange Offer" and "The Exchange -- Terms of the Exchange
Offer." The Issuer had previously reserved 2,641,822 shares of its
authorized but unissued Common Stock for issuance upon exercise of the
Warrants. The Issuer has reserved 665,024 shares of its authorized but
unissued Common Stock for issuance upon exchange of the Warrants.
(b) Not Applicable.
-3-
<PAGE>
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The purpose of the Exchange Offer is described and incorporated by
reference to the Offering Circular under the captions "Summary -- Purposes and
Effects of the Exchange Offer," "The Exchange Offer -- Purposes and Effects of
the Exchange Offer."
All Warrants that are exchanged pursuant to the terms and conditions of the
Exchange Offer will be canceled upon consummation of the Exchange Offer. The
Issuer presently has no plans or proposals that relate to or would result in any
of the events listed in Items 3(a)-3(j) of Schedule 13E-4, except as follows:
(a) Information concerning the disposition of Warrants pursuant to the
Exchange Offer by directors, officers and affiliates of the Issuer is contained
and incorporated by reference to the Offering Circular under the caption
"Interests of Directors, Officers and Affiliates."
(e) The change in the capitalization of the Issuer resulting from the
issuance of Common Stock upon consummation of the Exchange Offer is described
and incorporated by reference to the Offering Circular under the caption
"Pro-Forma Effect of the Exchange Offer."
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Based upon the Issuer's records and upon information provided to the Issuer
by the persons identified in General Instruction C of Schedule 13E-4 (the
"Affiliated Persons"), neither the Issuer nor, to the best of the Issuer's
knowledge, any Affiliated Persons has effected any transactions in the Warrants
during the 40 business days prior to the date hereof.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
None.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
None.
ITEM 7. FINANCIAL INFORMATION.
(a)(1) Audited financial statements of the Issuer for the two most recent
fiscal years are furnished and incorporated by reference to Item 8 of the
Issuer's 1997 Annual Report on Form 10-K/A for the fiscal year ended September
30, 1997 (the "1997 Form 10-K") as filed with the Securities and Exchange
Commission. A copy of the 1997 Form 10-K/A is filed as Exhibit (a)(4) to this
Schedule 13E-4.
-4-
<PAGE>
(a)(2) Unaudited Balance Sheets and comparative year-to-date Income
Statements and Statements of Cash Flow and related earnings per share amounts
are incorporated by reference to Part I, Item 1 of the Issuer's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997, as filed with the
Securities and Exchange Commission. A copy of this Form 10-Q is filed as
Exhibit (a)(6) to this Schedule 13E-4.
(a)(3) The book value per share of the Common Stock as of September 30,
1997 and September 30, 1996 was $5.938 and $3.375, respectively.
(b)(1) The pro-forma effect of the consummation of the Exchange Offer on
the Issuer's Balance Sheet is described and incorporated by reference to the
Offering Circular under the caption "Pro-Forma effect of the Exchange Offer."
(b)(2) The pro-forma effect of the consummation of the Exchange Offer on
the Issuer's earnings per share amounts is described and incorporated by
reference to the Offering Circular under the caption "Pro-Forma Effect of the
Exchange Offer."
(b)(3) The pro-forma effect of the consummation of the Exchange Offer on
the book value per share of the Common Stock is described and incorporated by
reference to the Offering Circular under the caption "Pro-Forma Effect of the
Exchange Offer."
ITEM 8. ADDITIONAL INFORMATION.
(a) A description of the compensation of the Issuer's directors and
executive officers, including stock option plans and other arrangements, is
contained and incorporated by reference to Part II of the 1997 Form 10-K/A and
the Issuer's Definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders which is filed as Exhibit (c)(1) to the Schedule 13E-4.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
(e) Incorporated by reference to the information filed as Exhibits
pursuant to Item 9 of this Schedule 13E-4.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit
Number Exhibit Description
--------- -----------------------
(a)(1) Offering Circular dated March 9, 1998.
-5-
<PAGE>
(a)(2) Form of Letter of Transmittal.
(a)(3) Letter to Warrantholders.
(a)(4) Form of Press Release.
(a)(5) Annual Report on Form 10-K/A for the Year ended September 30,
1997.
(a)(6) Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997.
(c)(1) Proxy Statement for the Issuer's 1997 Annual Meeting of
Shareholders
-6-
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief I certify that
the information set forth in this statement is true, complete and correct.
Dated: March 9, 1998 Recycling Industries, Inc.
By: /s/ Thomas J. Wiens
-----------------------------------
Thomas J. Wiens, Chairman and Chief
Executive Officer
-7-
<PAGE>
EXHIBIT INDEX
---------------
Exhibit
Number Exhibit Description
--------- -----------------------
(a)(1) Offering Circular dated March 9, 1998.
(a)(2) Form of Letter of Transmittal.
(a)(3) Letter to Warrantholders.
(a)(4) Form of Press Release.
(a)(5) Annual Report on Form 10-K/A for the Year ended September 30,
1997.
(a)(6) Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997.
(c)(1) Proxy Statement for the Issuer's 1997 Annual Meeting of
Shareholders
-8-
<PAGE>
OFFERING CIRCULAR
RECYCLING INDUSTRIES, INC.
OFFER TO EXCHANGE EACH OUTSTANDING SERIES G AND SERIES J COMMON STOCK PURCHASE
WARRANT FOR .2517291 SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., MOUNTAIN
STANDARD TIME, ON APRIL 8, 1998, UNLESS EXTENDED
Recycling Industries, Inc. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Offering Circular (the "Offering Circular"), and in the accompanying Letter
of Transmittal (the "Letter of Transmittal"), to exchange each of its
currently outstanding Series G Common Stock Purchase Warrants (the "Series G
Warrants") and Series J Common Stock Purchase Warrants (the "Series J
Warrants")(collectively the Series G Warrants and Series J Warrants are
referred to as the "Warrants") for .2517291 shares of its common stock, $.001
par value per share (the "Common Stock"). As of the date of this Offering
Circular, there are 2,070,878 Series G Warrants and 570,944 Series J Warrants
outstanding which expire on December 27, 1999. The Exchange Offer is being
made for up to all outstanding Warrants. HOLDERS WHO DESIRE TO PARTICIPATE
IN THE EXCHANGE OFFER MUST EXCHANGE ALL OF THE WARRANTS DIRECTLY OR
INDIRECTLY OWNED BY THEM, NO PARTIAL TENDERS OR EXCHANGES WILL BE PERMITTED.
The Exchange Offer will expire at 5:00 p.m., Mountain Standard Time, on
April 8, 1998 (such time and date, the "Expiration Date"), unless the
Company, in its sole discretion, extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest
time and date at which the Exchange Offer, as so extended by the Company,
shall expire. See "The Exchange Offer - Expiration; Extension; Termination;
Amendment." Fractional shares of Common Stock will be rounded up to the
nearest whole share. The terms and conditions of the Exchange Offer will not
be applicable to any Warrants that are not accepted pursuant to the Exchange
Offer, or which are delivered for exchange after the Expiration Date.
--------------------------------------
HOLDERS OF WARRANTS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER "RISK
FACTORS" COMMENCING ON PAGE 5 OF THIS OFFERING CIRCULAR PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER
--------------------------------------
THE SECURITIES TO BE ISSUED IN EXCHANGE FOR THE WARRANTS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE
FAIRNESS OF SUCH TRANSACTION NOR CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATIONS TO
ANY HOLDER WHETHER TO TENDER THEIR WARRANTS AS PART OF THE EXCHANGE OFFER. IN
DECIDING WHETHER TO ACCEPT THE EXCHANGE OFFER, HOLDERS OF WARRANTS MUST RELY
ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE EXCHANGE OFFER,
INCLUDING THE MERITS AND RISKS INVOLVED.
The date of this Offering Circular is March 9, 1998.
<PAGE>
The material terms of the Series G and Series J Warrants are identical.
The Series G Warrants were issued in December 1995 to replace the Company's
then outstanding Series C and Series E Warrants which were issued in private
placements to accredited investors on various dated from February 28, 1995
through July 31, 1995 whereby the Company sold an aggregate of 3,561 Units,
each Unit consisting of 1,200 shares of Common Stock and 600 Series C or
Series E Warrants. The Series J Warrants were issued in private placements
to accredited investors on January 31, 1996 and April 8, 1996 whereby the
Company sold an aggregate of 727 Units, each Unit consisting of 2,000 shares
of Common Stock and 1,000 Series J Warrants. An aggregate of 2,606,157
Series G and Series J Warrants currently entitle the registered holders to
purchase one share of the Company's Common Stock at an exercise price of
$5.52 per share and an aggregate of 35,665 Series G and Series J Warrants
entitle the registered holders to purchase one share of the Company's Common
Stock at an exercise price of $4.00 per share.
Any Warrants that are not tendered and accepted in the Exchange Offer
will remain outstanding and will be exercisable for shares of Common Stock
until December 27, 1999 at 5:00 p.m., Mountain Standard Time.
Notwithstanding any other provision of the Exchange Offer, the Company's
obligation to accept for exchange, and to exchange, Warrants properly
tendered and not withdrawn pursuant to the Exchange Offer is subject to
certain conditions set forth under "The Exchange Offer--Conditions to the
Exchange Offer." If the conditions are satisfied or waived and the Warrants
are accepted by the Company for exchange, the Common Stock will be issued
promptly after the date on which the Warrants are accepted for exchange (the
"Exchange Offer Acceptance Date"). Subject to applicable laws and the terms
and conditions of the Exchange Offer set forth in this Offering Circular, the
Company reserves the right (i) to waive any and all conditions to the
Exchange Offer, (ii) to extend the Exchange Offer or (iii) otherwise to amend
the Exchange Offer in any respect.
The Common Stock is traded on the Nasdaq National Market ("NASDAQ")
under the symbol "RECY." On February 9, 1998, the last reported sales price
for the Common Stock on NASDAQ was $5.375 per share.
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The
Company therefore will not pay any commission or other remuneration to any
broker, dealer, salesman or other person for soliciting tenders of Warrants.
Officers, directors and regular employees of the Company may solicit tenders
of Warrants but they will not receive additional compensation therefor. The
Common Stock that will be issued pursuant to the Exchange Offer will be
"restricted securities" as such term is defined under Rule 144 of the
Securities Act. To the same extent as the Warrants, the holders of such
Common Stock will be able to "tack" the holding period of the Warrants to
their Common Stock for purposes of Rule 144, provided the Warrants have been
held by a non-affliate of the Company continuously since their issuance.
Accordingly, since the Warrants were purchased on various dates commencing on
February 28, 1995 and ending on April 8, 1996 the Common Stock to be received
in the Exchange Offer may be resold by non-affiliated Holders of the Warrants
in the open market without restriction under Rule 144 (k) commencing two years
after they purchased the Warrants (or no later than April 8, 1998).
IMPORTANT
If you desire to tender your Warrants, you must tender all of your
Warrants by (i) completing and signing the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mailing or delivering it, together with the certificates
representing tendered Warrants and any other required documents, to American
Securities Transfer & Trust, Inc. (the "Exchange Agent"). You must tender all
Warrants directly or indirectly owned by you. No partial tenders of Warrants
are permitted under the terms of the Exchange Offer.
-ii-
<PAGE>
--------------------------------------
NOTICE TO INVESTORS
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY WARRANTS OTHER THAN THE WARRANTS COVERED
BY THIS OFFERING CIRCULAR, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SUCH WARRANTS BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE COMPANY AS TO WHETHER ANY HOLDER OF WARRANTS SHOULD TENDER WARRANTS
PURSUANT TO THE EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS OFFERING CIRCULAR OR IN THE LETTER OF
TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATIONS, INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY DISTRIBUTION
OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS OFFERING
CIRCULAR IS FURNISHED SOLELY TO HOLDERS OF RECORD OF THE WARRANTS.
--------------------------------------
WARRANTS TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME
PRIOR TO THE EXPIRATION DATE. AFTER THE EXPIRATION DATE, WARRANTS TENDERED IN
THE EXCHANGE OFFER MAY NOT BE WITHDRAWN UNLESS THE EXCHANGE OFFER IS
TERMINATED OR EXPIRES WITHOUT CONSUMMATION THEREOF.
-iii-
<PAGE>
TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . .-v-
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .-v-
OFFERING SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-5-
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
PRO-FORMA EFFECT OF THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . -19-
INTERESTS OF DIRECTORS OFFICERS AND AFFILIATES . . . . . . . . . . . . . . -22-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO WARRANTHOLDERS. . . . . . . . . -22-
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . -22-
EXCHANGE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
-iv-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are hereby
incorporated by reference in this Offering Circular:
1. The Company's Annual Report on Form 10-K/A for the year ended
September 30, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997.
3. The Company's Current report on Form 8-K filed December 22, 1997.
4. The Company's Current Report on Form 8-K filed December 31, 1997.
5. The Company's Current Report on Form 8-K/A filed February 11, 1998.
6. The Definitive Proxy Statement for the Company Annual Meeting of
Shareholders held on November 17, 1997.
7. The description of the Company's Common Stock contained in a
Registration Statement on Form 8-A, as filed with the Commission on
June 28, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act subsequent to the date of this Offering Circular
and prior to the Expiration Date of the Exchange Offer made hereby shall be
deemed incorporated by reference in this Offering Circular and to be a part
hereof from the date of the filing of such documents. See "Available
Information." Any statement contained in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Offering Circular to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Offering Circular.
The Company will provide without charge to each person to whom this
Offering Circular is delivered, upon request of any such person, a copy of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents not specifically incorporated by reference).
Written or telephone requests for such documents should be directed to
Recycling Industries, Inc., 9780 South Meridian Blvd., Suite 180, Englewood,
CO 80112-5912 Attention: Mr. Brian Klemsz, Chief Financial Officer;
telephone (303) 790-4252.
The Company furnishes its shareholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and makes available to stockholders quarterly reports containing
unaudited interim financial information and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
AVAILABLE INFORMATION
The Company has filed with the Commission a Schedule 13E-4, which term
shall encompass any amendments thereto, under the Exchange Act, with respect
to the Exchange Offer. This Offering Circular does not contain all the
information set forth in the Schedule 13E-4 and the exhibits thereto, to
which reference is hereby made for further information about the Company and
the Exchange Offer.
The Company is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith files reports, proxy statements
and other information with 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, NW, Room 1024,
Washington, D.C. 20549; at the Commission's New York
-v-
<PAGE>
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, NW,
Washington, D.C. 20549, at prescribed rates. In addition, the Company files
its reports, proxy statements and certain other information with the
Commission electronically through the EDGAR System. Information filed via
EDGAR may be obtained at the Web site maintained by the Commission at
http://www.sec.gov.
The Company will provide without charge to each person to whom a copy of
this Offering Circular has been delivered, on the written and oral request of
such person, a copy of the Schedule 13E-4. Requests for such copies should be
directed to: Recycling Industries, Inc., 9780 South Meridian Blvd., Suite 180,
Englewood, CO 80112-5912 Attention: Mr. Brian Klemsz, Chief Financial
Officer; telephone (303) 790-4252.
The Common Stock is quoted on NASDAQ, and all reports, proxy and
information statements, and other information filed with the Commission also
may be inspected at the Nasdaq National Market, 1735 K Street, N.W.,
Washington, DC 20006.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Offering Circular and in the documents
incorporated by reference herein, constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act, as amended, and
Section 21E of the Exchange Act, as amended. These forward-looking
statements can be identified by the use of predictive, future-tense or
forward looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "may," "will" or similar terms. Forward-looking statements also
include projections of financial performance, statements regarding
management's plans and objectives and statements concerning any assumptions
relating to the foregoing. Certain important factors regarding the Company's
business, operations and competitive environment which may cause actual
results to vary materially from these forward-looking statements are
discussed below under the caption "Risk Factors."
-vi-
<PAGE>
OFFERING SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION INCLUDED IN THIS
OFFERING CIRCULAR OR IN DOCUMENTS INCORPORATED BY REFERENCE HEREIN. IT IS
NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION FOUND ELSEWHERE IN THIS OFFERING CIRCULAR OR IN SUCH
DOCUMENTS, WHICH SHOULD BE READ WITH CARE. AS USED HEREIN, UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE "COMPANY" REFERS TO RECYCLING INDUSTRIES, INC. AND
ITS SUBSIDIARIES. AS USED HEREIN, THE TERM "OFFERING CIRCULAR" SHALL MEAN
THIS OFFERING CIRCULAR AND ALL APPENDIXES AND EXHIBITS HERETO, AS THE SAME
MAY BE AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO
TIME. THE TERM "EXCHANGE OFFER" SHALL MEAN THE OFFERING CONTEMPLATED HEREBY.
REFERENCE TO THE COMPANY'S FISCAL YEAR SHALL REFER TO THE CALENDAR YEAR IN
WHICH THE COMPANY'S FISCAL YEAR ENDS (E.G., FISCAL YEAR 1997 REFERS TO THE
COMPANY'S FISCAL YEAR ENDED SEPTEMBER 30, 1997).
THE COMPANY
Recycling Industries, Inc. 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. The Company operates 15 metals recycling
facilities in Nevada, Texas, Missouri, Iowa, Georgia, South Carolina, North
Carolina, Wisconsin, Illinois, and Virginia. The Company began its metals
recycling operations in May 1994 and has increased its revenues from
approximately $4.8 million for the year ended September 30, 1994 to $62.4
million for the fiscal year 1997.
The Company primarily collects, processes and sells ferrous scrap, the
primary raw material for mini-mill steel producers who utilize electric arc
furnace ("EAF") technology. The increase in domestic EAF production from
14.9 million net tons (11.0% of total domestic steel production) in 1966 to
44.0 million net tons (39.4% of total domestic steel production) in 1996 has
resulted in strong demand and prices for processed ferrous scrap. According
to industry reports, the anticipated continuing increase in EAF production to
an estimated 50.0 million net tons by the year 2000 may cause ferrous scrap
shortages, resulting in further increases in processed ferrous scrap prices.
The Company also processes 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 nonferrous 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.
The Company's executive offices are located at 9780 South Meridian
Boulevard, Suite 180, Englewood, Colorado 80112 and its telephone number is
(303) 790-7372.
-1-
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER The Company is offering to exchange each Warrant
tendered to the Company prior to the Expiration
Date and accepted by the Company for .2517291
shares of Common Stock (the "Exchange Offer
Consideration"). The last reported sales price
of the Common Stock, as quoted on NASDAQ on
March 5, 1998, was $5.813 per share. An
aggregate of 2,606,157 Warrants currently
entitle the registered holders to purchase one
share of Common Stock at an exercise price of
$5.52 per Share and an aggregate of 35,665
Warrants currently entitle the registered
holders to purchase one share of Common Stock at
an exercise price of $4.00 per Share. The
Warrants expire on December 27, 1999. See "The
Exchange Offer -- Terms of the Exchange Offer."
MARKET PRICE OF COMMON STOCK During the thirty day trading period immediately
preceding the date of the commencement of the
Exchange Offer, the average closing sales price
of the Company's Common Stock as quoted on the
NASDAQ was $5.959 per share.
PURPOSE OF OFFERING The purpose of the Exchange Offer is to reduce
the potential overhang to the market for the
Common Stock by reducing the number of outstanding
warrants. The Exchange Offer also enables the
holders of the Warrants to derive an earlier return
on their investment through ownership of the
Common Stock to be issued in the Exchange Offer.
The Warrant holders will be able to "tack" the
holding period of the Warrants to their Common
Stock for purposes of Rule 144, PROVIDED the
Warrants have been held by a non-affiliate of
the Company continuously since their issuance.
Accordingly, since the Warrants were purchased
on various dates commencing on February 28, 1995
and ending on April 8, 1996, the Common Stock to
be received in the Exchange Offer may be resold
by non-affiliated Warrant holders in the open
market without restriction under Rule 144(k)
commencing two years after they purchased the
Warrants (or no later than April 8, 1998). See
"Purposes and Effects of the Exchange Offer."
EXPRIRATION DATE 5:00 p.m., Mountain Standard Time, on April 8,
1998 unless extended by Company. See "The
Exchange Offer -- Expiration; Extensions;
Termination; Amendment.
NO PARTIAL TENDERS Holders must tender all of the Warrants held
directly of or indirectly by them, even if such
Warrants are represented by multiple
certificates or held in the name of the holder
or in an IRA, trust; corporate or other entity
for the benefit of or controlled by the holder.
No partial tenders are permitted under the terms
of the Exchange Offer.
-2-
<PAGE>
As a result of the Exchange Offer; unless
Warrants are withdrawn prior to the Expiration
Date holders will no longer own any Warrants.
WITHDRAWAL OF TENDERS Tenders of Warrants may be withdrawn at any time
prior to the expiration of the Exchange Offer.
Thereafter, such tenders are irrevocable, except
that they may be withdrawn after the expiration
of 40 business days from the commencement of the
Exchange Offer, unless accepted for exchange
prior to that date. See "The Exchange Offer --
Withdrawal Rights."
ACCEPTANCE OF AND DELIVERY
OF COMMON STOCK The Company will accept for exchange any and all
Warrants that are validly tendered and not
withdrawn prior to the Expiration Date. Fractional
shares of Common Stock will be rounded up to the
nearest whole share. The Common Stock to be issued
pursuant to the Exchange Offer will be delivered on
or promptly following the Exchange Offer Acceptance
Date. The Exchange Agent (as defined herein)
will act as agent for tendering holders for the
purpose of issuing Common Stock. See "The
Exchange Offer -- Acceptance of Warrants;
Delivery of Common Stock."
CONDITIONS TO THE EXCHANGE
OFFER The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer--Conditions to the
Exchange Offer."
PROCEDURES FOR TENDERING
WARRANTS Each holder of Warrants wishing to accept the
Exchange Offer must complete and sign the Letter
of Transmittal, in accordance with the
instructions contained herein and therein, and
forward or hand deliver such Letter of
Transmittal, together with any signature
guarantees and any other documents required by
the Letter of Transmittal, including
certificates representing the tendered Warrants,
to the Exchange Agent at one of its addresses
set forth on the back cover page of this
Offering Circular.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES For a discussion of certain federal income tax
consequences of the Exchange Offer to the
holders of Warrants, see "Certain Federal Income
Tax Considerations."
-3-
<PAGE>
THE WARRANTS AND THE
COMMON STOCK As of February 27, 1998, there were 18,006,974
shares of Common Stock issued and outstanding
and 13,567,713 shares of Common Stock reserved
for issuance in connection with the exercise of
outstanding options and warrants, including
Shares reserved in connection with the Warrant.
TRADING The Common Stock is quoted on NASDAQ under the
symbol "RECY".
EXCHANGE AGENT American Securities Transfer & Trust Company,
Inc. See "Exchange Agent."
-4-
<PAGE>
RISK FACTORS
COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. HOLDERS OF THE WARRANTS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS INFORMATION
CONTAINED ELSEWHERE IN THIS OFFERING CIRCULAR, BEFORE MAKING A DECISION
WHETHER TO TENDER THE WARRANTS IN EXCHANGE FOR SHARES OF COMMON STOCK.
ACCUMULATED DEFICIT AND NET LOSSES
At September 30, 1997, the Company's total accumulated deficit was
approximately $10.7 million, compared to a deficit of approximately $11.4
million at September 30, 1996. The Company had net income of $1.1 million
for the year ended September 30, 1997, compared to a net loss of $3.0 million
for the year ended September 30, 1996. There can be no assurance that the
Company will be able to operate profitably on a consistent basis.
SIGNIFICANT INDEBTEDNESS
At September 30, 1997, the Company had outstanding approximately $29.5
million of long-term indebtedness and approximately $3.3 million of
short-term indebtedness (all of which is secured by substantially all of its
operating assets,) and trade payables of approximately $3.1 million. As
discussed under the caption "Recent Developments," below, in connection with
the Company's acquisition of six facilities in December 1997, the Company's
total indebtedness increased to $152.3 million, $3.3 million of which is
short-term. While funds generated by the Company's operating subsidiaries
have been sufficient to meet its debt service obligations, the Company's
ability to continue meeting its debt service obligations will depend on its
ability to generate sufficient cash from its operations.
LIMITED CASH FLOW AND NEED FOR ADDITIONAL CAPITAL
The Company has limited cash flow from its operations and continues to
seek additional capital from time to time. If the Warrants are exercised,
which is unlikely unless the market price of the Company's Common Stock
increases substantially, the net proceeds will be used by the Company for
working capital and future acquisitions. The Company will have to obtain
additional capital either through debt or equity financing in order to
continue its acquisition strategy. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to the
Company.
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 Nevada, Texas, Missouri, Iowa, Georgia, South
Carolina, North Carolina, Wisconsin, Illinois, and Virginia. The Company has
only a limited combined operating history for its current facilities and has
been unable to consistently generate net income and cash flow from these
facilities. There can be no assurance that the Company's existing
operations, or those acquired in any future 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 acquired
companies will
-5-
<PAGE>
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 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.
COMPETITION FOR ACQUISITIONS
The Company competes with several other companies to acquire desirable
metals recycling facilities. Certain of these competitors have greater
financial resources than the Company and may be in a position to offer more
favorable terms to potential acquisition targets. As a result, there can be
no assurance that the Company will be able to successfully implement its
acquisition 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.
DEPENDENCE ON KEY CUSTOMERS
Each of the Company's facilities is economically dependent on a small
number of significant customers. Three of the Company's customers, The David
J. Joseph Company, John Deere, and Aceros D.M.S.A. de C. V., accounted for
approximately 49% of the Company's revenues (19%, 12%, and 11% respectively)
during the year ended September 30, 1997. Four of the Company's customers,
Pacific States Cast Iron & Pipe Company, The David J. Joseph Company, Alpert
& Alpert Company and Aceros D.M.S.A. de C.V., accounted for approximately
53% of the Company's revenues (9.6%, 22.5%, 5.6% and 15.4%, respectively) for
the year ended September 30, 1996. The loss of any one of these customers
would have a material adverse effect on the Company's business.
MARKET 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, 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.
-6-
<PAGE>
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.
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. The Company has entered into an employment agreement with
Mr. Wiens and has obtained a key-man life insurance policy in the amount of
$500,000 for Mr. Wiens.
CONTROL BY PRINCIPAL SHAREHOLDER AND ANTI-TAKEOVER PROVISIONS
As of the date of this Offering Circular, Thomas J. Wiens, the
Company's Chairman and Chief Executive Officer, beneficially owns 2,284,103
shares of the Company's Common Stock, representing approximately 12.7% of the
issued and outstanding shares.
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 Offering Circular, the
Company's Board of Directors has not implemented the scaled voting
provisions. The Company's Amended and Restated Articles of Incorporation
also authorize the issuance of up to 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. See "Description of Securities -
Anti-Takeover Provisions" and "Preferred Stock."
RISK OF SUBSTANTIAL FUTURE DILUTION
The Company has outstanding convertible preferred stock, options and
warrants, including the Warrants, to acquire an aggregate of 13,776,847
shares of the Company's Common Stock, substantially all of which have
exercise prices ranging from .01 to $5.52 per share and expire during fiscal
years 1998 through 2005. In addition, Warrants to purchase an aggregate of
4,423,489 shares of Common Stock have adjustment provisions providing for
reduction of their exercise prices in the event that the Company fails to
maintain the registration under the Securities Act of the underlying shares
of Common Stock for specified time frames. The conversion of the preferred
stock or the exercise of such options and warrants could have a substantial
dilutive effect upon the holders of Common Stock being offered in exchange
for the Warrants.
LOSS OF ANTI-DILUTION PROTECTION
To prevent dilution to the holders of the Warrants, the Warrants provide
for the adjustment of their exercise price and the number of shares received
upon their exercise if the Company effects certain transactions, including
the issuance of shares of Common Stock or securities convertible into Common
Stock having a sale or conversion price less than the fair market value of
the Common Stock at the time of issuance. Holders of the Warrants who
participate in the Exchange Offer will no longer be afforded these
anti-dilution protection as holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Exchange Offer, the Company will have
approximately 18,671,998 shares of Common Stock outstanding, including the
shares of Common Stock issued pursuant to the Exchange Offer, of which
16,220,000 will be eligible for sale pursuant
-7-
<PAGE>
to Rule 144 under the Securities Act. The use 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.
LOSS OF REGISTRATION RIGHTS
As a result of the availability of Rule 144(k) for the resale of the
shares of Common Stock issued as a result of the Exchange Offer, under the
terms of the registration rights agreements between the Company and each
Holders of the Warrants (the "Registration Rights Agreements"), the Company's
registration obligation with respect to the shares of Common Stock will
expire. Accordingly, the Warrant holders will have no registration rights
with respect to the Common Stock received in the Exchange Offer.
Holders of the Warrants will not have any registration rights with
respect to the shares of Common Stock issued to them in the Exchange Offer
and will be required to rely upon Rule 144 promulgated under the Securities
Act or another available exemption from the registration requirements of the
Securities Act to sell such shares. There can be no assurance that Rule 144
or another exemption will be available to sell the shares of Common Stock.
NEW NASDAQ REGULATIONS
On August 22, 1997, the Commission approved changes previously approved
by the Board of Directors of The Nasdaq Stock Market, Inc. that further
strengthen both the quantitative and qualitative standards for issuers
listing on Nasdaq. While the Company presently meets the new standards, there
can be no assurance that it will continue to be able to do so. If it should
fail to meet one or more of such standards, its Common Stock would be subject
to deletion from Nasdaq. If this should occur, trading, if any,in the Common
Stock, would then continue to be conducted in the over-the-counter market
either on the Nasdaq Small Cap Market or on the OTC Bulletin Board, an
NASD-sponsored inter-dealer quotation system, or in what are commonly
referred to as "pink sheets." As a result, an investor may find it more
difficult to dispose of or to obtain accurate quotations as to the market
value of the Company's Common Stock.
-8-
<PAGE>
RECENT DEVELOPMENTS
ACQUISITIONS OF ADDITIONAL SCRAP METAL PROCESSING FACILITIES
On December 5, 1997 and December 8, 1997, the Company completed the
following six acquisitions:
ACQUISITION OF THE ASSETS OF GROSSMAN BROTHERS COMPANY AND MILWAUKEE METAL
BRIQUETTING CO., INC.
On December 5, 1997, Recycling Industries of Wisconsin, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all of the
scrap metals recycling assets and business of Grossman Brothers Company, Inc.
and Milwaukee Metal Briquetting Co., Inc. (collectively "Grossman").
Grossman is a privately held metals recycler with operations in the
Milwaukee, Wisconsin area.
The assets acquired from Grossman consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company is leasing with an option to purchase, the real
property, buildings and leasehold improvements used in the metals recycling
business.
The total purchase price for Grossman was $3,987,000, comprised of
$3,727,000 of cash and the assumption of $260,000 of Grossman's liabilities.
The purchase price was financed, in part, from the proceeds of the Credit
Facility (as defined below), Subordinated Notes (as defined below) and Sale
of Common Stock described below. The purchase price was determined through
arm's length negotiations and based upon an independent appraisal.
The Company will continue the metals recycling operations of
Grossman.
ACQUISITION OF THE ASSETS OF CENTRAL METALS COMPANY, INC.
On December 5, 1997, Recycling Industries of Atlanta, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all of the
scrap metals recycling assets and business of Central Metals Company, Inc.
("Central"), a privately held metals recycler with operations in the Atlanta,
Georgia area.
The assets acquired from Central consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The real property and buildings owned and used by Central in the
metals recycling business have been placed into escrow and are being leased
by the Company until Central can provide clear title to these assets, at
which time the Company will complete purchase of the real property and
buildings. The Company is leasing certain equipment used in the metals
recycling business from an affiliate of Central.
The total purchase price for Central was $30,979,000, comprised of
$20,679,000 of cash and 800,000 shares of Common Stock, having a stipulated
value of $12.50 per share or $10,000,000. The Company also assumed $300,000
of Central's liabilities.
The Company has guaranteed that the aggregate market value of the
800,000 shares of Common Stock issued to Central will be $10,000,000 on
December 4, 1999. If the market value of the Common Stock is less than
$10,000,000, the Company will issue shares of Common Stock to Central
having a market value equal to the difference between $10,000,000 and the
market value of the 800,000 shares of Common Stock initially issued to
Central.
In connection with the acquisition, Central was issued warrants to
acquire up to 200,000 shares of the Common Stock for $15.00 per
share, exercisable upon satisfaction of certain financial performance
conditions related to the operations of Recycling Industries of Atlanta Inc.
(the "Contingent Warrants"). The
-9-
<PAGE>
exercise price per share of the Contingent Warrants is subject to adjustment
at the time of exercise so that aggregate spread between the exercise price
of all Contingent Warrants and the market value of the Common Stock received
upon exercise of the Contingent Warrants is not less than $1,000,000. The
Company has also granted "piggyback" registration rights to the holders of
the Contingent Warrants with respect to the shares of Common Stock received
upon their exercise.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility, Subordinated Notes and Sale
of Common Stock described below. The purchase price was determined through
arm's length negotiations and based upon an independent appraisal.
The Company will continue the metals recycling operations of Central.
ACQUISITION OF THE ASSETS OF MONEY POINT LAND HOLDING CORPORATION AND MONEY
POINT DIAMOND CORPORATION
On December 5, 1997, Recycling Industries of Chesapeake, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all of the
scrap metals recycling assets and business of Money Point Land Holding
Corporation and Money Point Diamond Corporation (collectively "Money Point").
Money Point is a privately held metals recycler with operations in the
Chesapeake, Virginia area.
The assets acquired from Money Point consist of heavy equipment, tools
and rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from Money Point certain real property,
buildings and leasehold improvements used in the metals recycling business.
The total purchase price for Money Point was $19,900,000, comprised of
$16,900,000 of cash and 10,000 shares of the Company's Series E Redeemable
Convertible Preferred Stock (the "Series E Preferred") having a stated value
of $3,000,000.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Credit Facility, Subordinated Notes and Sale of Common Stock
described below. The purchase price was determined through arm's length
negotiations and based upon an independent appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series E
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,000,000. Unless Money Point elects to retain the shares of Common
Stock received upon conversion of the Series E Preferred (the "Series E
Conversion Shares"), the Company will assist Money Point in selling the
Series E Conversion Shares on or before January 4, 2001. If the sale of the
Series E Conversion Shares yields net proceeds of less than $3,000,000, the
Company will pay the difference to Money Point. The Company has
granted "piggyback" registration rights to the holder of the Series E
Preferred with respect to the Series E Conversion Shares.
The Company will continue the metals recycling operations of Money
Point.
ACQUISITION OF WM. LANS SONS' CO., INC.
On December 8, 1997, the Company acquired from Bertram Lans, Bruce
Lans and Scott Lans all of the issued and outstanding capital stock of Wm.
Lans Sons' Co., Inc. ("Lans"), a privately held metals recycler with
operations in the South Beloit, Illinois, area.
-10-
<PAGE>
The assets owned by Lans consist of heavy equipment, tools and rolling
stock used in the business of recycling ferrous and non-ferrous metals. The
Company also purchased from Lans certain real property, buildings and
leasehold improvements used in the metals recycling business.
The total purchase price for Lans was $25,500,000, comprised of
$22,000,000 of cash and 10,000 shares of the Company's Series I 8%
Redeemable Convertible Preferred Stock (the "Series I Preferred") having a
stated value of $3,500,000.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Credit Facility and Subordinated Notes described below. The
purchase price was determined through arm's length negotiations and based
upon an independent appraisal.
If not earlier redeemed or converted, on December 8, 1999, the Series I
Preferred will automatically convert into that number of shares of Common
Stock having a market value on the date of conversion of not less than
$3,500,000. The Company has agreed to register on or before December 5,
2000 the shares of Common Stock received upon conversion of the Series I
Preferred.
The Company will continue the metals recycling operations of Lans.
ACQUISITION OF THE ASSETS OF THE BRENNER COMPANIES, INC.
On December 5, 1997, Recycling Industries of Winston-Salem, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all of the
scrap metals recycling assets and business of the Brenner Companies, Inc.
("Brenner"), a privately held metals recycler with operations in the
Winston-Salem, North Carolina area.
The assets acquired from Brenner consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from Brenner certain real property,
buildings and leasehold improvements used in the metals recycling business.
The total purchase price for the Brenner assets was $23,773,000,
comprised of $15,683,000 of cash, 14,000 shares of the Company's Series F
6 1/2% Redeemable Convertible Preferred Stock (the "Series F Preferred")
having a stated value of $3,500,000, 14,000 shares of the Company's Series G
6 1/2% Redeemable Convertible Preferred Stock (the "Series G Preferred")
having a stated value of $3,500,000 and the assumption of $1,090,000 of
Brenner's deferred compensation labilities.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Credit Facility, Subordinated Notes and Sale of Common Stock
described below. The purchase price was determined through arm's length
negotiations and based upon an independent appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series F
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,500,000. Brenner has the right to require the Company to find a
purchaser of the shares of common stock received upon conversion of the
Series F Preferred (the "Series F Conversion Shares") on or before December
5, 2000. If the sale of the Series F Conversion Shares yields net proceeds
of less than $3,500,000, the Company will pay the difference to Brenner. The
Company has agreed to register on or before December 5, 2000 the Series F
Conversion Shares, unless such shares are eligible for resale by the holder
thereof pursuant to Rule 144(k) promulgated under the Securities Act, or any
equivalent provision then in effect.
-11-
<PAGE>
If not earlier redeemed or converted, on December 5, 2000, the Series G
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,500,000. The Company has agreed to register on or before December 5,
2000 the shares of Common Stock received upon conversion of the Series G
Preferred, unless such shares are eligible for resale by the holder thereof
pursuant to Rule 144(k) promulgated under the Securities Act or any
equivalent provision then in effect.
The Company will continue the metals recycling operations of Brenner.
ACQUISITION OF THE ASSETS OF UNITED METAL RECYCLERS, INC.
On December 5, 1997, Recycling Industries of Greensboro, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all of the
scrap metals recycling assets and business of United Metal Recyclers, Inc.
("United"), a privately held metals recycler with operations in the
Kernersville, North Carolina area.
The assets acquired from United consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from United certain real property,
buildings and leasehold improvements used in the metals recycling business
and United's 50% interest in another metals recycling facility located in the
Greensboro, North Carolina area.
The total purchase price for the United assets was $41,664,000,
comprised of $35,975,000 of cash and 11,378 shares of the Company's Series
H 6% Secured Redeemable Convertible Preferred Stock having a stated value of
$5,689,000.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Credit Facility, Subordinated Notes and Sale
of Common Stock described below. The purchase price was determined through
arm's length negotiations and based upon an independent appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series H
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $6,000,000. United has the right to require the Company to find a
purchaser of the shares of common stock received upon conversion of the
Series H Preferred (the "Series H Conversion Shares") on or before December
5, 2000. If the sale of the Series H Conversion Shares yields net proceeds
of less than $6,000,000, the Company will pay the difference to United. The
Company has agreed to register on or before December 5, 2000 the Series H
Conversion shares, unless such shares are eligible for resale by the holder
thereof pursuant to Rule 144(k) promulgated under the Securities Act or any
equivalent provision then in effect.
The Company will continue the metals recycling operations of United.
ADDITIONAL FINANCING
The acquisitions described above, were financed, in part, by the
following:
SENIOR SECURED CREDIT FACILITY
On December 5, 1997, the Company and its subsidiaries entered into a
$150 million Senior Secured Credit facility with General Electric Capital
Corporation as agent for the lenders (the "Credit Facility"). The Credit
Facility is comprised of (i) a $45 million revolving credit facility; (ii) a
$40 million term loan due December 5, 2003, with accrued interest and
principal payable quarterly; (iii) a $40,000,000 term loan due on the earlier
of December 5, 2005 or six months prior to the maturity of the Subordinated
Notes discussed below; and (iv) a
-12-
<PAGE>
$25,000,000 acquisition line of credit due December 5, 2003. The Credit
facility is secured by substantially all of the Company's assets.
Loans made under the Credit Facility bear interest at either (i) the
higher of (a) the Prime Rate quoted in the WALL STREET JOURNAL plus .75%, and
(b) the Federal Funds rate plus 50 basis points per annum plus .75% (either
rate the "Index Rate"), or (ii) at the option of the Company upon
satisfaction of certain conditions, the LIBOR rate plus 2.25% (the "LIBOR
Rate").
Interest on the loans is payable (i) monthly with respect to interest
being calculated by reference to the "Index Rate", or (ii) at the end of each
LIBOR period, but not less than quarterly, with respect to interest being
calculated by reference to the "LIBOR Rate".
Principal on the loans is payable quarterly.
SUBORDINATED NOTES
On December 5, 1997, the Company issued $60 million of 13% Senior
Subordinated Notes due 2005( the "Subordinated Notes") to a group of
investors including Sun America Life Insurance Company.
SALE OF COMMON STOCK
In connection with the Credit Facility and the issuance of the
Subordinated Notes, the Company sold 1,666,666 shares of its Common Stock for
an aggregate of $10,000,000 to various accredited investors in a transaction
exempt from the registration requirements of the Securities Act.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Company is offering to exchange each properly tendered Warrant for
.2517291 shares of newly issued Common Stock. As of the date of this Offering
Circular, there are 2,070,878 Series G Warrants and 570,944 Series J Warrants
outstanding, all of which expire on December 27, 2000. The Exchange Offer is
being made for any and all outstanding Warrants. Holders who desire to
participate in the Exchange Offer must tender for exchange all of the
Warrants directly or indirectly owned by them: no partial tenders or
exchanges will be permitted. The exchange of the Warrants for Common Stock
will be effective as of the Exchange Offer Acceptance Date. Fractional
shares of Common Stock will be rounded to the nearest whole share. The terms
and conditions of the Exchange Offer will not be applicable to any Warrants
that are not accepted pursuant to the Exchange Offer, or which are delivered
for exchange after the Expiration Date.
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933,
afforded by Section 3(a)(9) thereof. The Company therefore will not pay any
commission or other remuneration to any broker, dealer, salesman or other
person for soliciting tenders of Warrants. Officers, directors and regular
employees of the Company may solicit tenders of Warrants but they will not
receive additional compensation therefor. The Common Stock that will be
issued pursuant to the Exchange Offer will be "restricted securities" as such
term is defined under Rule 144 of the Securities Act. However, the holders of
such Common Stock will be able to "tack" the holding period of the Warrants
to their Common Stock for purposes of Rule 144. See "The Exchange
Offer--Purposes and Effects of the Exchange Offer."
-13-
<PAGE>
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
will not be required to accept for exchange, subject to any applicable rules
or regulations of the Commission, any Warrants tendered for exchange and may
postpone the exchange of any Warrants tendered and to be exchanged by it, and
may terminate or amend the Exchange Offer as provided herein if any of the
following conditions exist after the commencement of the Exchange Offer and
prior to the Expiration Date:
(1) there shall have been instituted or threatened or be pending
any action or proceeding before or by any court or governmental, regulatory
or administrative agency or instrumentality, or by any other person, (i) that
challenges the making of the Exchange Offer, or might, directly or
indirectly, prohibit, prevent, restrict or delay consummation of the Exchange
Offer or otherwise adversely affect, in any material manner, the Exchange
Offer, which requires the Company to file a registration statement in respect
of the Common Stock being offered as consideration in the Exchange Offer or
(ii) that is, or is reasonably likely to be, in the reasonable judgment of
the Company, materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, liabilities or prospects of the
Company;
(2) there shall have occurred any material adverse development, in
the reasonable judgment of the Company, with respect to any action or
proceeding concerning the Company;
(3) an order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that, in
the reasonable judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer or that is, or is
reasonably likely to be, materially adverse to the business, operations,
properties, condition (financial or otherwise), assets, liabilities or
prospects of the Company;
(4) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company or which, in the
sole judgment of the Company, would or might prohibit, prevent, restrict or
delay consummation of the Exchange Offer, or that will, or is reasonably
likely to, materially impair the contemplated benefits to the Company of the
Exchange Offer, or otherwise result in the consummation of the Exchange Offer
not being or not reasonably likely to be in the best interests of the Company;
(5) the Company shall not have received from any federal, state or
local governmental, regulatory or administrative agency or instrumentality,
any approval, authorization or consent that, in the reasonable judgment of
the Company, is necessary to effect the Exchange Offer; and
(6) there shall have occurred (a) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (b) any significant adverse change in the
price of the Common Stock in the United States securities or financial
markets, (c) a material impairment in the trading market for debt or equity
securities, (d) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (e) any limitation
(whether or not mandatory) by any government or governmental, administrative
or regulatory authority or agency, domestic or foreign, on, or other event
that, in the reasonable judgment of the Company, might affect, the extension
of credit by banks or other lending institutions, (f) a commencement of a war
or armed hostilities or other national or international calamity directly or
indirectly involving the United States, (g) any imposition of a general
suspension of trading or limitation of prices on NASDAQ, or (h) in the case
of any of the foregoing existing on the date hereof, a material acceleration
or worsening thereof.
-14-
<PAGE>
All the foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company at any time regardless of the circumstances
giving rise to such conditions and may be waived by the Company, in whole or
in part, at any time and from time to time, in the reasonable discretion of
the Company. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
If any of the conditions to the Exchange Offer are not satisfied, the
Company may, subject to applicable law, (i) terminate the Exchange Offer and
return all Warrants tendered pursuant to the Exchange Offer to tendering
holders; (ii) extend the Exchange Offer and retain all tendered Warrants
until the Expiration Date for the extended Exchange Offer subject to the
right of holders to withdraw Warrants previously tendered; (iii) amend
the terms of the Exchange Offer or modify the consideration to be provided by
the Company pursuant to the Exchange Offer; or (iv) waive the unsatisfied
conditions with respect to the Exchange Offer and accept all Warrants
tendered pursuant to the Exchange Offer.
EXPIRATION; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer is scheduled to expire at 5:00 PM, Mountain Standard
Time, on the Expiration Date. The Company expressly reserves the right, in
its sole discretion, at any time or from time to time, to extend the period
of time during which the Exchange Offer is open by giving oral or written
notice of such extension to the Exchange Agent and making a public
announcement thereof as described in the next paragraph. There can be no
assurance that the Company will exercise its right to extend the Exchange
Offer. During any extension of the Exchange Offer, all Warrants previously
tendered pursuant thereto and not exchanged or withdrawn will remain subject
to the Exchange Offer and may be accepted for exchange by the Company at the
expiration of the Exchange Offer subject to the right of a tendering holder
to withdraw his Warrants. See "The Exchange Offer -- Withdrawal of Tenders."
The Company also expressly reserves the right, subject to applicable
law, (i) to delay acceptance for exchange of any Warrants or, regardless of
whether such Warrants were theretofore accepted for exchange, to delay the
exchange of any Warrants pursuant to the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any Warrants, if any of the
conditions to the Exchange Offer specified herein fail to be satisfied, by
giving oral or written notice of such delay or termination to the Exchange
Agent; (ii) to waive any condition to the Exchange Offer and accept all the
Warrants tendered; and (iii) at any time, or from time to time, to amend the
terms of Exchange Offer in any respect, including the Exchange Offer
Consideration. The reservation by the Company of the right to delay exchange
or acceptance for exchange of Warrants is subject to the provisions of Rule
13e-4(f)(5) under the Exchange Act, which requires that the Company pay the
consideration offered or return the Warrants deposited by or on behalf of
holders thereof promptly after the termination or withdrawal of the Exchange
Offer. No fractional shares of Common Stock will be issued in the Exchange
Offer. All fractional shares will be rounded to the nearest whole number.
Any extension, delay, termination or amendment of the Exchange Offer
will be followed as promptly as practicable by a public announcement thereof.
Without limiting the manner in which the Company may choose to make a public
announcement of any extension, delay, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise
or otherwise communicate any such public announcement, other than by issuing
a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Exchange Offer, in which case the Company
shall have no obligation to publish, advertise or otherwise communicate such
announcement other than by issuing a notice of such extension by press
release or other public announcement, which notice shall be issued no later
than 9:00 A.M., Mountain Standard Time, on the next business day after the
previously scheduled Expiration Date.
-15-
<PAGE>
If the Company makes a material change in the terms of the Exchange
Offer or the information concerning the Exchange Offer, or if the Company
waives any condition of the Exchange Offer that results in a material change
to the circumstances of the Exchange Offer, the Company will disseminate
additional Exchange Offer materials in a manner reasonably calculated to
inform holders of Warrants of such change, and will provide holders of
Warrants adequate time to consider such materials and their participation in
the Exchange Offer. The minimum period during which the Exchange Offer must
remain open following a material change in the terms of the Exchange Offer or
the information concerning the Exchange Offer, other than a change in the
Exchange Offer Consideration or the percentage of the Warrants sought in the
Exchange Offer, will depend upon the facts and circumstances, including the
relative materiality, of the changed terms or information.
If the Company increases or decreases the Exchange Offer Consideration
or the amount of Warrants sought in the Exchange Offer, the Exchange Offer
will remain open at least ten business days from the date that the Company
first publishes, sends or gives notice, by public announcement or otherwise,
of such increase or decrease. The Company has no current intention to
increase or decrease the Exchange Offer Consideration currently offered or
the amount of Warrants sought to be purchased.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to reduce the potential overhang to
the market for its Common Stock and offer Warrant holders the opportunity to
participate in the long term ownership of the Company's securities. The
Company believes that the overhang will be reduced because upon the
consummation of the Exchange Offer, the potential number of shares of Common
Stock issuable upon the exercise of outstanding Warrants and Options would be
substantially reduced.
The Exchange Offer also allows Warrant holders to participate through
the ownership of Common Stock, in any long term appreciation resulting
therefrom. The holders of such Common Stock will be able to "tack" the
holding period of the Warrants to their Common Stock for purposes of Rule
144, PROVIDED the Warrants have been held by a non-affiliate of the Company
continuously since their issuance. Accordingly, since the Warrants were
purchased on various dates commencing on February 28, 1995 and ending on
April 8, 1996, the Common Stock to be received in the Exchange Offer may be
resold by non-affiliated Warrant holders in the open market without
restriction under Rule 144(k) commencing two years after they purchased the
Warrants (or no later than April 8, 1998).
As a result of the availability of Rule 144(k) for the resale of the
shares of Common Stock issued as a result of the Exchange Offer, under the
terms of the registration rights agreements (the "Registration Rights
Agreements"), the Company's registration obligation with respect to the
shares of Common Stock will expire. Accordingly, the Warrant holders will
have no registration rights with respect to the Common Stock received in the
Exchange Offer.
PROCEDURES FOR TENDERING WARRANTS
TENDERS OF WARRANTS. For a Registered Holder to validly tender Warrants
pursuant to the Exchange Offer, a properly completed and validly executed
Letter of Transmittal (or a facsimile thereof), together with any signature
guarantees and any other documents required by the instructions to the Letter
of Transmittal, must be received by the Exchange Agent prior to the
Expiration Date at the address set forth in the Letter of Transmittal.
NO PARTIAL TENDERS. To participate in the Exchange Offer, holders must
tender all of the Series G and Series J Warrants held directly or indirectly
by them, even if such Warrants are represented by multiple certificates or
are held in the name of the holder or in an IRA, trust; corporate or other
entity for the benefit of or controlled by the holder. No partial tenders
are permitted under the terms of the Exchange Offer. For Example, if a holder
owns Warrants in its own name and in an IRA acccount, all Warrants held
individually and in the IRA account must be tendered for exchange. As a
result of the Exchange Offer, unless Warrants are withdrawn prior to the
Expiration Date; the holder will no longer own any Series G or Series J
Warrants.
DELIVERY OF LETTERS OF TRANSMITTAL. If the certificates for Warrants
are registered in the name of a person other than the signer of the Letter of
Transmittal relating thereto, then, in order to tender such Warrants pursuant
-16-
<PAGE>
to the Exchange Offer, the certificates evidencing such Warrants must be
endorsed or accompanied by appropriate bond powers signed exactly as the name
or names of the registered owner or owners appear on the certificates, with
the signatures on the certificates or bond powers guaranteed as provided
below.
The method of delivery of Warrants, Letters of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
holder tendering the Warrants. If delivery is to be made by mail, it is
suggested that the holder use properly insured, registered mail with return
receipt requested, and that the mailing be made sufficiently in advance of
the Expiration Date to permit delivery to the Exchange Agent prior to that
date and time.
SIGNATURE GUARANTEES. Signatures on the Letter of Transmittal must be
guaranteed by an "eligible guarantor institution" as defined in Rule 17Ad-15
under the Exchange Act (each of the foregoing being an "Eligible
Institution") unless the Letter of Transmittal is signed by the registered
holder of the Warrants tendered therewith and neither the "Special Issuance
Instructions" box nor the "Special Delivery Instructions" box of the Letter
of Transmittal is completed.
LOST OF MISSING CERTIFICATES. If a holder desires to tender Warrants
pursuant to the Exchange Offer but the certificates evidencing such Warrants
have been mutilated, lost, stolen or destroyed, such holder should write to
or telephone the Trustee, at the address or telephone number listed below,
about procedures for obtaining replacement certificates for such Warrants or
arranging for indemnification or any other matter that requires handling by
the Trustee:
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
TENDER CONSTITUTES AN AGREEMENT. The tender of Warrants into the
Exchange Offer pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder and the Company
upon the terms and conditions of the Exchange Offer, and a representation
that (i) such holder owns the Warrants being tendered and is entitled to
tender such Warrants as contemplated by the Exchange Offer .
Further, by executing or transmitting a Letter of Transmittal (as set
forth above and subject to and effective upon acceptance for exchange for the
Warrants tendered therewith), a tendering holder irrevocably sells, assigns
and transfers to or upon the order of the Company or its assignee all right,
title and interest in and to all such Warrants tendered thereby, waives any
and all rights with respect to the Warrants and releases and discharges the
Company from any and all claims such holder may have now, or may have in the
future, arising out of or related to the Warrants, and each such holder
irrevocably selects and appoints the Exchange Agent the true and lawful agent
and attorney-in-fact of such holder with respect to such Warrants, with full
power of substitution and resubstitution (such power of attorney being deemed
to be an irrevocable power coupled with an interest) to (a) deliver
certificates representing such Warrants, together, with all accompanying
evidences of transfer and authenticity, to or upon the order of the Company,
(b) present such Warrants for transfer on the relevant security register and
(c) receive all benefits or otherwise exercise all rights of beneficial
ownership of such Warrants.
OTHER MATTERS. Notwithstanding any other provision of the Exchange
Offer, delivery of the shares of Common Stock for Warrants tendered and
accepted pursuant to the Exchange Offer will occur only after timely receipt
by the Exchange Agent of such Warrants, together with properly completed and
validly executed Letters of Transmittal (or a facsimile or electronic copy
thereof or an electronic agreement to comply with the terms thereof) and any
other required documents.
-17-
<PAGE>
All questions as to the form of all documents, the validity (including
time of receipt) and acceptance of tenders of the Warrants will be determined
by the Company, in its sole discretion, the determination of which shall be
final and binding. Alternative, conditional or contingent tenders of
Warrants will not be considered valid. The Company reserves the absolute
right to reject any or all tenders of Warrants that are not in proper form or
the acceptance of which,in the Company's opinion, would be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Warrants. If the Company waives its
right to reject a defective tender of Warrants, the holder will be entitled
to the Exchange Offer Consideration. The Company's interpretation of the
terms and conditions of the Exchange Offer(including the instructions in the
Letter of Transmittal) will be final and binding. Any defect or irregularity
in connection with tenders of Warrants must be cured within such time as the
Company determines, unless waived by the Company. Tenders of Warrants shall
not be deemed to have been made until all defects and irregularities have
been waived by the Company or cured. None of the Company, the Exchange Agent
or any other person will be under any duty to give notice of any defects or
irregularities in tenders of Warrants, or will incur any liability to holders
for failure to give any such notice.
WITHDRAWAL OF TENDERS
Tenders of Warrants may be withdrawn at any time until the Expiration
Date as such date may be extended. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after the expiration of 40 business days
from the commencement of the Exchange Offer (May 4, 1998) unless
accepted for exchange prior to that date.
Holders who wish to exercise their right of withdrawal with respect to a
Exchange Offer must give written notice of withdrawal, delivered by mail,
hand delivery or facsimile transmission, to the Exchange Agent at the address
set forth in the Letter of Transmittal prior to the Expiration Date or at
such other time as otherwise provided for herein. In order to be effective,
a notice of withdrawal must specify the name of the person who deposited the
Warrants to be withdrawn (the "Depositor"), the name in which the Warrants
are registered, if different from that of the Depositor, and the number of
Warrants to be withdrawn prior to the physical release of the certificates to
be withdrawn. The notice of withdrawal must be signed by the registered
holder of such Warrants in the same manner as the applicable Letter of
Transmittal (including any required signature guarantees), or be accompanied
by evidence satisfactory to the Company that the person withdrawing the
tender has succeeded to the beneficial ownership of such Warrants.Withdrawals
of tenders of Warrants may not be rescinded, and any Warrants withdrawn will
be deemed not validly tendered thereafter for purposes of the Exchange Offer.
However, properly withdrawn Warrants may be tendered again at any time prior
to the Expiration Date by following the procedures for tendering not
previously tendered Warrants described elsewhere herein.
All questions as to the form, validity and eligibility (including time
of receipt) of any withdrawal of tendered Warrants will be determined by the
Company, in its sole discretion, which determination shall be final and
binding. None of the Company, the Exchange Agent or any other person will be
under any duty to give notification of any defect or irregularity in any
withdrawal of tendered Warrants, or will incur any liability for failure to
give any such notification.
If the Company is delayed in its acceptance for conversion and payment
for any Warrants or is unable to accept for conversion or convert any
Warrants pursuant to the Exchange Offer for any reason, then, without
prejudice to the Company's rights hereunder, tendered Warrants may be
retained by the Exchange Agent on behalf of the Company and may not be
withdrawn (subject to Rule 13e-4(f)(5) under the Exchange Act, which requires
that the issuer making the tender offer pay the consideration offered, or
return the tendered securities,promptly after the termination or withdrawal
of a tender offer), except as otherwise permitted hereby.
-18-
<PAGE>
FRACTIONAL SHARES
No fractional shares of Common Stock will be issued in the Exchange Offer.
All fractional shares will be rounded up to the nearest whole number.
ACCEPTANCE OF WARRANTS; DELIVERY OF COMMON STOCK
The acceptance of the Warrants validly tendered for exchange and not
withdrawn will be made promptly after the Expiration Date. For purposes of
the Exchange Offer, the Company will be deemed to have accepted for exchange
validly tendered Warrants if, as and when the Company gives oral or written
notice thereof to the Exchange Agent. Such notice of acceptance shall
constitute a binding contract between the Company and the tendering holder
pursuant to which the Company will be obligated to provide the Exchange Offer
Consideration therefor. Subject to the terms and conditions of the Exchange
Offer, delivery of Common Stock in respect of Warrants accepted and exchanged
pursuant to the Exchange Offer. The Exchange Agent will act as agent for the
tendering holders of Warrants for the purposes of receiving Common Stock and
transmitting the Common Stock to the tendering holders. Tendered Warrants
not accepted for conversion by the Company, if any, will be returned without
expense to the tendering holder of such Warrants as promptly as practicable
following the Expiration Date.
PRO-FORMA EFFECT OF THE EXCHANGE OFFER
As of September 30, 1997, the net tangible book value of the Company was
$45,920,000, or approximately $3.25 per share based on 14,149,780 shares of
Common Stock outstanding. Assuming the issuance of an additional 665,024
shares of Common Stock pursuant to this Exchange Offer (without giving effect
to the conversion of the Company's outstanding Convertible Preferred Stock
and other outstanding options and warrants), the pro-forma net tangible book
value of the Company's Common Stock at September 30, 1997 would have been
$45,920,000 or approximately $3.10 per share based on 14,814,804 shares of
Common Stock outstanding. Net tangible book value per share represents the
tangible assets of the Company less all liabilities, divided by the number of
shares outstanding.
As of December 31, 1997, the net tangible book value of the Company was
$47,495,000, or approximately $2.64 per share based on 18,006,974 shares of
Common Stock outstanding. Assuming the issuance of an additional 665,024
shares of Common Stock pursuant to this Exchange Offer (without giving effect
to the conversion of the Company's outstanding Convertible Preferred Stock
and other outstanding options and warrants), the pro-forma net tangible book
value of the Company's Common Stock at December 31, 1997 would have been
$47,495,000 or approximately $2.54 per share based on 18,671,998 shares of
Common Stock outstanding. Net tangible book value per share represents the
tangible assets of the Company less all liabilities, divided by the number of
shares outstanding.
PRO-FORMA FINANCIAL INFORMATION
The following summary pro-forma financial information as of and for the
year ended September 30, 1997 and for the quarter ended December 31, 1997,
gives effect to the completion of the Exchange Offer, assumng all Warrants
are exchanged for Common Stock, as if it had been completed at the beginning
of the period presented (in thousands, except for per share data):
<TABLE>
Pro-Forma for Pro-Forma for
Fiscal Year the Fiscal Year Fiscal Quarter the Fiscal
Ended Ended Ended Quarter Ended
September 30, September 30, December 31, December 31,
1997 1997 1997 1997
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 62,424 $ 62,424 $ 31,275 $ 31,275
Cost of Sales 55,179 55,179 26,302 26,302
---------- ---------- ---------- ----------
Gross Profit 7,245 7,245 4,973 4,973
Selling and administrative
expenses 4,221 4,221 2,474 2,474
---------- ---------- ---------- ----------
Income from Operations 3,024 3,024 2,499 2,499
Interest Expense (2,616) (2,616) (2,169) (2,169)
Other Income
(expense) 73 73 (55) (55)
---------- ---------- ---------- ----------
Income before
income taxes and
extraordinary items 481 481 275 275
Income tax benefit 595 595 (87) (87)
Extraordinary loss 2,414 2,414
---------- ---------- ---------- ----------
Net Income (loss) $ 1,076 $ 1,076 $ (2,226) $ (2,226)
Preferred Stock Dividends 364 364 84 84
---------- ---------- ---------- ----------
Net Earnings (loss)
Available to Common
Shareholders (expense) $ 712 $ 712 $ (2,310) $ (2,310)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income (loss)
Per Share $ 0.05 $ 0.05 $ 0.05 $ (0.12)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average
Shares Outstanding 14,149,780 14,814,804 18,006,974 18,671,998
BALANCE SHEET
Assets
Current Assets $ 15,004 $ 15,004 $ 48,079 $ 48,079
Property and Equipment 33,227 33,227 159,010 159,010
Other Assets 6,848 6,848 24,150 24,150
----------- ----------- ----------- -----------
Total Assets $ 55,079 $ 55,079 $ 231,239 $ 231,239
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities $ 7,448 $ 7,448 $ 10,498 $ 10,498
Long-Term Debt and
Other Liabilities 29,456 29,456 154,224 154,224
----------- ----------- ----------- -----------
Total Liabilities $ 36,904 $ 36,904 $ 164,722 $ 164,722
Redeemable Common
Stock 1,500 1,500 1,500 1,500
Total Stockholders
Equity 16,675 16,675 65,017 65,017
----------- ----------- ----------- -----------
Total Liabilities and
Stockholders Equity $ 55,079 $ 55,079 $ 231,239 $ 231,239
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
INTERESTS OF DIRECTORS OFFICERS AND AFFILIATES
Certain of the Company's directors who hold an aggregate of 18,000
Warrants have indicated that they intend to participate in the Exchange
Offer. Such participation will be on the same terms as all other holders of
Warrants.
-19-
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO WARRANTHOLDERS
The following discussion summarizes the material federal income tax
consequences to holders of the Warrants (herein referred to as "Holders")
relating to the exchange of the Warrants for Common Stock of the Company. The
discussion is based upon the Internal Revenue Code of 1986 (the "Code"), the
applicable Treasury Regulations (the "Regulations") and judicial and
administrative interpretations of the Code and Regulations, all as in effect on
the date of this Prospectus. Each Holder should be aware that the Code and the
Regulations, and any interpretation thereof, are subject to change and that any
change could be applied retroactively. This summary does not discuss all
aspects of federal income taxation that may be relevant to a particular Holder
in light of his personal investment circumstances or to certain types of Holders
subject to special treatment under the federal income tax laws (for example,
tax-exempt entities and foreign taxpayers) and does not discuss any aspect of
state, local or foreign tax laws. Each Holder is urged to consult his own tax
advisor to determine the particular tax consequences to him (including the
applicability and effect of state, local, foreign and other tax laws) of the
exchange of the Warrants for Common Stock.
EXCHANGE OF WARRANTS FOR COMMON STOCK
In general, a Holder exchanging Warrants for Common Stock will recognize
gain or loss equal to the difference between the amount realized upon the
exchange (which will be equal to the fair market value of the Common Stock
received in exchange for the Warrants), and the basis of the Warrants that were
exchanged therefor. Such gain or loss will be capital gain or loss if the
Warrants thus exchanged were a capital asset in the hands of the Holder and the
Common Stock which would have been acquired upon the exercise of a Warrant would
have been a capital asset if so acquired, and will be long-term capital gain or
loss if the Holder has held the Warrants for more than 18 months prior to the
exchange.
TAX BASIS AND HOLDING PERIOD OF THE COMMON STOCK
Shares of Common Stock acquired upon the exchange of the Warrants will have
a tax basis equal to their fair market value at the time of the exchange. The
Holder may not tack to his holding period of the Common Stock the period he held
the Warrants transferred in exchange for the Common Stock.
DISPOSITION OF COMMON STOCK
Upon the sale or exchange of shares of Common Stock to or with a person
other than the Company, a Holder will, as a general rule, recognize capital gain
or loss equal to the difference between the amount realized upon such sale or
exchange and the Holder's adjusted tax basis in such shares. Any capital gain
or loss recognized will generally be treated as long-term capital gain or loss
if the Holder held such shares for more than 18 months.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.001 par value. At February 5, 1998, 18,006,974 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.
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 is subject
to the prior payment of dividends on the share of the Company's
outstanding Preferred Stock described below. If funds are available to pay
dividends on the Common Stock, such 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.
-20-
<PAGE>
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 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 the following series of preferred
stock: (i) 10,000 shares of Series D Convertible Preferred all of which shall be
converted on April 7, 1999 into that number of shares of the Company's Common
Stock having a then market value of $500,000; (ii) 10,000 shares of Series E
Redeemable Convertible Preferred Stock ("Series E Preferred"), each share of
which is convertible into that number of shares of the Company's Common Stock
having market value at the time of conversion equal to $300 and is redeemable by
the Company at any time prior to conversion for $300 per share. If not earlier
redeemed or converted, all outstanding shares of Series E Preferred shall
automatically convert into shares of Common Stock on December 5, 2000. (iii)
14,000 shares of Series F 6 1/2% Redeemable Convertible Preferred Stock ("Series
F Preferred"), each share of which is convertible into that number of shares of
the Company's Common Stock having market value at the time of conversion equal
to $250 and is redeemable by the Company at any time prior to conversion for
$250 per share. If not earlier redeemed or converted, all outstanding shares of
Series F Preferred shall automatically convert into shares of Common Stock on
December 5, 2000; (iv) 14,000 shares of Series G 6 1/2% Redeemable Convertible
Preferred Stock ("Series G Preferred"), each share of which is convertible into
that number of shares of the Company's Common Stock having market value at the
time of conversion equal to $250 and is redeemable by the Company at any time
prior to conversion for $250 per share. If not earlier redeemed or converted,
all outstanding shares of Series G Preferred shall automatically convert into
the greater of (1) that number of shares Common Stock having a then market value
of $3,500,000, or (2) that number of shares of Common Stock equal to $3,500,000
divided by 2.5 times the market value of the Common Stock immediately prior to
the issuance of the Series G Preferred shares of Common Stock on December 5,
2000; (v) 11,378 shares of Series H 6% Secured Redeemable Convertible Preferred
Stock ("Series H Preferred"), each share of which is convertible into that
number of shares of the Company's Common Stock having market value at the time
of conversion equal to $500 and is redeemable by the Company at any time prior
to conversion for $500 per share. If not earlier redeemed or converted, all
outstanding shares of Series H Preferred shall automatically convert into shares
of Common Stock on December 5, 2000; and (vi) 10,000 shares of Series I
Redeemable Convertible Preferred Stock ("Series I Preferred"), each share of
which is convertible into that number of shares of the Company's Common Stock
having market value at the time of conversion equal to $350. If not earlier
redeemed or converted, all outstanding shares of Series H Preferred shall
automatically convert into shares of Common Stock on December 8, 1999.
-21-
<PAGE>
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 Offering Circular, the Company's Board of Directors has
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.
EXCHANGE AGENT
American Securities Transfer & Trust, Inc. has been appointed Exchange
Agent for the Exchange Offer. All deliveries and correspondence sent to the
Exchange Agent should be directed to the address set forth in the Letter of
Transmittal. Requests for assistance or additional copies of this Offering
Circular and the Letter of Transmittal should be directed to the Exchange Agent,
at its address set forth on the back cover page of this Offering Circular. The
Company has agreed to pay the Exchange Agent customary fees for its services and
to reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company also has agreed to indemnify the Exchange
Agent for certain liabilities, including liabilities under the federal
securities laws.
MISCELLANEOUS
The Company has not retained any dealer manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting tenders of Warrants. However, directors,
officers and employees of the Company (who will not be separately compensated
for such services) may solicit exchanges by use of the mails, personally or
by telephone, facsimile or similar means of electronic transmission. The
Company also will pay brokers, dealers, commercial banks, trust companies and
other nominees their reasonable out-of-pocket expenses incurred in forwarding
copies of this Offering Circular and related documents to the beneficial
owners of the Warrants and in handling or forwarding tenders of Warrants by
their customers.
-22-
<PAGE>
Rider _____
-23-
<PAGE>
-------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., MOUNTAIN STANDARD TIME, ON
MARCH __, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., MOUNTAIN STANDARD TIME, ON THE EXPIRATION DATE.
-------------------------------------------------------------------------------
RECYCLING INDUSTRIES, INC.
9780 SOUTH MERIDIAN BOULEVARD
SUITE 180
DENVER, COLORADO 80112
LETTER OF TRANSMITTAL
TO EXCHANGE SERIES G OR J WARRANTS
EXCHANGE AGENT:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
938 QUAIL STREET, SUITE 101
LAKEWOOD, COLORADO 80215-5513
To:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
938 QUAIL STREET, SUITE 101
LAKEWOOD, COLORADO 80215-5513
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., MOUNTAIN STANDARD TIME, ON APRIL 8, 1998 UNLESS EXTENDED (THE
"EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00P.M., MOUNTAIN
STANDARD TIME, ON THE EXPIRATION DATE
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Offering Circular Recycling
Industries, Inc., a Colorado corporation (the "Company"), and this Letter of
Transmittal for Series G or Series J Warrants, which together constitute the
Company's offer (the "Exchange Offer") to exchange each of its currently
outstanding Series G Common Stock Purchase Warrants (the "Series G Warrants")
and Series J Common Stock Purchase Warrants (the "Series J Warrants")
(collectively the Series G Warrants and Series J Warrants are referred to as
the "Warrants") into .2517291 shares of its common stock, $.001 par value per
share (the "Common Stock").
The undersigned has completed, executed and delivered this Letter to
indicate the action the undersigned desires to take with respect to the
Exchange Offer.
All holders of Warrants who wish to tender their Warrants must, prior to
the Expiration Date: (1) complete, execute and deliver this Letter of
Transmittal, (or a facsimile thereof), to the Exchange
<PAGE>
Agent, in person or to the address set forth above; and (2) tender the
Warrants in accordance with the procedures for tendering described in the
Instructions to this Letter of Transmittal.
All Warrants held directly or indirectly by any holder who wishes to
participate in the Exchange Offer must be tendered, including Warrants
represented by multiple certificates or held in a different form of ownership
(i.e. Warrants held in the name of the holders as well as all Warrants held
in an IRA account, trust, or coprorate or other entitity for the benefit of
or controlled by the holder). A seperate Letter of Transmittal must
accompany and be delivered for each form of ownership. For example, if a
holder owned Warrants individually and in an IRA account, the holder must
complete a separate Letter of Transmittal for the Warrants held individually
and for the Warrants held in the IRA account.
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Warrants validly tendered and not withdrawn and the
issuance of the Common Stock will be made as soon as practicable after the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Warrants when, as and if
the Company has given written or oral notice thereof to the Exchange Agent.
The Instructions included with this Letter of Transmittal must be
followed in their entirety. Questions and requests for assistance or for
additional copies of the Offering Circular or this Letter of Transmittal may
be directed to the Exchange Agent, at the address listed above, or Luke F.
Botica, Vice Chairman, 9780 South Meridian Boulevard, Suite 180, Denver,
Colorado 80112, telephone (303) 790-7372.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THE LETTER, CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
2
<PAGE>
To the Holders of the Exchange of Series G and Series J Common Stock Purchase
Warrants:
By execution in Box 2, below, the undersigned hereby acknowledges the
receipt and review of the Offering Circular and this Letter of Transmittal
relating to the Company's offer to exchange each of its currently outstanding
Series G Warrants and Series J Warrants into .2517291 shares of Common Stock
(the "Exchange Offer") upon the terms and subject to the conditions set forth
in the Offering Circular.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company all of the Series G or Series J
Warrants owned by it, as indicated in Box 1, below.
The undersigned understands that the obligation of the Company to
consummate the Exchange Offer is subject to the conditions set forth in the
Offering Circular under the caption "The Exchange Offer -- Conditions to the
Exchange Offer" (the "Offering Conditions"). The undersigned acknowledges
that all the Offering Conditions are for the sole benefit of the Company and
may be asserted by the Company at any time regardless of the circumstances
giving rise to such conditions and may be waived by the Company, in whole or
in part, at any time and from time to time, in the reasonable discretion of
the Company. The failure by the Company at any time to exercise any of its
rights under the Offering Conditions shall not be deemed a waiver of any such
right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. If any of the Offering
Conditions shall not be satisfied, the Company may, subject to applicable
law, (i) terminate the Exchange Offer and return all Warrants tendered
pursuant to the Exchange Offer to tendering holders; (ii) extend the Exchange
Offer and retain all tendered Warrants until the Expiration Date for the
extended Exchange Offer; (iii) amend the terms of the Exchange Offer or
modify the consideration to be provided by the Company pursuant to the
Exchange Offer; or (iv) waive the unsatisfied Offering Conditions and accept
all Warrants tendered pursuant to the Exchange Offer. Notwithstanding
anything to the contrary, the Company may extend the period of the Exchange
Offer in its sole discretion.
Subject to, and effective upon, the acceptance by the Company of the number
of Warrants tendered hereby for exchange pursuant to the terms of the Exchange
Offer, the undersigned hereby irrevocably sells, assigns and transfers to, or
upon the order of, the Company, all right, title and interest in and to, and any
and all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Warrants tendered hereby, waives any
and all rights with respect to the Warrants tendered hereby (including, without
limitation, the undersigned's waiver of any existing or past defaults and their
consequences with respect to the Warrants) and releases and discharges any
obligor or parent of any obligor of the Warrants from any and all claims the
undersigned may have now, or may have in the future, arising out of or related
to the Warrants, including, without limitation, any claims that the undersigned
is entitled
3
<PAGE>
to participate in any redemption or defeasance of the Warrants. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent (with
full knowledge that the Exchange Agent also acts as agent of the Company) as the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Warrants, with full power of substitution (such power-of-attorney being
deemed to be an irrevocable power coupled with an interest) to (a) deliver such
Warrants, with all accompanying evidences of transfer and authenticity, to or
upon the order of the Company, (b) present such Warrants for transfer on the
books of the Company, and (c) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Warrants, all in accordance with the
terms of the Exchange Offer.
The undersigned agrees and acknowledges that upon the issuance of Common
Stock in exchange for the Warrants, the Company will be deemed to have fully
satisfied any and all of its obligations under the Registration Rights
Agreement (as defined in the Offering Circular) between the Company and the
undersigned with respect to (i) the registration of the Common Stock issued
in exchange for the Warrants and (ii) the registration of any shares of
Common Stock underlying any Warrants tendered hereby.
The undersigned acknowledges that the Common Stock received in Exchange
for the Warrants tendered hereby will not be registered under the Securities
Act and may only be sold or transferred in compliance with Rule 144
promulgated thereunder or another exemption and represents to the Company
that it has held the Warrants continuously since their issuance. The
undersigned further acknowledges that the Company has no obligation to
register under the Securities Act the Common Stock issued in exchange for the
Warrants.
The undersigned hereby represents and warrants that (i) the undersigned
has full power and authority to tender, sell, assign and transfer the
Warrants tendered hereby, and that when such Warrants are accepted for
exchange by the Company, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and that none of such Warrants will be subject to
any adverse claim or right; (ii) the undersigned owns the Warrants being
tendered hereby and is entitled to tender such Warrants as contemplated by
the Exchange Offer. The undersigned, upon request, will execute and deliver
all additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Warrants tendered hereby.
By tendering Warrants, the undersigned certifies that it is not an
"affiliate" of the Company within the meaning of the Securities Act (an
"Affiliate"), that it is not a broker-dealer that owns Warrants acquired
directly from the Company or an Affiliate, that it is acquiring the Common Stock
offered hereby in the ordinary course of the undersigned's business and that the
undersigned has no arrangement with any person to participate in the
distribution of such Common Stock.
4
<PAGE>
The undersigned understands that the tender of Warrants pursuant to any
of the procedures described in the Offering Circular Statement under the
caption "The Exchange Offer -- Procedures for Tendering" and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Exchange Offer. The Company's acceptance of such
Warrants for exchange pursuant to the terms of the Exchange Offer will
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. The
undersigned has read and agrees to all terms and conditions of the Exchange
Offer. Delivery of the enclosed Warrants shall be effected, and risk of loss
and title of such Warrants shall pass, only upon proper delivery thereof to
the Exchange Agent.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned and every
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives. WARRANTS TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. See the information set
forth under the heading "The Exchange Offer -- Withdrawal of Tenders" in the
Offering Circular.
BOX 1 - WARRANTS BEING TENDERED
- --------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------
Name(s) and Addresses(s) of
Registered Holder(s) Certificate Number of
(Please fill in if blank) Number(s) Warrants (2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals:
- --------------------------------------------------------------------------------
(1) List all Series G and Series J Warrants of which you are the holder. If
the space provided in Box 1 is inadequate, list the certificate numbers and
number of Warrants on a separate signed schedule and affix the schedule to
this letter. All Series G and Series J Warrants represented by a
certificate or delivered to the Exchange Agent will be deemed to have been
tendered.
5
<PAGE>
BOX 2 - SIGNATURES
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
This box must be signed by registered holder(s) of Warrants as their name(s)
appear(s) on certificate(s) for warrants, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with
this Letter. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below. (See
Instruction 3)
X____________________________________________________________________________
X____________________________________________________________________________
Signature(s) of Owner(s) or Authorized Signatory
Date:________________________________, 1998
Name(s)______________________________________________________________________
(Please Print)
Capacity:____________________________________________________________________
Address:_____________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.:_________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
______________________________
SIGNATURE GUARANTEE (SEE INSTRUCTIONS 3 BELOW)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
_____________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
_____________________________________________________________________________
(Address (including zip code) and Telephone Number
(including area code) of Firm)
_____________________________________________________________________________
(Authorized Signature)
_____________________________________________________________________________
(Title)
_____________________________________________________________________________
(Printed Name)
Date:__________________________, 1998
- --------------------------------------------------------------------------------
6
<PAGE>
BOX 3 - SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
SUBSTITUTE Part I: PLEASE Social Security Number
FORM W-9 PROVIDE YOUR TIN IN
Department of the Treasury THE BOX AT RIGHT AND OR _______________________
Internal Revenue Service CERTIFY BY SIGNING Employer Identification
AND DATING BELOW Number
Payer's Request for Taxpayer -------------------------------------------------
Identification Number (TIN) Part II: Check the box if you are NOT subject to
back-up withholding under the provisions of
Section 2406(a)(1)(c) of the Internal Revenue
Code because (1) you have not been notified by
the Service that you are subject to back-up
withholding as a result of failure to report all
interest or dividends or (2) the Internal Revenue
Service has notified you that you are no longer
subject to back-up withholding.
-------------------------------------------------
Park III: Awaiting TIN
- --------------------------------------------------------------------------------
CERTIFICATION UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature __________________________________ Date ________________________
Name:_______________________________________
(Please Print)
- --------------------------------------------------------------------------------
7
<PAGE>
BOX 4 - SPECIAL ISSUANCE INSTRUCTIONS
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Common Stock are to be issued in
the name of someone other than the person whose signature appears in Box 2.
Issue and deliver Common Stock to:
(Please Print)
Name:________________________________________________________________________
Address:_____________________________________________________________________
_____________________________________________________________________________
Please complete the Substitute Form W-9 at Box 3
Tax I.D. or Social Security Number:____________________________________________
- --------------------------------------------------------------------------------
BOX 5 - SPECIAL DELIVERY INSTRUCTIONS
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Common Stock, are to be sent to
someone other than the person whose signature appears in Box 2 or to an
address other than shown in Box 1.
Deliver Common Stock to:
(Please Print)
Name:_______________________________________________________________________
Address:____________________________________________________________________
____________________________________________________________________________
Please complete the Substitute Form W-9 at Box 3
Tax I.D. or Social Security Number:____________________________________________
- --------------------------------------------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR
WARRANTS. Certificates for Warrants, as well as a properly completed and duly
executed copy of this Letter of Transmittal and any other documents required
by this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein on or before the Expiration Date. The method of
delivery of this Letter of Transmittal and any other required documents is at
the election and risk of the tendering holder, but except as otherwise
provided below, the delivery will be deemed made when actually received by
the Exchange Agent.
If tendered Warrants are registered in the name of the signer of the
Letter of Transmittal and the Common Stock to be issued is exchange therefor is
to be issued in the name of the registered holder, the signature of such signer
need not be guaranteed. In any other case, the tendered Warrants must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Common Stock is to be delivered to an address other than that of the registered
holder appearing on the Transfer Records for the Warrants, the signature on the
Letter of Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Warrants are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Warrants should contact such holder promptly and instruct such holder
to tender Warrants on such beneficial owner's behalf. If such beneficial owner
wishes to tender such Warrants himself, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering such
Warrants, either make appropriate arrangements to register ownership of the
Warrants in such beneficial owner's name or follow the procedures described in
the immediately preceding paragraph. The transfer of record ownership may take
considerable time.
The method of delivery of Warrants, this Letter of Transmittal and all
other documents is at the election and risk of the holder. If sent by mail,
it is recommended that registered mail, return receipt requested, be used,
proper insurance be obtained, and the mailing be made sufficiently in advance
of the Expiration Date to permit deliver to the Exchange Agent on or before
the Expiration Date.
9
<PAGE>
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to the holder pursuant to the Exchange Offer if the holder does not
provide his or her taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute W-9 included as part of the Letter of Transmittal, so as to provide
the information and certification necessary to avoid backup withholding, unless
an applicable exemption exists and is proved in a manner satisfactory to the
Company and the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Warrants is received by the Exchange Agent. The issuance
of Common Stock in exchange for Warrants tendered will be made only against
deposit of the Letter of Transmittal (and any other required document) and
the tendered Warrants.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Warrants will be determined by
the Company, whose determination will be final and binding. The Company
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which, in the opinion of the Company's counsel, would
be unlawful. The Company also reserves the right to waive any irregularities
or conditions of tender as to particular Warrants. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their Warrants. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Neither the Company, the Exchange Agent nor any person shall be obligated
to give notice of defects or irregularities in any tender, nor shall any of
them incur any liability for failure to give any such notice.
2. WITHDRAWALS.
Holders who wish to exercise their right of withdrawal with respect to
the Exchange Offer must give written notice of withdrawal, delivered by mail,
hand delivery or facsimile transmission, to the Exchange Agent at the address
set forth in the Letter of Transmittal prior to the Expiration Date or at
such other time as otherwise provided for herein. In order to be effective,
a notice of withdrawal must specify the name of the person who deposited the
Warrants to be withdrawn (the "Depositor"), the name in which the Warrants
are registered, if different from that of the Depositor, and the number of
Warrants to be withdrawn prior to the physical release of the certificates to
be withdrawn. The notice of withdrawal must be signed by the registered
holder of such Warrants in the same manner as the applicable Letter of
Transmittal (including any required signature guarantees), or be accompanied
by evidence satisfactory to the Company that the person withdrawing the
tender has succeeded to the beneficial ownership of such Warrants.
Withdrawals of tenders of Warrants may not be rescinded, and any Warrants
withdrawn will be deemed not validly tendered thereafter for purposes of the
Exchange Offer. However, properly withdrawn Warrants may be tendered again at
any time prior to the Expiration Date by following the procedures for
tendering not previously tendered Warrants described elsewhere herein.
10
<PAGE>
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; ASSIGNMENTS; GUARANTEE OF
SIGNATURES. If this Letter of Transmittal is signed by the holder(s) of
Warrants tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificate(s) for such Warrants, without
alteration, enlargement or any change whatsoever.
If any of the Warrants tendered hereby are owned by two or more joint
owners, all owners must sign this Letter of Transmittal. If any tendered
Warrants are held in different names on several certificates, it will be
necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are names in which certificates are held.
If this Letter of Transmittal is signed by the holder of record and all
of the holder's Warrants are tendered, then the holder of record need not
endorse any certificates for tendered Warrants, nor provide a separate power
of attorney. In any other case, the holder of record must transmit a separate
bond power of attorney with this Letter of Transmittal.
If this Letter of Transmittal or any certificate or assignment is signed
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and proper evidence
satisfactory to the Company of their authority to so act must be submitted,
unless waived by the Company.
Signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution, unless Warrants are tendered; (i) by a holder who has
not completed the Box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter of Transmittal; or (ii) for the account
of an Eligible Institution. The signatures in this Letter of Transmittal or
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by an eligible guarantor institution which is a member of
the Securities Transfer Agents Medallion Program (STAMP), the New York Stock
Exchanges Medallion Signature Program (MSP) or the Stock Exchanges Medallion
Program (SEMP). If Warrants are registered in the name of a person other
than the signer of this Letter of Transmittal, Warrants surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
the Company, in its sole discretion, duly executed by the registered holder
with the signature thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in Box 4 or 5, as applicable, the name and address to which
the Common Stock is to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
11
<PAGE>
issuance in a different name, the tax identification number of the person named
must also be indicated.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Warrants are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification
number ("TIN"), which, in the case of the holder who is an individual, is his
or her social security number. If the Exchange Agent is not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, delivery to the holder of Common Stock pursuant
to the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject o these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number or
Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Company on
account of Common Stock issued pursuant to the Exchange Offer may be subject to
back-up withholding at a rate of 31%. In order to prevent back-up withholding,
each tendering holder must provide his or her correct TIN by completing the
"Substitute Form W-9" referred to above, certifying that the TIN provided is
correct (or that the holder is awaiting a TIN) and that: (i) the holder has not
been notified by the Internal Revenue Service that he or she is subject to
back-up withholding as a result of failure to report all interest of dividends;
(ii) the Internal Revenue Service has notified the holder that he or she is no
longer subject to back-up withholding; or (iii) in accordance with the
Guidelines, such holder is exempt from back-up withholding. If the Warrants
are in more than one name or not in the name of the actual owner, consult the
enclosed Guidelines for information on which TIN to report.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable tot he transfer of Warrants to it or its order pursuant to the
Exchange Offer. If, however, the Common Stock is to be delivered to, or is to
be issued in the name of, any person other than the record holder, or if
tendered certificates are recorded in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed by
any reason other than the transfer of Warrants to the Company of its order
pursuant to the Exchange Offer, then the amount of such transfer taxes
(whether imposed on the record holder or any other person) will be payable by
the tendering holder. If satisfactory evidence of payment of taxes or
exemption from taxes is not submitted with this Letter of Transmittal, the
amount of transfer taxes will be billed directly to the tendering holder. If
satisfactory evidence of payment of taxes or exemption from taxes is not
submitted with this Letter of Transmittal, the amount of transfer taxes will
be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter
of Transmittal.
12
<PAGE>
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend or waive any of the specified conditions in the Exchange Offer in the
case of any Warrants tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Warrants have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above, for further
instructions.
9. Requests for Assistance or Additional Copies. Questions relating
to the procedure for tendering, as well as requests for additional copies of
the Offering Circular or this Letter of Transmittal, may be directed to the
Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL (TOGETHER WITH CERTIFICATES
REPRESENTING TENDERED WARRANTS AND ALL OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE
(AS DEFINED IN THE OFFERING CIRCULAR).
13
<PAGE>
[RECY LETTERHEAD]
March 9, 1998
To The Holders of Recycling Industries, Inc.'s Series G and Series J Common
Stock Purchase Warrants:
Recycling Industries, Inc. (the "Company") is offering to exchange each
of the Company's outstanding Series G and Series J Common Stock Purchase
Warrants for .2517291 shares of the Company's Common Stock (the "Exchange
Offer"). The Board of Directors of the Company believes that the Exchange
Offer will reduce the potential overhang to the market for the Company's
Common Stock and may enhance the Company's ability to raise additional equity
capital.
For a detailed description of the Exchange Offer, its terms and
conditions and the procedures you must follow to participate in the Exchange
Offer, please see the enclosed Offering Circular dated March 9, 1998 and
the accompanying Letter of Transmittal. Unless extended by the Company, the
Exchange Offer will expire on April 8, 1998.
If you wish to participate in the Exchange Offer, you must complete the
Letter of Transmittal and return it, along with your original warrant
certificates, to the Exchange Agent, American Securities Transfer and Trust,
Inc., 938 Quail Street, Suite 101, Lakewood, Colorado 80215-5513.
Neither the Company nor the Board of Directors makes any recommendations
to any holder whether to tender their Warrants as part of the Exchange Offer.
In deciding whether to accept the Exchange Offer, holders of Warrants must
rely on their own examination of the Company and the terms of the Exchange
Offer, including the merits and risks involved. We look forward to your
continued support of the Company.
Sincerely,
Thomas J. Wiens
Chairman and Chief Executive Officer
<PAGE>
RECYCLING INDUSTRIES, INC. ANNOUNCES EXCHANGE OFFER
________________________________________________
(February 19, 1998) - ENGLEWOOD, COLORADO - RECYCLING INDUSTRIES, INC.
(NASDAQ: RECY), a leading consolidator in the metals recycling industry,
today announced that it is offering to exchange each of its outstanding
Series G and Series J Common Stock Purchase Warrants (the "Warrants") for
_____ shares of its Common Stock, $.001 par value (the "Exchange Offer").
The Exchange Offer is being made for all outstanding Warrants and will expire
on March ___, 1998, unless extended. The Exchange Offer is designed to
reduce the overhang to the market for the Company's common stock.
There are currently 2,641,822 Warrants outstanding, of which 2,606,157
entitle the holder to purchase one share of Common Stock for $5.52 per share
and 35,665 entitle the holder to purchase one share of Common Stock for $4.00
per share. The Warrants expire on December 27, 1999. American Securities
Transfer & Trust, Inc. will serve as Exchange Agent.
The Exchange Offer is being made pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as amended, provided
by Section 3(a)(9), thereof. The Company will not pay any commission or
other remuneration to any broker, dealer, salesman or other person for
soliciting tenders of the Warrants. Officers, directors and regular
employees of the Company may solicit tenders of the Warrants but they will
not receive additional compensation for doing so. It is anticipated that an
Offering Circular concerning the Exchange Offer will be mailed to Warrant
holders on or about February ___, 1998.
Recycling Industries, Inc. is a rapidly growing consolidator of metals
recycling companies providing quality, value-added products and services to
its customers. Based in Englewood, Colorado, the Company owns and operates
metals processing facilities in Georgia, Illinois, Iowa, Missouri, Nevada,
North Carolina, South Carolina, Texas, Virginia and Wisconsin.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1997
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20179
RECYCLING INDUSTRIES, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO
---------------
(State or Other Jurisdiction of Incorporation or Organization)
84-1103445
------------------------
(I.R.S. Employer Identification Number)
9780 S. MERIDIAN BLVD, SUITE 180,
ENGLEWOOD, CO 80112
- ---------------------------------------------------------- -----------
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports) and, (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting common equity held by
non-affiliates of the Registrant was approximately $87,713,226. This
calculation is based upon the closing price of the stock on December 31, 1997
of $6.00, and the number of shares held by non-affiliates, which was
14,618,871 shares on December 31, 1997.
The number of shares of the Registrant's $.001 par value Common Stock
that was outstanding as of December 31, 1997 was 18,006,974.
Documents Incorporated by Reference: None
<PAGE>
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . .13
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . .13
Special Considerations Effecting the Company. . . . . .13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . .14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . .15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . .19
Item 8. Financial Statements and Supplementary Data . . . . F-1 - F-30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . .26
PART III
Item 10. Directors and Executive Officers of the Registrant. . .27
Item 11. Executive Compensation. . . . . . . . . . . . . . . . .30
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . .32
Item 13. Certain Relationships and Related Transactions. . . . .33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . .34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . .41
i
<PAGE>
STATEMENTS AND INFORMATION PRESENTED WITHIN THIS ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED SEPTEMBER 30, 1997 FOR RECYCLING INDUSTRIES, INC. AND ITS
SUBSIDIARIES (COLLECTIVELY THE "COMPANY") CONTAIN "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
PREDICTIVE, FUTURE-TENSE OR FORWARD LOOKING TERMINOLOGY, SUCH AS "BELIEVES,"
"ANTICIPATES," "EXPECTS," "ESTIMATES," "MAY," "WILL" OR SIMILAR TERMS.
FORWARD-LOOKING STATEMENTS ALSO INCLUDE PROJECTIONS OF FINANCIAL PERFORMANCE,
STATEMENTS REGARDING MANAGEMENT'S PLANS AND OBJECTIVES AND STATEMENTS CONCERNING
ANY ASSUMPTIONS RELATING TO THE FOREGOING. CERTAIN IMPORTANT FACTORS REGARDING
THE COMPANY'S BUSINESS, OPERATIONS AND COMPETITIVE ENVIRONMENT WHICH MAY CAUSE
ACTUAL RESULTS TO VARY MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED BELOW UNDER THE CAPTION "SPECIAL CONSIDERATIONS."
PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Company, a Colorado corporation organized in 1988, 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 through its subsidiaries, Nevada
Recycling, Inc., Recycling Industries of Texas, Inc., Recycling Industries of
Missouri, Inc., Recycling Industries of Iowa, Inc., Recycling Industries of
Georgia, Inc. and Recycling Industries of South Carolina, Inc. The Company
operates seven metals recycling facilities in Nevada, Southern Texas, Missouri,
Georgia, Iowa, and South Carolina. The Company commenced its metals recycling
operations in May 1994 and has increased its revenues from approximately $4.8
million for the year ended September 30, 1994 to $62.4 million for the year
ended September 30, 1997.
During the fiscal year ended September 30, 1997, the Company completed two
acquisitions. In April 1997, Recycling Industries of Georgia, Inc. acquired
substantially all the assets of Addlestone Recycling, Inc., a metals recycling
company located in Georgia ("ARC"). In June 1997, Recycling Industries of South
Carolina, Inc. acquired substantially all the assets of Addlestone
International, Inc., a metals recycling company located in South Carolina
("AIC").
As described under the caption "Business-Events Subsequent to September 30,
1997," below. In December 1997, the Company acquired six additional scrap metals
recycling facilities and completed approximately $220 million in financing.
4
<PAGE>
DESCRIPTION OF BUSINESS
The Company recycles and processes ferrous and non-ferrous metals through a
process of sorting purchased metals according to their grade and quality and
using shredding or other methods to reduce and then selling the recycled or
processed metal to its customers.
MARKETS
THE FERROUS SCRAP MARKET
The largest portion of the Company's operations involves the collection,
processing and sale of prepared ferrous scrap to regional and local steel
mills operating electric arc furnaces ("EAFs") and to a lesser degree
integrated steel manufacturers who utilize ferrous scrap in their blast
furnace operations. All of the Company's facilities process ferrous scrap.
Demand for ferrous scrap is expected to increase as a number of new EAFs come
on line in the next several years. According to industry estimates, the
anticipated continuing increase in EAF production to an estimated 50 million
net tons by the year 2000 may cause ferrous scrap shortages, resulting in
further increases in processed ferrous scrap prices.
The geographic market for prepared ferrous scrap, tends 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.
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 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.
Net sales of processed ferrous scrap accounted for 67% of the Company's total
net sales for the year ended September 30, 1997.
THE NON-FERROUS SCRAP MARKET
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. The higher value of these
metals makes the shipment of prepared non-ferrous scrap economical over
longer distances, both domestically and internationally, than prepared
ferrous scrap. The primary consumers of prepared non-ferrous scrap are
domestic and foreign secondary smelters. Non-ferrous scrap is sold on a spot
market basis and includes copper, aluminum, brass, stainless steel, high
temperature alloys and other exotic metals. All of the Company's facilities
process non-ferrous scrap.
Sales prices for prepared 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 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 strong
prices for processed non-ferrous scrap during periods of high demand for
finished non-ferrous metal products. Net sales of non-ferrous materials
accounted for 23% of the Company's total net sales for the year ended
September 30, 1997.
5
<PAGE>
OPERATIONS
RAW SCRAP PURCHASING (SOURCE AND AVAILABILITY OF RAW MATERIALS)
Raw scrap metal is purchased by the ton from local sources, including
industrial plants, auto wreckers, demolition sites, military bases and
individual collectors. Typically the Company's raw materials are acquired in
the form of industrial waste steel, automobiles, structural steel from
demolition sites, appliances and other goods fabricated from steel and other
metals. The radius of the Company's supply area is approximately 100-150
miles from each facility. As of September 30, 1997, the Company operates its
own fleet of heavy trucks, which collect most of the purchased scrap
materials from industrial sources and auto wreckers.
Industrial and governmental sources of supply are pursuant to long term
contracts obtained through competitive bidding. Retail sources of supply are
paid spot prices for their obsolete items, such as appliances, at the
Company's facilities. The Company employs a full-time buyer at each facility
to manage existing and secure new industrial and governmental supply
accounts.
In purchasing raw materials, the Company inspects and rejects items that are
hazardous or contain hazardous materials, such as PCBs and automobile
batteries, although there can be no assurance that all hazardous materials
contained in the Company's raw materials will be discovered and rejected upon
inspection.
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, 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 subsidiaries 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
6
<PAGE>
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 seven heavy-duty automotive
shredders with a monthly output capacity of approximately 44,750 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, copper refineries and smelters,
brass and bronze ingot manufacturers and other baled into low-density bales
in accordance with customer specifications.
SIGNIFICANT CUSTOMERS
Three of the Company's customers, The David J. Joseph Company, John Deere and
Aceros D.M., S.A. de C.V., accounted for approximately 42% of the Company's
revenues (19%, 12% and 11% respectively) for the year ended September 30,
1997. The loss of any one of these customers would have a material adverse
effect on the Company's business.
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. The Company ships processed ferrous and non-ferrous scrap to its
customers by truck, rail car and barges. The Company competes for available
shipping space on each of these methods of transportation. The Company has
not entered into any long-term contracts for transportation and the
unavailability of transportation may have a material adverse effect on the
Company's business.
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
7
<PAGE>
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 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.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
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. The Company disposes shredder fluff at
municipal or private landfills on a truckload basis. Such disposal is not
pursuant to long-term contracts. 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 and
periodic independent testing of the Company's facilities, 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, hazardous materials through inadvertent spillage or improper
disposal may contaminate the premises upon which shredder operations are
conducted, 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.
8
<PAGE>
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 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.
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.
EMPLOYEES
At September 30, 1997 the Company has approximately 271 full-time employees;
most of who are employed by the Company's wholly-owned subsidiaries.
Weissman has 45 employees of which 22 are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America (the "UAW") under a four-year collective bargaining agreement which
expires on November 30, 2000.
The Company believes its relationship with its employees and the UAW is good.
EVENTS SUBSEQUENT TO SEPTEMBER 30, 1997
On December 5, 1997, the Company acquired for $3.7 million certain assets of
Grossman Bros. Company ("Grossman") located in Milwaukee, Wisconsin and
assumed $0.3 million of trade payables. The purchase price was financed in
part from the proceeds of the Credit Facility, Subordinated Debt and Sale of
Common Stock described below. In connection with the acquisition, the
Company entered into a net lease agreement and commercial offer to purchase
certain equipment and real estate owned by Grossman. The net lease expires on
December 5, 1999. Terms of the net lease call for the Company to pay a base
rent, plus additional pro rata occupancy costs such as building operating
costs, taxes and utilities. The commercial offer to purchase provides the
Company with a two-year option to purchase real property, leasehold
improvements and equipment for $4 million in the form of cash, stock or a
combination of both. The Company will continue the metals recycling
operations of Grossman.
On December 5, 1997, the Company acquired substantially all the assets of
Money Point Land Holding Corporation and Money Point Diamond Corporation
doing business as Jacobson Metal Company ("Jacobson"), headquartered in
Chesapeake, Virginia, for an aggregate purchase price of approximately
$19.9 million.
<PAGE>
The purchase price was financed with $16.9 million of proceeds in part from
the Credit Facility, Subordinated Debt and Sale of Common Stock and $3
million or 10,000 shares of the Company's Series E Redeemable Convertible
Preferred Stock (the "Series E Preferred"). The Series E Preferred are
subject to automatic conversion provisions at the earlier of a consolidation
or merger of the Company or on December 5, 2000. The Series E Preferred will
convert into the number of shares of the Company's Common Stock as determined
by dividing $3 million by the average market price for the ten trading days
preceding the date of conversion. Holders of the Series E Preferred are not
entitled to dividends. At any time prior to conversion, the Company shall
have the right to redeem the outstanding shares of Series E Preferred Stock,
in whole or in part, at a cash redemption price equal to $300 per share. The
company will continue the metals recycling operations of Jacobson.
On December 5, 1997, the Company acquired for $23.8 million substantially all
the assets of Brenner Companies Inc. (Brenner) located in Winston-Salem,
North Carolina. The purchase price was financed with $15.7 million of
proceeds in part from the Credit Facility, Subordinated Debt and Sale of
Common Stock, 14,000 shares of the Company's Series F 6 1/2% Redeemable
Convertible Preferred Stock (the "Series F Preferred"), valued at $3.5
million and 14,000 shares of the Company's Series G 6 1/2% Redeemable
Convertible Preferred Stock (the "Series G Preferred"), valued at $3.5
million and the assumption of $1.1 million in deferred compensation
liabilities. The Series F Preferred are subject to mandatory and automatic
conversion provisions at the earlier of a consolidation, merger or share
exchange of the Company or on December 5, 2000. The Series F Preferred will
convert into the number of shares of the Company's Common Stock as determined
by dividing $3.5 million plus an amount in cash equal to all accrued and
unpaid dividends to the date of conversion by the average market price for
the ten trading days preceding the date of conversion. The Series G Preferred
is subject to mandatory and automatic conversion provisions at the earlier of
a consolidation, merger or share exchange of the Company or on December 5,
2000. The Series G Preferred will convert into the number of shares of the
Company's Common Stock as determined by dividing $3.5 million plus an amount
in cash equal to all accrued and unpaid dividends to the date of conversion
by the greater of the average market price for the ten trading days preceding
the date of conversion or 2.5 times the average market price for the ten
trading days preceding the date of issuance. At any time prior to conversion,
the Company shall have the right to redeem the outstanding shares of Series F
and G Preferred Stock, in whole or in part, at a cash redemption price equal
to $250 per share plus all accrued and unpaid dividends to the date of
redemption. The company has agreed to register on or before December 5, 2000
the shares of Common stock received upon conversion of the Series F and G
Preferred, unless such shares may be sold by the holder thereof pursuant to
rule 144(k) promulgated under the Securities Act or any equivalent provision
then in effect. The company will continue the metals recycling operations of
Brenner.
On December 5, 1997, the Company acquired for $42 million substantially all
the assets of United Metals Recyclers, a North Carolina general partnership,
headquartered in Greensboro, North Carolina ("UMR"). The purchase price was
financed with $36 million in proceeds in part from the Credit Facility,
Subordinated Debt and Sale of Common Stock and 12,000 shares of the Company's
Series H 6% Secured Redeemable Convertible Preferred Stock (the "Series H
Preferred"), valued at $6 million. The Series H Preferred is subject to
mandatory and automatic conversion provisions at the earlier of a
consolidation, merger or share exchange of the Company or on December 5,
2000. Dividend payments on the Series H Preferred are secured by the Company's
50% interest in a scrap metals facility located in Smithfield, North
Carolina. The Series H Preferred will convert into the number of shares of
the Company's Common Stock as determined by dividing $6 million plus an
amount in cash equal to all accrued and unpaid dividends by the average
market price for the ten trading days preceding the date of conversion.
<PAGE>
At any time prior to conversion, the Company shall have the right to redeem
the outstanding shares of Series H Preferred Stock, in whole or in part, at a
cash redemption price equal to $500 per share plus all accrued and unpaid
dividends to the date of redemption. If the sale of the Series H Conversion
shares yields net proceeds of less than $5,689,000, the Company will pay the
difference to United. The Company has agreed to register on or before
December 5, 2000 the Series H Conversion shares, unless such shares may be
sold by the holder thereof pursuant to Rule 144(k) promulgated under the
Securities Act or any equivalent provision then in effect. The Company will
continue the metals recycling operations of United.
On December 5, 1997, the Company acquired for $31 million substantially all
the assets of Central Metals Company, Inc. (Central) located in Atlanta,
Georgia. The purchase price was financed with $20.7 million of proceeds in
part from the Credit Facility, Subordinated Debt, and Sale of Common Stock,
the issuance of 800,000 shares of the Company's Common Stock having an agreed
value of $12.50 per share or $10 million, and the assumption of $0.3 million
of current liabilities. The Company has guaranteed that the aggregate market
value of the 800,000 shares of Common Stock issued to Central will be at
least $10,000,000 on December 4, 1999. If the market value of the Common
Stock is less than $10,000,000, the Company will issue shares of Common Stock
to Central having a market value equal to the difference between $10,000,000
and the market value of the 800,000 shares of Common Stock initially issued
to Central. In connection with the acquisition, Central was issued warrants
to acquire up to 200,000 shares of the Company's common stock for $15.00 per
share, exercisable upon satisfaction of certain financial performance
conditions related to the operations of Recycling Industries of Atlanta, Inc.
(the "Contingent Warrants"). The exercise price per share of the Contingent
Warrants is subject to adjustment at the time of exercise so that the
aggregate spread between the exercise price of all Contingent Warrants and
the market value of the Common Stock received upon exercise of the Contingent
Warrants is not less than $1,000,000. The Company also granted "piggyback"
registration rights to the holders of the Contingent Warrants with respect to
the shares of Common Stock received upon their exercise. The Company will
continue the metals recycling operations of Central.
On December 8, 1997, the Company acquired for $25.5 million all the
outstanding Capital Stock of Wm. Lans Sons' Co. Inc., (Lans) and
substantially all of the real property and personal property of Idal Realty
Company (Idal), both entities located in South Beloit, Illinois. The
purchase was financed with $22 million of proceeds in part from the Credit
Facility, Subordinated Debt and Sale of Common Stock and Series I Redeemable
Convertible Preferred Stock (the "Series I Preferred") valued at $3.5
million. The Series I Preferred is subject to automatic and mandatory
conversion provisions in the event of a consolidation or merger, to provide
funding for indemnification liabilities, to provide funding for remediation
costs or on December 8, 1999. The Series I Preferred will convert into the
number of shares of the Company's Common Stock as determined by dividing
$3.5 million, plus all accrued and unpaid dividends, to the date of
conversion by the lesser of the average market price for the ten trading days
preceding the date of conversion or $15.00. For a period of 25 days prior to
December 3, 1999, the Company shall have the right to redeem the outstanding
shares of Series I Preferred Stock, in whole or in part, at a cash redemption
price equal to the Share Liquidation Value, provided that the market price of
the Company's Common Stock is greater than $15.00 per share. The Company has
agreed to register on or before December 5, 2000 the shares of Common Stock
received upon conversion of the Series I Preferred. The Company will continue
the metals recycling operations of Lans.
<PAGE>
The Company believes these acquisitions will have a positive impact on its
future results of operations. The historical results of operations do not
fully reflect the operating efficiencies and improvements that are expected
to be achieved by integrating the acquired businesses into the Company's
operations. See "Special Consideration's Effecting the Company".
In December 1997, the Company entered into a $150 million Senior Credit
Facility ("Credit Facility") with General Electric Capital Corporation and
BankBoston, N.A. as agent for the lenders. The Credit Facility is comprised
of a $45 million revolving credit facility, a $40 million term loan due
December 5, 2003, with interest and principal payable quarterly, a $40
million term loan due on the earlier of December 5, 2005 or six months prior
to the maturity of the Subordinated Notes discussed below with interest and
principal payable quarterly and a $25 million acquisition line of credit due
December 5, 2003, with interest and principal payable quarterly. The notes
bear interest at either (I) the higher of (a) prime plus .75% or (b) the
Federal Funds rate plus 50 basis points per annum plus .75%, or (II) at the
option of the Company upon certain conditions, the LIBOR rate plus 2.25%.
The proceeds from the Credit Facility are secured by substantially all of the
Company's assets and are to be used for acquisitions, repayment of existing
indebtedness and general corporate purposes.
In December 1997, the Company issued $60 million in Senior Subordinated Notes
(the "Subordinated Debt") to various lenders, the proceeds of which are to be
used for acquisitions, repayment of existing indebtedness and general
corporate purposes. The notes bear interest at 13% and mature in December
2005.
In connection with the Credit Facility and the issuance of the Subordinated
Debt, the Company sold 1,666,666 shares of its Common Stock for an aggregate
of $10 million to various accredited investors in transaction exempt from the
registration requirements of the Securities Act.
9
<PAGE>
ITEM 2 - DESCRIPTION OF PROPERTY
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 facilities based on a
single shift:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FACILITY SIZE MONTHLY SHREDDING
FACILITY LOCATION (ACRES) MATERIALS PROCESSED CAPACITY (TONS)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Las Vegas, Nevada 13 Ferrous and non-ferrous scrap 6,250
Brownsville, Texas 7 Ferrous and non-ferrous scrap (1)
Harlingen, Texas 7 Ferrous and non-ferrous scrap 6,000
McAllen, Texas 1 Ferrous and non-ferrous scrap (1)
San Juan, Texas 8 Ferrous and non-ferrous scrap (1)
Ste. Genevieve, Missouri 32 Ferrous and non-ferrous scrap 3,500
Waterloo, Iowa (2) 34 Ferrous and non-ferrous scrap 6,500
Metter, Georgia 22.5 Ferrous and non-ferrous scrap 11,500
Georgetown, S. Carolina 12.5 Ferrous and non-ferrous scrap 9,000
Warrenton, Georgia 5.5 Ferrous and non-ferrous scrap 2,000
- ----------------------------------------------------------------------------------------------------------------------------
Totals 142.5 Ferrous and non-ferrous scrap 44,750
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) Subject to a deed of trust granted to the former owner of Weissman
to secure the Company's guarantee the $1.5 million value of the 363,636
shares of Common Stock issued in connection with the acquisition of Weissman.
See Management's Discussion and Analysis of Financial Conditions and Results
of Operations - Liquidity and Capital Resources.
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.
Periodically, the Company may be required to shut down its shredding
operations for maintenance. If these shutdowns occur for an extended period
of time, they may have an adverse impact on the Company's operations.
10
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
BEEBER, ET AL., PLAINTIFFS, V. JOHN J. SILVIA, JR., ET AL., DEFENDANTS;
United States District Court for the District of Massachusetts, Case No.
96-12416-JLT;
Plaintiffs have asserted a variety of claims based upon common allegations
that the Company is vicariously liable for the alleged misrepresentations
made by Caside Associates ("Caside"), by and through its managing general
partner, John Silvia, Jr., that purportedly induced Plaintiffs to purchase
from Caside 108,000 shares of the Company's Common Stock that were owned or
under an option to purchase by Caside on the basis that the investments
were "no risk." Based on the allegations their complaint, the amount of
the Plaintiffs' total claim is approximately $308,000. The Company
believes the plaintiff's claims to be without merit and is vigorously
defending this matter.
MITCHELL, ET AL., PLAINTIFFS V. RECYCLING INDUSTRIES, INC., DEFENDANT; United
States District Court for the District of Massachusetts, Case No. C9700845
Plaintiffs have asserted a variety of claims based upon common allegations
that Caside and Silvia were agents of the Company for the purpose of
raising money for the Company for which shares of the Company or its former
subsidiary, Environmental Recovery Systems of Somerset, Inc., would
eventually be issued to them. The Compliant seeks damages in excess of
$2,000,000. The Company believes the plaintiff's claims to be without
merit and is vigorously defending this matter.
DWIGHT SILVIA, ET AL., PLAINTIFFS V. RECYCLING INDUSTRIES, INC.; Bristol County
Superior Court, Case No. A97-01068 (removed to and now pending in United States
District Court for the District of Massachusetts, Civil Action no.
97-12015-JLT).
The complaint is a literal copy (except for the named plaintiffs) of the
MITCHELL action discussed above. The complaint does not seek any specific
damages. The Company believes the plaintiff's claims to be without merit
and is vigorously defending this matter.
FERREIRA, ET AL., PLAINTIFFS, V. RECYCLING INDUSTRIES, INC.; Bristol County
Superior Court, Case No. B97-01400 (this case will be removed to United States
District Court for the District of Massachusetts on or before December 1, 1997).
On November 11, 1997, Recycling was served with an unsigned copy of the
complaint, dated October 2, 1997. The complaint is a literal copy (except
for the named plaintiffs) of the MITCHELL and DWIGHT SILVIA actions
discussed above. The complaint seeks damages of approximately $1,000,000.
The Company believes the plaintiff's claims to be without merit and is
vigorously defending this matter.
Although the Company has denied all liability and is vigorously
defending against the above actions, the Company has entered into a
Stipulation of Settlement (the "Stipulation") with the trustees in
bankruptcy and the debtor in possession (the other named defendants on
the above actions). The Stipulation terms provide for the Company on or
before July 1, 1998, to rescind the sale of approximately 560,000 shares
of the Company's Common Stock to be obtained by the bankruptcy trustee
from individual investors or creditors to be identified.
For return of such shares the Company will pay $7,000,000 and any and all
actions initiated against the Company and the other defendants will be
permanently enjoined by an order of the Bankruptcy Court. In accordance
with the terms of the Stipulation, the Company has provided the trustees
with a $7,000,000 letter of credit. However, the Stipulation contains
various provisions requiring the trustee to deliver a minimum number of
shares. If the trustee is not able to deliver the minimum (500,000 shares)
and the trustee does not exercise his right to deliver less than the
minimum, the Stipulation will be void. If the trustee exercises the right
to deliver less than the minimum, the Company will pay for the rescinded
shares the greater of $12.50 per share or the average closing price of the
Company's Common Stock on the last ten trading days before the date of
payment, upon delivery of the stock to the Company. At the option of the
trustees, payment for less than the minimum shares also constitutes full
satisfaction of the Stipulation.
The trustee has not yet filed the Stipulation with the Bankruptcy Court,
which must approve the Stipulation for it to become effective. The
Company's management and legal counsel have assessed that it is not
reasonably possible to conclude that the trustee will file the
Stipulation, or, if filed, that the Bankruptcy Court would approve it.
Also, it is not reasonably possible to assess that the trustee can
obtain and deliver the minimum number of shares and if the minimum
number is not obtained, whether the trustee would void the Stipulation.
Should the stipulation not proceed, the Company will continue to
vigorously defend the claims asserted against it.
The Company filed an action claim against Robert C. Rome ("Rome"),
principal of Anglo Metal, Inc. ("AMI"), in the United States District
Court for the District of Colorado. The Company and Recycling
Industries of Texas, Inc. ("RITI") are seeking actual and consequential
damages in an undetermined amount for fraud by misrepresentation, deceit
by nondisclosure and concealment and breach of contract in connection
with the acquisition of Anglo Iron & Metal in December 1995.
Alternatively, the complaint seeks specific performance of Mr. Rome's
obligations under his agreements with the Company. On February 21,
1997, the Company and RITI were served with a compliant filed by AMI in
the United States Bankruptcy Court for the Southern District of Texas.
The complaint alleges that the Company and RITI have failed to perform
certain obligations under their agreement to acquire Anglo Iron & Metal
in December 1995. The plaintiff seeks damages in excess of $3,255,000
for breach of contract, fraud and conversion. Alternatively, the
comoplaint seeks to rescind the agreements executed by the Company and
RITI to acquire Anglo Iron & Metal. On September 30, 1997, the Company,
Robert C. Rome and Anglo Metal, Inc. settled the two actions through
negotiations. The terms of the settlement includes the reimbursement by
AMI of $1.5 million in processing costs, legal expense and environmental
remediation expense incurred by the Company at its Southern Texas
facilities. The Company shall pay for any environmental remediation of
the real property located in Harlingen, Brownsville and the sub-leased
property in San Juan, Texas upon which certain of its Southern Texas
facilities are located, to a level necessary to obtain approval under
the Texas Voluntary Cleanup Program. The Company shall pay to AMI $0.4
million and assign that number of shares of the Company's Common Stock
from the escrow account established at closing which, upon sale, will
yield net proceeds to AMI of $700,000. The proceeds from the sale of
these shares will be used for remediation of certain property and
related expenses.
<PAGE>
YARBROUGHS, INC., PLAINTIFF, V. RECYCLING INDUSTRIES OF TEXAS D/B/A ANGLO
IRON AND METAL, DEFENDANT; District Court, 35th Judicial District, Cameron
County, Texas, Cause No. 96-05-2929-E.
Plaintiff, owner of a parcel of real estate adjacent to the Company's
Harlingen, Texas facility, is seeking damages and a permanent injunction
prohibiting the Company's operations at it Harlingen, Texas facility
arising out of allegations that the operations of the facility throw
debris and scrap metal onto the Plaintiff's property. The Company
believes the plaintiff's claims to be without merit and is vigorously
defending this matter.
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth fiscal quarter ended September 30, 1997.
SPECIAL CONSIDERATIONS AFFECTING THE COMPANY
In evaluating the Company, readers of this report should carefully consider the
following special considerations affecting the Company, its business, markets,
operations and competitive environment. Any one or a combination of these
considerations may have a material adverse effect on the Company and its
operations and management's beliefs or predictions about future performance.
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, Missouri, Georgia, Iowa, South Carolina. The
Company has only a limited combined history for its current facilities and
there can be no assurance that the Company's existing operations or those of
any contemplated acquisitions, including those accrued subsequent to
September 30, 1997, will generate sufficient cash flow to fund the future
operations of the Company. See "Events Subsequent to September 30, 1997"
MARKET CONSIDERATIONS AND EXPOSURE TO SCRAP PRICE FLUCTUATIONS
Sales prices for processed scrap metal are cyclical in nature and are subject to
local, national and international economic conditions. 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 effect the financial 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 margins by
adjusting the purchase price for unprepared 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 unprepared scrap. The Company is unable
to hedge against changes in scrap prices and attempts to minimize this risk by
maintaining low inventory levels of unprepared and processed scrap and by
establishing firm prices with its larger customers at the beginning of each
month.
DEPENDENCE ON SCRAP SUPPLIERS
The Company's scrap recycling operations are dependent upon the supply of scrap
materials from its suppliers. Few of such suppliers are bound by long-term
supply arrangements and, therefore, they have no obligation to supply scrap
materials to the Company. If substantial numbers of scrap suppliers cease
supplying scrap materials to the Company, the financial condition and results of
operations of the Company would be materially and adversely affected.
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
<PAGE>
operations without substantial costs, delays or other unanticipated problems.
There can be no assurance that any companies which the Company acquires 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 retraining, hiring and training key
personnel; risks associated with environmental and legal liabilities; and the
affects of amortization of acquired intangibles, such as goodwill. Some of the
risks 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 existing management team in order to effectively
manage the acquired entities and successfully implement its acquisition and
operating strategies.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap brokers and steel mills located in
the United States. Generally, the Company does not require collateral or other
security to support customer receivables. Historically, the Company's
wholly-owned subsidiaries have not experienced material losses from the
noncollectable of receivables, however, certain of the Company's subsidiaries
have significant balances owing from customers that operate in cyclical
industries and leveraged conditions which may impair the collection of such
receivables.
THE USE OF SCRAP ALTERNATIVES
The increased demand for scrap by the expanding mini-mill industry has caused an
unusual tightness in the supply and demand balance for steel scrap. The
relative scarcity of scrap, particularly the cleaner grades and its high price,
have created opportunities for producers of scrap alternatives, or scrap
substitutes. These are produced by reducing oxygen out of iron ore to produce a
metallic generally consisting of iron and carbon. Although scrap alternatives
have not been a major factor in the industry to date, there can be no assurance
that if the price of scrap continues to rise and if the levels of available
unprepared ferrous scrap continue to decrease, that the use of scrap
alternatives will proliferate. Any significant increase in production of scrap
alternatives could have a material adverse effect on the financial performance
of the Company.
<PAGE>
EXTENT OF LEVERAGE; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company is highly leveraged as of September 30, 1997 and continues to be
highly leveraged after consummation of the six acquisitions and $220 million of
financing in December 1997. See "Events Subsequent to September 30, 1997".
Based upon the Company's current level of operations and anticipated growth,
including the acquisitions and financing completed in December 1997, the Company
believes that cash flows from the current level of operations and availability
under its credit facilities, will be sufficient to enable the Company to satisfy
anticipated cash flow requirements for operating, investing and financing
activities, including debt service. However, if the Company is unable to
satisfy such requirements from these sources, the Company would be required to
adopt one or more alternatives, such as reducing or delaying acquisitions and
capital expenditures, refinancing or restructuring its indebtedness, or selling
material assets or operations. There can be no assurance that any such
alternatives would be available to the Company on terms reasonably acceptable to
it or at all.
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,
its Vice-Chairman, Luke F. Botica and its Vice President and Chief Operating
Officer, Harold Rouster. The Company has entered into employment arrangements
with Mr. Wiens and Mr. Botica and has entered into an employment letter with Mr.
Rouster. The Company has obtained a key-man life insurance policy in the amount
of $500,000 for Mr. Wiens. The Company expects to enter into an employment
agreement with Mr. Rouster in the near future and anticipates obtaining key-man
life insurance policies for both Mr. Botica and Mr. Rouster.
ENVIRONMENTAL MATTERS
Compliance with state and federal environmental regulations 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
<PAGE>
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.
COMPETITION
The metals recycling business is highly competitive and subject to significant
changes in overall market conditions. Certain of the Company's competitors have
substantially greater financial, 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.
<PAGE>
IMMEDIATE AND FUTURE CAPITAL REQUIREMENTS
Scrap metal processing companies such as the Company have substantial ongoing
working capital requirements, capital equipment requirements in order to
continue to operate and grow and capital requirements related to the increasing
costs to comply with more stringent environmental and governmental regulations.
In order to remain competitive, the Company must continue to make significant
investments in capital equipment. As a result, the Company may seek
additional equity or debt financing to fund future improvements and expansion
of the scrap metal processing business as well as to make other acquisitions
of scrap metal processing facilities. There can be no assurance that such
financing will be available when needed, or that, if available, it will be on
satisfactory terms. The failure to obtain financing would hinder the
Company's ability to make continued investments in capital equipment and
pursue expansions, which could materially adversely affect results of
operations.
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-4 - F-5
CONSOLIDATED STATEMENTS OF OPERATIONS F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-7 - F-9
CONSOLIDATED STATEMENTS OF CASH FLOWS F-10
SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-11 - F-30
F - 1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Recycling Industries, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Recycling
Industries, Inc. and subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of a subsidiary, which statements reflect total assets of $8,290,000
as of September 30, 1996, and total revenues of $11,310,000 for the year then
ended. Those statements were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for such subsidiary, is based solely on the report of the other auditor.
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 statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Denver, Colorado
December 30, 1997
F - 2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
NR holdings, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of NR Holdings, Inc.
and Subsidiary as of September 30, 1996 and the related statements of operations
and accumulated deficit 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
misstatement. 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 NR Holdings, Inc.
and Subsidiary as of September 30, 1996 and the result of its operations and its
cash flows for the year ended, in conformity with generally accepted accounting
principles.
AJ. Robbins, PC.
Denver, Colorado
October 18, 1996
F - 3
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS (Note 9)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 746 $ 1,450
Accounts receivable, net (Note 1) 8,820 4,379
Inventories (Note 3) 4,183 2,473
Deferred income taxes (Note 6) 810 -
Prepaid expenses and other 445 392
- ----------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,004 8,694
- ----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) 33,227 20,492
- ----------------------------------------------------------------------
OTHER ASSETS:
Notes receivable, related party (Note 10) 85 77
Deferred income taxes (Note 6) 585 800
Other assets, net of amortization (Note 5) 6,178 4,792
- ----------------------------------------------------------------------
TOTAL OTHER ASSETS 6,848 5,669
- ----------------------------------------------------------------------
TOTAL ASSETS $ 55,079 $ 34,855
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term
debt (Note 9) $ 3,300 $ 1,707
Current maturities of long-term debt,
related parties (Note 9) - 2,075
Accounts payable 2,661 2,673
Accounts payable - related parties 438 61
Income taxes payable - 107
Other current liabilities 1,049 551
- ----------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,448 7,174
- ----------------------------------------------------------------------
LONG-TERM DEBT (Note 9):
Long-term debt, less current maturities 29,456 10,067
Long-term debt - related parties, less
current maturities - 1,951
- ----------------------------------------------------------------------
TOTAL LONG-TERM DEBT 29,456 12,018
- ----------------------------------------------------------------------
TOTAL LIABILITIES 36,904 19,192
- ----------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 12)
- ----------------------------------------------------------------------
Redeemable common stock, $.001 par value,
363,636 shares issued and outstanding
(Note 2) 1,500 1,500
- ----------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 7 and 11):
Preferred stock, no par value, 10,000,000
shares authorized Series D,
convertible, 10,000, and 0 shares
issued and outstanding 500 -
Common Stock, $.001 par value, 50,000,000
shares authorized, 14,149,780 and
13,430,793 shares issued and
outstanding 14 13
Additional paid-in capital 26,846 25,547
Accumulated deficit (10,685) (11,397)
- ----------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 16,675 14,163
- ----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,079 $ 34,855
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note 8) $ 62,424 $ 27,619 $ 13,812
Cost of sales and operating expenses 55,179 26,590 10,869
- ---------------------------------------------------------------------------------------------------------
Gross profit 7,245 1,029 2,943
Selling, general and administrative expenses, net (Note 12) 4,221 3,253 2,279
- ---------------------------------------------------------------------------------------------------------
Operating income (loss) 3,024 (2,224) 664
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (2,616) (732) (407)
Miscellaneous 73 4 41
- ---------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (2,543) (728) (366)
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary gain
and income tax benefit (expense) 481 (2,952) 298
Extraordinary gain on settlement of debt (Note 1) - - 806
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax benefit (expense) 481 (2,952) 1,104
Income tax benefit (expense) (Note 6) 595 (9) 711
- ---------------------------------------------------------------------------------------------------------
Net earnings (loss) 1,076 (2,961) 1,815
Preferred stock dividends (Note 11) 364 - -
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 712 $ (2,961) $ 1,815
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER COMMON SHARE (Note 1):
Before extraordinary item $ .05 $ (.29) $ .17
Extraordinary item - - .13
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER COMMON SHARE $ .05 $ (.29) $ .30
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,138,000 10,212,000 6,100,000
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Before extraordinary item $ .04 $ (.29) $ .16
Extraordinary item - - .13
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE $ .04 $ (.29) $ .29
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 17,608,000 10,212,000 6,352,000
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL OTHER
YEARS ENDED SEPTEMBER 30, 1995, PREFERRED STOCK COMMON STOCK PAID-IN OPTION EQUITY ACCUMULATED
1996 AND 1997 SHARES AMOUNT SHARES AMOUNT CAPITAL TO CEO SECURITY (DEFICIT) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1994 629,333 $ 4,499 3,005,704 $ 3 8,269 $ - $ 246 $ (10,251) $ 2,766
Redemption of preferred stock
Series A (Note 11) (25,000) (2,300) - - - - - - (2,300)
Redemption of preferred stock
Series B and other equity for
option to CEO (Note 11) (291,333) (437) - - - 683 (246) - -
Common stock issued for acquisition
of MRI - - 120,000 - 1,200 - - - 1,200
Common stock issued during private
offering, net of offering
costs of $590 (Note 11) - - 3,746,400 4 2,778 - - - 2,782
Common stock issued to retire debt - - 166,666 - 150 - - - 150
Common stock issued for
renegotiation of payment terms
for a stockholder loan - - 10,000 - - - - - -
Common stock issued for services - - 10,000 - 25 - - - 25
Common stock issued for interest
on bridge loans - - 17,351 - 16 - - - 16
Common stock issued to CEO (Note 11) - - 1,319,445 1 682 (683) - - -
Common stock rounding due to stock
split - - 219 - - - - - -
Net earnings - - - - - - - 1,815 1,815
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1995 313,000 $ 1,762 8,395,785 $ 8 13,120 $ - $ - $ (8,436) $ 6,454
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 7
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF DOLLARS)
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
YEARS ENDED SEPTEMBER 30, 1995, PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
1996 AND 1997 SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1995 313,000 $ 1,762 8,395,785 $ 8 $ 13,120 $ (8,436) $ 6,454
Common stock issued for acquisition
of Anglo (Note 2) - - 227,693 - 925 - 925
Conversion of preferred stock
series B (300,000) (450) 12,000 - 450 - -
Common stock issued in private
offering, net of offering
costs of $548 (Note 11) - - 1,070,636 1 2,395 - 2,396
Conversion of bridge loans (Note 11) - - 413,523 - 1,138 - 1,138
Common stock issued on exercise
of warrants - - 816,822 1 314 - 315
Common stock issued in public
offering, net of offering
costs of $2,510 (Note 11) - - 3,994,652 4 13,964 - 13,968
Redemption of common stock - - (6,933) - (150) - (150)
Redemption of common stock and
preferred stock Series A
(Note 11) (13,000) (1,312) (120,000) - (1,088) - (2,400)
Redemption of common stock (Note 11) - - (1,373,385) (1) (5,521) - (5,522)
Net Loss - - - - - (2,961) (2,961)
- ---------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1996 - $ - 13,430,793 $ 13 $ 25,547 (11,397) $14,163
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF DOLLARS)
(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED ADDITIONAL
SEPTEMBER 30, 1995, PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
1996 AND 1997 SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1996 - $ - 13,430,793 $ 13 $ 25,547 $ (11,397) $ 14,163
Preferred stock Series C issued
for cash (Note 11) 10,000 1,000 - - - - 1,000
Redemption of preferrred stock
Series C (Note 11) (10,000) (1,000) - - - - (1,000)
Preferred stock Series D issued
for acquisitions (Note 11) 10,000 500 - - - - 500
Common Stock issued in private
offering (Note 11) - - 500,000 1 1,249 - 1,250
Common Stock issued on exercise
of options - - 150,000 - 135 - 135
Common stock issued on exercise
or conversion of Series I
warrants - - 133,800 - 27 - 27
Common Stock issued on exercise
or conversion of Dealer
warrants - - 1,187 - 7 - 7
Common stock repurchased (Note 11) - - (66,000) - (119) - (119)
Preferred dividends paid (Note 11) - - - - - (364) (364)
Net earnings - - - - - 1,076 1,076
- -------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 10,000 $ 500 14,149,780 $ 14 $ 26,846 $ (10,685) $ 16,675
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 9
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 1,076 $ (2,961) $ 1,815
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,592 1,197 784
Deferred income taxes (595) - (800)
Other operating activities (1,472) 230 (781)
Changes in assets and liabilities:
Accounts receivable (4,355) (2,199) (3)
Inventories (1,498) 657 (254)
Prepaid expenses and other (53) (244) 7
Accounts payable (73) 1,531 (290)
Current liabilities, excluding
debt 391 240 (365)
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,987) (1,549) 113
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures, net (2,962) (1,561) (575)
Note receivable, related party - 146 (238)
Acquisitions (11,212) (11,568) (113)
Other assets (1,282) 19 -
- -------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (15,456) (12,964) (926)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 26,867 10,215 321
Principal payments on borrowings (8,229) (2,614) (3,437)
Loans fees paid (835) (429) -
Dividends paid (364) - -
Net proceeds from issuance of stock 2,419 16,679 3,998
Redemption of stock (1,000) (8,072) -
Common stock repurchased (119) - -
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,739 15,779 882
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (704) 1,266 69
CASH, BEGINNING OF YEAR 1,450 184 115
- -------------------------------------------------------------------------------
CASH, END OF YEAR $ 746 $ 1,450 $ 184
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F - 10
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS OF RECYCLING INDUSTRIES, INC. AND ITS SUBSIDIARIES
Recycling Industries, Inc. and subsidiaries (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 metal producers and processors.
PRINCIPLES OF CONSOLIDATION AND INVESTMENTS IN AFFILIATES
The consolidated financial statements include the accounts of Recycling
Industries, Inc. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
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, 1997 and 1996, accounts
receivable balances from significant customers were $3.3 million and $1.8
million or 38% and 41% of the total accounts receivable balance. Ongoing credit
evaluations of customers' financial condition are performed and, generally, no
collateral is required. The Company maintains an allowance for potential credit
losses and such losses, in the aggregate, have not exceeded management's
expectations. At September 30, 1997 and 1996 the allowance for doubtful accounts
was $4,000 and $10,000 respectively. Customers are located throughout the
Midwest, Southeast and Western regions of the United States and Mexico. Sales to
one customer in Mexico comprised 11.5% and 15.4% of sales for the years ended
September 30, 1997 and 1996. There were no significant sales in Mexico prior to
the acquisition of the Company's Southern Texas facilities in December 1995.
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 were estimated based on market values for debt with similar terms.
Management believes that the fair value of that debt approximates its carrying
value.
INVENTORIES
The Company uses the lower of average cost on a first-in, first-out basis or
market for determining costs for ferrous and non-ferrous scrap metal.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are being depreciated on the
straight-line method over lives ranging from three to 40 years. Property, plant
and equipment leases, which are deemed to be installment purchase obligations,
have been capitalized and included in the property, plant and equipment
accounts. Maintenance, repairs and minor renewals are charged to operations
while major renewals and betterments are capitalized.
F-11
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The Company amortizes costs in excess of the fair value of net assets of
businesses acquired goodwill using the straight-line method over 20 years.
Recoverability is reviewed annually or sooner if events or circumstances
indicate that the carrying amount may exceed fair value. Recoverability is then
determined by comparing the undiscounted net cash flows of the assets to which
goodwill applies to the net book value including goodwill of those assets. The
analysis involves significant management judgment to evaluate the capacity of an
acquired business to perform within projections.
OTHER ASSETS
The Company capitalizes certain acquisition and financing costs into other
assets. Acquisition costs incurred on successful acquisitions are allocated to
net assets acquired and financing costs are amortized over the life of the
underlying agreement, and acquisition costs incurred on unsuccessful
acquisitions are charged to expense.
REVENUE RECOGNITION
The Company recognizes revenue on commercial exchanges at the time title to
goods transfers to the buyer. Brokerage income is recorded at the time materials
are received by the customer.
EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share are computed by dividing net earnings,
after deducting preferred stock dividends, by the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Fully diluted computations assume the conversion of outstanding Convertible
Preferred Stock and the exercise of dilutive warrants and stock options.
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.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all demand deposits and overnight investments as cash equivalents.
STOCK OPTIONS AND STOCK PURCHASE WARRANTS
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", is applied in accounting for all employee stock option and stock
purchase warrant arrangements. Compensation cost is recognized for all stock
options and stock purchase warrants granted to employees when the exercise price
is less than the market price of the underlying common stock on the date of
grant. Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation" (Statement 123) requires pro forma disclosures
regarding earnings (loss) as if compensation cost for stock options and stock
purchase warrants had been determined in accordance with the fair value based
method prescribed in Statement 123. Estimates of the fair market value are made
for each stock option and stock purchase warrant at the date of grant by the use
of the Black-Scholes option-pricing model.
F-12
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
The Company accounts for taxes on income under Statement of Financial Accounting
Standards No. 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 are 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.
ENVIRONMENTAL MATTERS
Capital expenditures for ongoing environmental compliance measures are recorded
in the consolidated balance sheets and related expenses are included in the
normal operating expenses of conducting business. The Company is currently
involved with environmental compliance and remediation activities. The Company
accrues for certain environmental remediation-related activities for which
commitments or clean-up plans have been developed or for which costs or minimum
costs can be reasonably estimated. There were no amounts accrued at
September 30, 1997 and 1996.
USE OF ESTIMATES
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.
EXTRAORDINARY ITEM
The Company recognized an extraordinary gain of $0.8 million in fiscal 1995 from
the extinguishment of $0.9 million of debt.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company is required to implement Financial Accounting Standards ("FAS") No.
128, "Earnings per Share" and FAS No. 129 "Disclosure of Information About an
Entity's Capital Structure" in fiscal year 1998. FAS No. 128 provides a
different method of calculating earnings per share than is currently used in
accordance with Accounting Principles Board Opinion 15 "Earnings per Share".
FAS No. 128 provides for the calculation of "basic" and "diluted" earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. FAS No. 129 establishes
standards for disclosing information about an entity's capital structure. Their
implementation is not expected to have a material effect on the consolidated
financial statements.
F-13
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is also required to implement FAS No. 130 "Reporting
Comprehensive Income" and FAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" in fiscal 1998. FAS No. 130 establishes
standards for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, FAS No. 130 requires that
all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that displays with the same prominence as other financial
statements. FAS No. 131 supersedes FAS No. 14 "Financial Reporting for
Segments of a Business Enterprise". FAS No. 131 establishes standards on the
way that public companies report financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. FAS No. 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. FAS No. 130 and 131 require comparative information
for earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected by
implementation of these standards.
RECLASSIFICATIONS
Certain balances in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation. The reclassifications had no
effect on financial condition, results of operations, or cash flows.
2. ACQUISITIONS
On June 25, 1997, the Company acquired for $6 million substantially all the
assets of Addlestone International Corporation ("AIC") a metals recycler located
in Georgetown, South Carolina. The purchase was financed with $6 million of
long-term debt. The purchase price has been allocated to property and equipment
based on their fair market value. The operating results of AIC have been
included in the Company's consolidated financial statements since the date of
acquisition.
On April 7, 1997, the Company acquired for $5.7 million substantially all the
assets of Addlestone Recycling Corporation ("ARC") a metals recycler located in
Metter, Georgia. The purchase was financed with $5.2 million of long-term debt
and $0.5 million or 10,000 shares of the Company's Series D Preferred Stock.
The purchase price has been allocated to the assets based on their fair market
value and includes inventory, property and equipment. The operating results of
ARC have been included in the Company's consolidated financial statements since
the date of acquisition.
On August 5, 1996, the Company acquired for $12.1 million all of the outstanding
common stock of Weissman Industries, Inc., ("Weissman) a metals recycler located
in Waterloo, Iowa. The purchase price has been allocated to assets based on
their fair market value net of assumed liabilities. The assets consisted of
accounts receivable, inventories, property and equipment, covenant not to
compete and goodwill. The purchase price was funded with $10.6 million of cash
and 363,636 shares of the Company's common stock valued at $1.5 million.
Approximately $5.8 million of the cash portion of the purchase price was funded
through the proceeds of a public offering of the Company's Common Stock in July,
1996, operating cash reserves, and $4.8 million of long-term debt secured by the
equipment and real property acquired. Under the terms of a Share Price Guaranty
Agreement (the Agreement), the Company has agreed to guarantee at $1.5 million
the value of the 363,636 shares. The agreement grants the
F-14
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
seller registration rights effective for three years. If at any time during the
three year period commencing on the effective date of the registration
statement, the seller sells the 363,636 shares of common stock at less than the
guaranteed amount, the Company is required to pay to the seller any shortfall in
cash.
In addition, the seller has the right at his sole discretion to require the
Company, at any time during the two year period commencing November 30, 1997, to
redeem the Guaranteed Shares for $1.5 million. As a result of the Company's
agreement to redeem, if requested, such shares, the amount has been recorded as
temporary equity on the accompanying balance sheet. The results of operations of
Weissman are included in the accompanying financial statements from the date of
acquisition.
On April 15, 1996, the Company acquired for $1.9 million substantially all of
the assets of Mid-America Shredding, Inc. ("Mid-America) a metals recycler
located in Ste. Genevieve, Missouri. The purchase was financed through the
assumption of outstanding bank debt of $1.2 million and $0.7 million in cash.
The purchase price has been allocated to assets based on their fair market value
and includes inventories and property and equipment. The results of operations
of Mid-America are included in the accompanying financial statements from the
date of acquisition.
On December 11, 1995, the Company acquired for $6.1 million substantially all of
the assets of Anglo Metal, Inc., ("Anglo") a metal recycler located in Southern
Texas. The purchase price was financed through $3.1 million of long-term debt,
$1.8 million through a sale-leaseback of certain purchased equipment, 227,693
shares of common stock valued at $0.9 million and $0.3 million in cash. The
purchase price has been allocated to assets based on their fair market value and
includes inventories, property and equipment, covenant not to compete and
goodwill. The Company entered into a sublease agreement with Anglo for three
yard facilities for $2,500 a month through December 10, 2005. The results of
operations of Anglo are included in the accompanying financial statements from
the date of acquisition.
The following summarized unaudited pro forma results of operations assumes the
acquisition of ARC, AIC, Weissman, Mid-America and Anglo had occurred at the
beginning of the year acquired and the preceding year.
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 85,436 $ 75,061 $ 52,222
Earnings from continuing
operations, net of taxes 1,285 1,149 3,977
Earnings after
extraordinary items and
income taxes 1,285 1,149 4,783
Earnings from continuing
operations, net of taxes
per common share 0.09 0.11 0.59
Earnings after
extraordinary items and
income taxes per common share $ 0.07 $ 0.11 $ 0.71
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
The pro forma data is for informational purposes only and may not necessarily
reflect the results of operations of the Company had the acquired businesses
operated as part of the Company for the years ended September 30, 1997, 1996 and
1995.
F-15
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
In September 1996, the Company wrote off its 20% or $0.3 million minority
investment in The Loef Company, a metals recycler located in Athens, Georgia.
3. INVENTORIES
A summary of inventories at the end of each year is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,590 $ 1,302
Finished goods 1,330 1,171
Other 263 -
- ------------------------------------------------------------------------------
Total $ 4,183 $ 2,473
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at the end of each year is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,600 $ 2,692
Buildings and improvements 3,807 2,768
Machinery and equipment 25,849 14,808
Transportation equipment 2,077 1,728
Office equipment 450 121
- ------------------------------------------------------------------------------
Total 36,783 22,117
Less accumulated depreciation 3,556 1,625
- ------------------------------------------------------------------------------
Total $ 33,227 $ 20,492
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
Included in machinery and equipment at September 30, 1997 and 1996 are capital
leases of $2.1 million and $1.9 million, respectively. Accumulated depreciation
on capital lease assets as of September 30, 1997 and 1996 was $0.2 and $0.1
million, respectively.
Depreciation expense on property and equipment was $1.9 million, $0.9 million
and $0.5 million for the years ended September 30, 1997, 1996 and 1995,
respectively.
Approximately $0.1 million of interest costs were capitalized as part of
property and equipment for the year ended September 30, 1997.
F-16
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
5. OTHER ASSETS
A summary of other assets at the end of each year is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred acquisition costs $ 535 $ 38
Goodwill, net of accumulated
amortization of $283 and $141 2,749 3,016
Engineering plans, net of accumulated
amortization of $1,024 and $962 63 125
Non-compete agreements, net of accumulated
amortization of $364 and $147 886 1,103
Loan fees, net of accumulated
amortization of $288 and $48 976 381
Other 969 129
- -------------------------------------------------------------------------------
Total $ 6,178 $ 4,792
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
6. TAXES ON INCOME
Pursuant to the terms of its acquisition of MRI, the Company included a $3.5
million 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 $1.2 million in additional income taxes plus penalties and
interest, and the $3.5 million net operating loss utilized on its consolidated
1994 tax return would be available to offset future taxable income generated by
the Company.
Under the terms of the Weissman acquisition agreement, the Company has agreed to
indemnify the selling shareholders of Weissman for certain tax liabilities which
could result from an audit by the IRS of the final Weissman tax return.
During fiscal year 1997 and 1996 management determined that net operating losses
generated from prior years were more likely than not to be used in the near
future due to taxable income generated by acquired operations. Therefore, a net
deferred tax asset of $1.4 million and $0.8 million has been recorded as of
September 30, 1997 and 1996. Net operating loss carryforwards available for
future use through the year 2012 were approximately $11.6 million at
September 30, 1997. As a result of a change in ownership, as defined by Section
382 of the Internal Revenue Code, approximately $8.7 million of the net
operating loss carry forwards are limited in use to approximately $2.6 million
per year. If additional changes in ownership were to occur Section 382 could
further reduce the amount of net operating losses that would be available to
offset future taxable income.
F-17
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The components of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets $ 5,753 $ 5,978
Less valuation allowance - (1,170)
- -------------------------------------------------------------------------------
5,753 4,808
Total deferred tax (liabilities) (4,358) (4,008)
- -------------------------------------------------------------------------------
Net deferred tax asset $ 1,395 $ 800
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</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>
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY DIFFERENCES:
- ----------------------
Property and equipment $ (4,358) $ (4,008)
Net operating loss carryforwards 3,936 3,474
Goodwill and other assets 1,515 2,277
Valuation allowance - (1,170)
Alternative minimum tax credits 87 87
Other 215 140
- -------------------------------------------------------------------------------
Totals $ 1,395 $ 800
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
Income tax benefit (expense) consisted of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ - $ (9) $ (89)
Deferred 595 - 800
- -------------------------------------------------------------------------------
$ 595 $ (9) $ 711
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A reconciliation of the effective tax rates to the federal statutory rate is
shown below:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax benefit
(expense) computed at federal
statutory rates $ (163) $ 1,004 $ (374)
Capital gains-MRI - - (1,190)
Change in valuation allowance 1,170 (928) 2,072
Change in net operating loss
carry forwards (408) - -
Other (4) (85) 203
- -------------------------------------------------------------------------------
Income tax benefit (expense) $ 595 $ (9) $ 711
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The following is a summary of changes in stock options and stock purchase
warrants outstanding during the years ended September 30, 1997, 1996 and 1995.
Each stock option and stock purchase warrant outstanding is exercisable to
purchase one share of the Company's $.001 par value Common Stock.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
WEIGHTED AVERAGE
YEARS ENDED SEPTEMBER 30, NUMBER OF SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C>
STOCK OPTIONS:
Balance, October 1, 1994 202,000 $ 1.42
Granted - -
Exercised - -
Expired/cancelled - -
- ------------------------------------------------------------------------------
Balance, September 30, 1995 202,000 1.42
Granted 765,000 2.87
Exercised - -
Expired/cancelled (450,000) (2.87)
- ------------------------------------------------------------------------------
Balance, September 30, 1996 517,000 2.30
Granted 3,781,800 1.46
Exercised (150,000) (0.90)
Expired/cancelled - -
- ------------------------------------------------------------------------------
Balance, September 30, 1997 4,148,800 $ 1.59
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS:
Balance, October 1, 1994 818,497 $ 17.41
Granted 335,000 5.31
Exercised - -
Expired/cancelled - -
- ------------------------------------------------------------------------------
Balance, September 30, 1995 1,153,497 14.13
Granted 3,656,751 5.54
Exercised (816,822) (1.50)
Expired/cancelled - -
- ------------------------------------------------------------------------------
Balance, September 30, 1996 3,993,426 6.59
Granted 798,000 1.94
Exercised (134,987) (1.50)
Expired/cancelled - -
- ------------------------------------------------------------------------------
Balance, September 30, 1997 4,656,439 $ 5.80
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following information summarizes stock options outstanding at September 30,
1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
OUTSTANDING EXERCISABLE
- -----------------------------------------------------------------------------------------
YEARS OF NUMBER WEIGHTED AVERAGE RANGE OF NUMBER WEIGHTED AVERAGE
EXPIRATION OUTSTANDING EXERCISE PRICE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 6,000 $2.50 $2.50 6,000 $2.50
1999 46,000 2.99 0.90 - 6.25 46,000 2.99
2001 315,000 2.87 2.87 125,010 2.87
2002 747,979 1.52 1.25 - 5.56 611,513 1.56
2003 24,000 2.78 2.78 24,000 2.78
2007 3,009,821 1.44 1.25 - 2.43 3,009,821 1.44
- -----------------------------------------------------------------------------------------
4,148,800 $1.59 $0.90 - 6.25 3,822,344 $1.53
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of stock options granted during the
year is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Market value equal to exercise price $ 0.52 $ 1.36
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The following information summarizes stock purchase warrants outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
OUTSTANDING EXERCISABLE
- -----------------------------------------------------------------------------------------
YEARS OF NUMBER WEIGHTED AVERAGE RANGE OF NUMBER WEIGHTED AVERAGE
EXPIRATION OUTSTANDING EXERCISE PRICE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 200,000 $7.00 $2.50 - 7.50 200,000 $7.00
2000 3,270,834 6.00 1.50 - 6.00 3,270,834 6.00
2001 341,667 5.43 3.75 - 5.57 341,667 5.43
2002 823,938 4.96 1.56 - 75.00 823,938 4.96
2005 20,000 1.25 1.25 20,000 1.25
- -----------------------------------------------------------------------------------------
4,656,439 $5.80 $1.25 - 75.00 4,656,439 $5.80
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of stock purchase warrants granted
during the year is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996
<S> <C> <C>
Market value equal to exercise price $ 0.31 $ 1.57
Market value greater than exercise price $ - $ 2.63
Market value less than exercise price $ 0.34 $ 1.07
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company applies Accounting Principals Board Opinion 25 in accounting for
stock options granted to employees. Had compensation expense been determined
based upon the fair value of the awards at the grant date and consistent with
the method under Statement of Financial Accounting Standards 123, the Company's
net earnings (loss) and net earnings (loss) per share would have been decreased
or (increased) to the pro forma amounts indicated in the following table.
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) as recorded $ 1,076 $ (2,961)
Net earnings (loss) pro forma $ 100 $ (3,064)
Net earnings (loss) per share as reported $ .04 $ (0.29)
Net earnings (loss) per share pro forma $ .01 $ (0.30)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The fair value of each employee stock option granted during the years ended
September 30, 1997 and 1996 is estimated on the date of grant using the Black-
Scholes option-pricing model using the following factors: expected volatility,
34% to 44%; risk free interest rate, 7%; expected annual dividends, none; and,
estimated lives of the options of between one and five years.
The 1997 Executive Plan provides for the grant of stock options to existing and
future executives of the Company. An aggregate of 4,000,000 shares of Common
Stock is authorized for issuance under this plan. Options granted under the 1997
Executive Plan must have an exercise of not less than 100 percent of the fair
market value of Common Stock on the date of grant. The 1997 Executive Plan
terminates on April 18, 2007, and the term of any option granted under the 1997
Executive Plan may not exceed ten years.
The 1995 Non-Statutory Stock Option Plan (1995 Plan), the 1995 Non-Employee
Director Stock Option Plan (Director Plan) and the 1997 Executive Stock Option
Plan were approved by the Company's shareholders at the 1997 Annual Meeting of
Shareholders. 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 is authorized for issuance under the 1995 Plan.
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 not exceed ten
years.
The Director Plan provides for the grant of stock options to existing and future
Independent Directors of the Company. These options and the Director Plan were
approved by the Company's shareholders at the 1996 annual meeting of
shareholders. The Director Plan terminates on December 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.
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.
F-22
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. MAJOR CUSTOMERS
The Company is economically dependent on major customers for annual sales. Such
customers comprised the following percentages of net sales:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A 18.5% 22.5% 16.2%
Customer B 11.5% 5.2% -
Customer C (export sales to Mexico) 11.5% 15.4% -
Customer D 4.1% 9.6% 37.9%
Customer E 1.0% 5.6% 10.8%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
9. LONG-TERM DEBT
A summary of long-term debt at the end of each year is as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit and Term Loan Agreement with interest rates
ranging from 2% to 2.25% plus prime (10.5% - 10.75% at
September 30, 1997), due April 2000 $ 22,611 $ 8,394
4.0% plus prime Bridge Note (12.5% at September 30, 1997),
due July 1998 7,000 -
Capital lease obligations with interest at 10.5% to 14% 1,482 1,612
Other, interest at 9% to 18% 1,663 1,768
Related party notes - 4,026
- ------------------------------------------------------------------------------------------
Total 32,756 15,800
Less current maturities 3,300 3,782
- ------------------------------------------------------------------------------------------
Net long-term debt $ 29,456 $ 12,018
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Capital lease obligations consist primarily of installment purchase obligations
for machinery and equipment. The Company has been in violation of certain
covenants under the capital lease, which require the obligation to be paid on
demand. The capital lease was paid in full in December 1997.
During the year the Company refinanced $1.7 million of certain related party
notes with proceeds from the Revolving Credit and Term Loan Agreement. Excess
proceeds of $0.8 million were retained by the Company for general corporate
purposes.
On April 7, 1997, the Company issued warrants to acquire up to 128,000 shares of
its Common Stock in connection with an increase in the Company's credit
facility. Each warrant is exercisable at a price of $1.5625 per share.
On June 23, 1997, the Company issued warrants to acquire 650,000 shares of its
common stock in connection with the $7 million bridge loan. The exercise price
for the warrants is $2.00 per share. On December 5, 1997, the bridge loan was
paid in full.
F-23
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In December 1997, the Company entered into a $150 million Senior Credit Facility
("Credit Facility") with General Electric Capital Corporation as agent for the
lenders. The Credit Facility is comprised of a $45 million revolving credit
facility, a $40 million term loan due December 5, 2003, with interest and
principal payable quarterly, a $40 million term loan due on the earlier of
December 5, 2005 or six months prior to the maturity of the Subordinated Notes
discussed below with interest and principal payable quarterly and a $25 million
acquisition line of credit due December 5, 2003, with interest and principal
payable quarterly. The notes bear interest at either (I) the higher of (a)
prime plus .75% or (b) the Federal Funds rate plus 50 basis points per annum
plus .75%, or (II) at the option of the Company upon certain conditions, the
LIBOR rate plus 2.25%. The proceeds from the Credit Facility are secured
substantially all of the Company's assets and are to be used for acquisitions,
repayment of existing indebtedness and general corporate purposes.
In December 1997, the Company issued $60 million in Senior Subordinated Notes
and approximately one million warrants to various lenders, the proceeds of which
are to be used for acquisitions, repayment of existing indebtedness and general
corporate purposes. The notes bear interest at 13% and mature in December 2005.
The terms of the agreements to which the Credit Facility and Subordinated Notes
were issued require, among other terms, the maintenance of certain ratios and
other financial covenants, the most restrictive of which are the maintenance of
Minimum Consolidated Net Worth, Minimum Quarterly Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) and Minimum Funded Debt to Pro
Forma EBITDA. The first quarter for which the restrictive debt covenants apply
is March 31, 1998.
The Credit Facility and Subordinated Notes were used in part to refinance in
total the Company's consolidated debt primarily on a long-term basis. The
Company incurred $2.3 million in prepayment penalties and will incur a
$1.2 million expense on the write off of $1.2 million in prepaid loan fees
from refinancing the Revolving Credit and term Loan Agreement. Scheduled
maturities of long-term debt at September 30, 1997 based on the refinancing
is as follows: $3.3 million in 1998, $4.4 million in 1999, $5.9 million in
2000, $7.9 million in 2001, $8.4 million in 2002 and $2.9 thereafter.
10. RELATED PARTY TRANSACTIONS
During 1997, the Company loaned $0.1 million to the majority stockholder
maturing July 1, 2004. On December 5, 1997, the Company loaned an additional
$1.4 million to the majority stockholder with the same maturity date. The notes
bear interest at prime plus 2% adjusted on the last day of each quarter payable
in arrears on December 31 of each year commencing December 31, 1998.
During 1996 and 1995, the Company purchased raw materials from related entities
in the amounts of $1.2 million and $0.2 million, respectively. The purchase
price of the raw materials approximates the cost paid to other large bulk
suppliers.
11. STOCKHOLDERS' EQUITY
In December 1996, the Company completed a private placement of $1 million Series
C Convertible Preferred Stock ("Series C Preferred"). During the third quarter
of 1997, the Company redeemed the Series C Preferred for $1.3 million with a
combination of existing cash and financing from the Company's credit facility.
Included in the redemption price was a dividend in the amount of $0.3 million.
F-24
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On April 7, 1997, the Company issued 10,000 shares of Series D Convertible
Preferred Stock (Series D Preferred) valued at $0.5 million. The Series D
Preferred will automatically convert on April 1, 1999, into that number of
shares of the Company's Common Stock whose average market price for the ten
trading days preceding the date of conversion is equivalent to $0.5 million plus
the amount of all accrued and unpaid dividends on the Series D Preferred to the
date of conversion. Holders of the Series D Preferred are entitled to dividends
on a cumulative basis at an annual rate of eight percent, payable quarterly in
cash.
On September 9, 1997, the Company sold 500,000 shares of Common Stock at an
offering price of $2.50 per share. The stock was issued pursuant to a
Subscription Agreement which netted proceeds of $1.3 million.
During the year, the Board of Directors authorized the Company to repurchase up
to 700,000 shares of Common Stock in open market transactions. The Company
acquired 66,000 shares of Common Stock for $0.1 million.
On August 15, 1996 the Company redeemed 13,000 shares of Series A Preferred
Stock and repurchased 120,000 shares of Common Stock for $2.4 million.
On July 17, 1996, the Company completed a public offering of 3,994,652 shares of
Common Stock at an offering price of $4.125 per share (the "Public Offering).
Net proceeds raised by the Company from the Public Offering were $14 million.
Out of the proceeds of the Public Offering, the Company repurchased 1,373,385
shares of Common Stock for $5.5 million.
On April 8, 1996, the Company received $2.4 million (net of offering costs of
approximately $0.5 million) from a private placement of 1,070,636 shares of
Common Stock and warrants (Series J Warrants) to acquire up to 727,078 shares of
Common Stock at $6.00 per share (the "January 1996 Private Placement"). In
addition $1.1 million in bridge loans (including accrued interest) were
converted into units offered under the January 1996 Private Placement. The
Series J Warrants are exercisable until December 27, 1999. The exercise price
of 686,418 Series J Warrants is $6.00 per share and the exercise price of 40,665
Series J Warrants is $4.00 per share. In connection with the offering, the
Company issued to the placement agent 69,945 warrants (placement agent warrants)
each 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 69,945 Series H Warrants each to purchase
one share of Common Stock at an exercised price of $6.00 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.
In January 1996 notes payable - related parties of $1.1 million including
accrued interest were converted into 413,523 shares of Common Stock.
On January 25, 1995, the Company conditionally granted its Chief Executive
Officer a right to acquire shares of Common Stock valued at $1.2 million in
exchange for: 1) the purchase of certain technology owned by the Chief
Executive Officer and an affiliated entity, First Dominion Holdings, Inc.
("FD"); 2) 21,333 Series B preferred shares owned by FD; 3) the forgiveness of
$1.2 million of accrued salary, royalties and other amounts due to the Chief
Executive Officer of which $0.2 million was recorded as accrued salary payable
in equity security as of September 30, 1994. On August 8, 1995 the Chief
Executive Officer exercised that "W" Right and was issued 1,319,445 shares of
Common Stock
In January 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 of Common Stock.
F-25
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On April 17, 1995, the Company received $2 million net of offering costs of
approximately $0.2 million from the private placement of 1,946,400 shares of
Common Stock and warrants (Series G Warrants) to acquire up to 1,236,878 shares
of Common Stock (the "February 1995 Private Placement"), including $0.5 million
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 and expire on December 27, 1999. The
exercise price of 1,916,400 Series G Warrants is $6.00 per share and the
exercise price of 30,000 Series G Warrants is $4.00 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) each 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 139,828 Series H Warrants each to purchase one share of Common Stock at an
exercised price of $6.00 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.
On July 31, 1995, the Company received $1.2 million (net of offering costs of
approximately $0.3 million) from the private placement of 1,800,000 shares of
Common Stock and warrants (Series G Warrants) to acquire up to 900,000 shares of
Common Stock (the "May 1995 Private Placement"). The Series G Warrants are
exercisable from the date of their issuance through December 27, 1999. The
exercise price of the Series G Warrants is $6.00 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) each 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 $6.00 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.
In 1995, the Company redeemed 25,000 shares of Series A Preferred Stock for $2.3
million.
12. COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under non-cancelable
operating lease agreements. Rental expense for the operating leases amounted to
$0.4 million, $0.1 million and $0.1 million for the years ended September 30,
1997, 1996 and 1995, respectively. Minimum lease commitments under
noncancelable leases with initial terms greater than one year at September 30,
1997 were $0.5 million for 1998, $0.4 million for 1999, $0.4 million for 2000,
$0.3 million for 2001, $0.1 million for 2002 and $0.1 million thereafter. It is
expected that in the ordinary course of business, leases will be renewed or
replaced.
The Company is partially self insured for employee health benefits and coverage
is obtained for catastrophic exposure through independent insurance carriers.
The Company contracts with an independent insurance firm to provide claims
handling and adjustment services. Estimates with respect to claims are based on
internal evaluations of individual claims and by the Company's independent
insurance carrier. The method of making such estimates and establishing the
resulting accrued liability are reviewed frequently, and any adjustments are
reflected in current earnings.
F-26
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Substantially all of the labor force that work in the recycling operations yard
at the Weissman subsidiary work under a collective bargaining agreement which
expires in 2000.
On July 1, 1997, the Company entered into a five-year employment agreement with
its Chairman and Chief Executive Officer, Thomas J. Wiens (the "Wiens Employment
Agreement"). The Wiens Employment Agreement provides for an annual base salary
of $288,000 and annual bonuses in an amount to be determined by the Compensation
Committee. The Wiens Employment Agreement also provides that the Company will
loan Mr. Wiens up to $1,925,000, to be advanced in increments of $100,000
(increased by $15,000 for each advance) upon the closing of each acquisition of
a new operating facility subsequent to June 23, 1997 (the "Loan"). The amount
advanced upon the closing of each acquisition may be increased depending upon
the annual revenues of the business being acquired by the Company. The Loan
bears interest at prime plus 2% with interest payable annually on or before
December 31st of each year during the term of the Loan, commencing December 15,
1998. The Loan matures on July 1, 2004. As of September 30, 1997, the Company
had advanced Mr. Wiens $85,000 under the terms of the Loan and Mr. Wiens had the
right to request additional advances of up to $295,000 on or before October 1,
1997 Subsequent to September 30, 1997, in connection with the closing of six
acquisitions in December 1997, the Company advanced Mr. Wiens an additional
$1,440,000 under the terms of the Loan.
The Wiens Employment Agreement also provides that the Company will provide a $1
million life insurance policy on Mr. Wiens payable to his spouse or lineal
descendants.
If Mr. Wiens terminates his employment with the Company for "good reason" or is
terminated without cause, the Company shall pay to Mr. Wiens (i) the base salary
and bonus, if any, through the date of termination; (ii) the amount of base
salary that would have been paid through the expiration of the initial five-year
term of the Wiens Employment Agreement; and (iii) an amount equal to the pro-
rata portion of the prior year's annual bonus through the date of termination.
In addition, all amounts advanced to Mr. Wiens under the Loan shall be forgiven
by the Company and the Company shall pay to Mr. Wiens an amount equal to the
income taxes payable by him as a result of such forgiveness. For purposes of
the Wiens Employment Agreement, "good reason" generally means a material
diminishment in Mr. Wiens' duties, any material breach by the Company of any of
the provisions of the Wiens Employment Agreement, or any reduction, or attempted
reduction, at any time during the term of the Wiens Employment Agreement, of Mr.
Wiens' base salary unless: (i) such reduction is part of an overall proportional
reduction in the compensation of the Company's executive officers implemented by
the Board of Directors or, (ii) in his capacity as a Director, Mr. Wiens
recommends or approves the reduction.
If Mr. Wiens's employment is terminated within two years of a "hostile change in
control" of the Company, the Company will pay to Mr. Wiens an amount equal to
the greater of amount of base salary that would have been paid through the
expiration of the initial five-year term of the Wiens Employment Agreement or
2.99 times the sum of the base salary payable on the date of termination plus
the annual bonus paid to Mr. Wiens during the last full fiscal year. In
addition, all amounts advanced to Mr. Wiens under the Loan shall be forgiven by
the Company and the Company shall pay to Mr. Wiens an amount equal to the income
taxes payable by him as a result of such forgiveness. For purposes of the Wiens
Employment Agreement, a "hostile change in control" is defined as the completion
of a tender offer or exchange offer (other than an offer by the Company) which
by its terms could result in the acquisition by an entity, person or group of
30% or more of the Company's common stock, provided such tender offer is not
recommended for acceptance to the shareholders of the Company by the Board of
Directors.
F-27
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 8, 1997, the Company entered into a four-year employment agreement
with its Vice-Chairman, Luke F. Botica (the "Botica Employment Agreement"). The
Botica Employment Agreement provides for an annual base salary of $100,000
increasing to $250,000 on September 8, 1998, an annual bonus of $150,000 payable
over the 12 month period commencing September 30, 1997 and annual bonuses in an
amount to be determined by the Compensation Committee.
The Botica Employment Agreement also provides that the Company will provide a
$500,000 life insurance policy on Mr. Botica payable to his spouse or lineal
descendants.
If Mr. Botica terminates his employment with the Company for "good reason" or is
terminated without cause, the Company shall pay to Mr. Botica (i) the base
salary and bonus, if any, through the date of termination; (ii) the amount of
base salary that would have been paid through the expiration of the initial
four-year term of the Botica Employment Agreement; and (iii) an amount equal to
the pro-rata portion of the prior year's annual bonus through the date of
termination. For purposes of the Botica Employment Agreement, "good reason"
generally means a material diminishment in Mr. Botica's duties, any material
breach by the Company of any of the provisions of the Botica Employment
Agreement, or any reduction, or attempted reduction, at any time during the term
of the Botica Employment Agreement, of Mr. Botica's base salary unless: (i) such
reduction is part of an overall proportional reduction in the compensation of
the Company's executive officers implemented by the Board of Directors or, (ii)
in his capacity as a Director, Mr. Botica recommends or approves the reduction.
If Mr. Botica's employment is terminated within two years of a "hostile change
in control" of the Company, the Company will pay to Mr. Botica an amount equal
to the greater of amount of base salary that would have been paid through the
expiration of the initial four-year term of the Botica Employment Agreement or
2.99 times the sum of the base salary payable on the date of termination plus
the annual bonus paid to Mr. Botica during the last full fiscal year. For
purposes of the Botica Employment Agreement, a "hostile change in control" is
defined as the completion of a tender offer or exchange offer (other than an
offer by the Company) which by its terms could result in the acquisition by an
entity, person or group of 30% or more of the Company's common stock, provided
such tender offer is not recommended for acceptance to the shareholders of the
Company by the Board of Directors.
The Company has been named as a defendant in several lawsuits alleging the
Company through its alleged agents sold unregistered and restricted securities
to the plaintiffs based upon misrepresentations. The other defendants in these
matters are in bankruptcy. The Company has denied all liability and is
vigorously defending against these actions. Nevertheless the Company has
entered into a Stipulation of Settlement (the "Stipulation") with the trustees
in bankruptcy and the debtor in possession. The Stipulation terms provide for
the Company on or before July 1, 1998 to rescind the sale of approximately
560,000 shares of the Company's Common Stock to be obtained by the bankruptcy
trustee from individual investors or creditors to be identified.
For return of such shares the Company will pay $7,000,000 and any and all
actions initiated against the Company and the other defendants will be
permanently enjoined by an order of the Bankruptcy Court. In accordance with
the terms of the Stipulation, the Company has provided the trustees with a
$7,000,000 letter of credit. However, the Stipulation contains various
provisions requiring the trustee to deliver a minimum number of shares. If the
trustee is not able to deliver the minimum (500,000 shares) and the trustee does
not exercise his right to deliver less than the minimum, the Stipulation will be
void. If the trustee exercises the right to deliver less than the minimum, the
Company will pay for the rescinded shares the greater of $12.50 per share or the
average closing price of the Company's Common Stock on the last ten trading days
before the date of payment, upon delivery of the stock to the Company. At the
option of the trustees, payment for less than the minimum shares also
constitutes full satisfaction of the Stipulation.
F-28
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of the financial statements report date, the trustee has not yet filed the
Stipulation with the Bankruptcy Court, which must approve the Stipulation for it
to become effective. The Company's management and legal counsel have assessed
that it is not reasonably possible to conclude that the trustee will file the
Stipulation, or, if filed, that the Bankruptcy Court would approve it. Also, it
is not reasonably possible to assess that the trustee can obtain and deliver the
minimum number shares and if the minimum number is not obtained, whether the
trustee would void the Stipulation. Should the stipulation not proceed, the
Company will continue to vigorously defend the claims asserted against it.
The Company filed an action claim against Robert C. Rome ("Rome)", principal
of Anglo Metal, Inc. ("AMI"), in the United States District Court for the
District of Colorado. The Company and Recycling Industries of Texas, Inc.
("RITI") are seeking actual and consequential damages in an undetermined
amount for fraud by misrepresentation, deceit by nondisclosure and
concealment and breach of contract in connection with the acquisition of
Anglo Iron & Metal in December 1995. Alternatively, the complaint seeks
specific performance of Mr. Rome's obligations under his agreements with the
Company. On February 21, 1997, the Company and RITI were served with a
compliant filed by AMI in the United States Bankruptcy Court for the Southern
District of Texas. The complaint alleges that the Company and RITI have
failed to perform certain obligations under their agreement to acquire Anglo
Iron & Metal in December 1995. The plaintiff seeks damages in excess of
$3,255,000 for breach of contract, fraud and conversion. Alternatively, the
complaint seeks to rescind the agreements executed by the Company and RITI to
acquire Anglo Iron & Metal. On September 30, 1997, the Company, Robert C.
Rome and Anglo Metal, Inc. settled the two actions through negotiations. The
terms of the settlement includes the reimbursement by AMI, which is netted
against selling, general and administrative expenses for the year ended
September 30, 1997, of $1.5 million in processing costs, legal expense and
environmental remediation expense incurred by the Company at its Southern
Texas facilities. The Company shall pay for any environmental remediation of
the real property located in Harlingen, Brownsville and the sub-leased
property in San Juan, Texas upon which certain of its Southern Texas
facilities are located, to a level necessary to obtain approval under the
Texas Voluntary Cleanup Program. The Company shall pay to AMI $0.4 million
and assign that number of shares of the Company's Common Stock from the
escrow account established at closing which, upon sale, will yield net
proceeds to AMI of $700,000. The proceeds from the sale of these shares will
be used for remediation of certain property and related expenses.
The Company is a defendant in a law suit where plaintiff, owner of a parcel
of real estate adjacent to the Company's Harlingen, Texas facility, are
seeking damages and a permanent injunction prohibiting the Company's
operations at its Harlingen, Texas facility arising out of allegations that
the operations of the facility throw debris and scrap metal onto the
Plaintiff's property. The Company believes the plaintiff's claims to be
without merit and is vigorously defending this matter.
13. SUBSEQUENT EVENTS
In December 1997, the Company completed the acquisitions of six metal
recycling facilities for an aggregate purchase price of approximately $146
million. The acquisitions will be accounted for using the purchase method of
accounting, as such, the purchase price will be allocated to the acquired
assets at their estimated fair value. The acquisitions were financed in part
with proceeds generated in December 1997 from a $150 million Senior Credit
Facility ("Credit Facility"), $60 million in Senior Subordinated Notes and
proceeds from the sale of Common Stock to various accredited investors in
F-29
<PAGE>
RECYCLING INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
connection with the Credit Facility. The acquisitions were also financed in
part from the issuance of the Company's Preferred to the owners of the
acquired facilities and $10 million in proceeds from the sale of Common
Stock. The Company will continue the metal recycling operations of the
businesses acquired.
14. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS AND NONCASH INVESTING
AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
(THOUSAND OF DOLLARS)
--------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 2,489 $ 711 $ 407
Cash paid for taxes $ 107 $ - $ -
Purchase of equipment for notes
payable $ 202 $ 406 $ 56
Stock issued for conversion
of bridge financing $ - $ 1,138 $ 150
Acquisition of subsidiaries for
stock $ 500 $ 2,425 $ -
Acquisition of Anglo land and
building for note payable $ - $ 446 $ -
Acquisition of Anglo inventory
for notes payable $ - $ 1,354 $ -
Acquisition of Anglo goodwill
for note payable $ - $ 479 $ -
Capital lease obligation incurred
to finance Anglo acquisition $ - $ 1,800 $ -
Note payable issued for Anglo
non-compete agreement $ - $ 750 $ -
Assumption of liabilities for
Mid-America acquisition $ - $ 1,210 $ -
Assumption of liabilities for
Weissman acquisition $ - $ 738 $ -
Restructure of Preferred Stock
to debt $ - $ - $ 2,300
Issuance of Common Stock to
Chief Executive Officer $ - $ - $ 437
Acquisition of equipment under
capital lease $ - $ - $ 113
Reversal of deferred gain on sale
of subsidiary $ - $ - $ 751
- -------------------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the NASDAQ National Market since
July 18, 1996 under the symbol "RECY." Prior to its approval for quotation on
the NASDAQ National Market, the Common Stock was quoted on the NASDAQ SmallCap
Market under the symbol "RECY."
The following table presents the high and low bid quotations for the Company's
Common Stock as reported on the NASDAQ National Market and, prior to July 18,
1996, the NASDAQ SmallCap Market, for each full quarterly period during the
fiscal years ended September 30, 1997 and 1996. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
-----------------------------------------------------
-----------------------------------------------------
COMMON STOCK
HIGH LOW
-----------------------------------------------------
<S> <C> <C>
FISCAL 1997:
First Quarter $3.63 $1.44
Second Quarter 1.75 1.00
Third Quarter 2.06 1.28
Fourth Quarter 7.00 1.72
FISCAL 1996:
First Quarter $4.88 $2.88
Second Quarter 7.00 3.50
Third Quarter 5.63 4.25
Fourth Quarter 5.00 3.00
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
As of September 30, 1997, there were approximately 750 record holders of Common
Stock and, based upon the information available to it, the Company believes
there are approximately 2,000 beneficial owners of its Common Stock.
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.
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
On September 9, 1997, the Company sold 500,000 shares of its common stock for an
aggregate of $1,250,000 to 14 accredited investors. The common stock was sold
in a transaction not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933 and Rule 506 promulgated thereunder.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth the Selected Consolidated Financial Data for the
Company for each of the five years ended September 30 and is based on the
audited Consolidated Financial Statements of the Company and its subsidiaries.
Such data should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto incorporated into this report in Item
8 and Management's Discussion and Analysis of Financial Condition and Results of
Operations. The earnings per share numbers set forth below have been adjusted to
reflect the Company's one-for-five reverse stock split effective June 27, 1995.
(Thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRO PRO
FORMA FORMA
(2) (2)
1993 (1) 1994 (1) 1995 (3) 1996 (3) 1996 1997 (3) 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
- ---------------------------------------------------------------------------------------------------------------------
Net Sales $ - $ 4,831 $ 13,812 $ 27,619 $ 75,061 $ 62,424 $ 85,436
- ---------------------------------------------------------------------------------------------------------------------
Operating income
(loss) $ (2,802) $ (939) $ 664 $ (2,224) $ 3,254 $ 3,024 $ 3,794
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss)
from continuing operations
net of income taxes $ (2,958) $ (1,142) $ 1,009 $ (2,961) $ 1,149 $ 1,076 $ 1,285
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss) per
share from continuing
operations net of
income taxes $ (1.24) $ (0.46) $ 0.17 $ (0.29) $ .11 $ .04 $ .07
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,147 $ 9,618 $ 10,297 $ 34,855 N/A $ 55,079 N/A
- ---------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ - $ 519 $ 2,152 $ 12,018 N/A $ 29,456 N/A
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 3,853 $ 6,852 $ 3,843 $ 19,192 N/A $ 36,904 N/A
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
(deficit) $ (2,706) $ 2,766 $ 6,454 $ 14,163 N/A $ 16,675 N/A
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
EBITDA $ (2,445) $ (547) $ 1,489 $ (1,023) $ 6,603 $ 5,619 $ 7,552
</TABLE>
(1) Prior to May 1994, the Company was engaged in the development of technology
to recycle municipal solid waste. 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 NRI 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 (August 1996)
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.
(3) The historical operating results for the year ended September 30, 1997 are
not comparable to those of the corresponding periods ended September 30, 1996
and 1995 due to the acquisitions of Anglo Iron & Metal in December 1995,
Mid-America Shredding in April 1996, Weissman in August 1996, ARC in April 1997
and AIC in June 1997.
(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. EBITDA is not a
substitute for income from continuing operations, net income or cash flows
presentation under generally accepted accounting principles.
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENTS REGARDING FUTURE ECONOMIC PERFORMANCE CONTAINED WITHIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS. FACTORS REGARDING THE
COMPANY'S BUSINESS, OPERATIONS AND COMPETITIVE ENVIRONMENT WHICH MAY CAUSE
ACTUAL RESULTS TO VARY MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED ABOVE UNDER THE CAPTION "SPECIAL CONSIDERATIONS."
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current ratio 2.01:1 1.21:1 1.22:1
Working capital $ 7.6 $ 1.5 $ 0.4
Cash provided (used)
by operating activities $ (4.0) $ (1.5) $ 0.1
Capital expenditures $ 3.0 $ 1.6 $ 0.6
Long-term debt $ 29.5 $ 12.0 $ 2.2
Total capitalization * $ 46.1 $ 26.2 $ 8.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
* Total capitalization is defined as stockholders' equity and noncurrent
liabilities.
Cash used by operating activities for the year ended September 30, 1997, was $4
million, an increase of $2.5 million compared to the same period one year
earlier. Cash used in operating activities for the year ended September 30,
1996 increased by $1.6 million compared to the same period one year earlier.
The increase in cash used in operating activities was primarily related to
increases in accounts receivable and inventory resulting from newly acquired
businesses reaching normal operating levels.
The Company invested $3.0 million in property and equipment, not including
property and equipment acquired in business acquisitions, during the year ended
September 30, 1997, for expansion of the Company's ferrous and non-ferrous
processing capacity and general modernization and efficiency upgrades. Planned
capital expenditures during the next year for the Company's existing facilities
are estimated to be $3 million. Included in this amount are capital
expenditures for the Company's shredders and materials handling equipment
designed to increase capacity and improve operating efficiencies. Management
anticipates the capital expenditures will be paid with cash from operations and
long-term debt financing.
On April 7, 1997, the Company acquired for $5.7 million substantially all the
assets of Addlestone Recycling Corporation (ARC) located in Metter, Georgia.
The purchase was financed with $5.2 million of proceeds from the Company's
existing credit facility and $0.5 million or 10,000 shares of the Company's
Series D Convertible Preferred Stock (the "Series D Shares"). The Series D
Shares will automatically convert on April 1, 1999 into the number of shares of
the Company's Common Stock whose average market price for the ten trading days
preceding the date of conversion is equivalent to $0.5 million plus the amount
of all accrued and unpaid dividends on the Series D Shares to the date of
conversion. If
<PAGE>
a consolidation or merger of the Company with or into another company or entity
occurs and the Company is not the surviving entity, the Series D Shares will
convert immediately into the number of shares the Company's Common Stock whose
average market price for the ten trading days preceding the date of
consolidation or merger is equivalent to $0.5 million plus the amount of all
accrued and unpaid dividends on the Series D Shares to the date of conversion.
Holders of the Series D Shares are entitled to dividends on a cumulative basis
at an annual rate of eight percent, payable quarterly in cash. At anytime prior
to April 1, 1999, the Company shall have the right to redeem the outstanding
shares of Series D Preferred Stock, in whole or in part, at a cash redemption
price equal to the sum of $50 per share, and the amount of all accrued but
unpaid dividends on the Series D Preferred Stock. The Company has not assumed
or guaranteed any of the liabilities of ARC.
On June 25, 1997, the Company acquired for $6 million substantially all the
assets of Addlestone International Corporation (AIC) located in Georgetown,
South Carolina. The purchase was financed with the proceeds from a $7 million
short-term bridge loan. On December 5, 1997 the bridge loan was paid in full.
The Company has not assumed or guaranteed any of the liabilities of AIC.
Capital expenditures totaled $1.6 million in property and equipment for the year
ending September 30, 1996. The capital expenditures were for general
modernization and efficiency upgrades of existing facilities.
On December 11, 1995, the Company acquired for $6.1 million substantially all
the assets of Anglo Metals, Inc., d/b/a/ Anglo Iron & Metal (Anglo). The
purchase price was financed through $3.1 million of long-term debt, $1.8 million
through a sale-leaseback of certain purchased equipment, 227,693 shares of
Common Stock valued at $0.9 million and $0.3 million in cash.
On April 15, 1996, the Company acquired for $1.9 million substantially all the
assets of Mid-America Shredding, Inc., d/b/a/ Mid-America Shredding
(Mid-America). The purchase price was financed through the assumption of
outstanding bank debt of $1.2 million and $0.7 million in cash.
On August 5, 1996, the Company acquired for $12 million all of the outstanding
Common Stock of Weissman. The purchase price was funded with $5.8 million in
proceeds from a public offering of the Company's Common Stock, $4.7 million of
long-term debt and 363,636 shares of the Company's Common Stock valued at $1.5
million. Under the terms of a Share Price Guaranty Agreement ("the Agreement")
the Company has agreed to guaranty the $1.5 million value of 363,636 shares
("the Guaranteed Shares"). The Agreement grants the seller and its assign,
Weissman Financial, (Collectively "Weissman Financial") registration rights
effective for three years. If at any time during the three-year period
commencing on the effective date of the registration statement, Weissman
Financial sells the 363,636 shares of Common Stock at less than the guaranteed
amount, the Company is required to pay to the seller any shortfall in cash. In
addition, Weissman Financial has the right in its sole discretion to require the
Company, at any time during the two-year period commencing November 30, 1997, to
repurchase the Guaranteed Shares for $1.5 million. As a result of this
Agreement to purchase the Guaranteed Shares upon Weissman Financial's request,
the $1.5 million value of the Guaranteed Shares has been recorded as temporary
equity.
On December 31, 1996, the Company completed a private placement of $1 million of
Series C Convertible Preferred Stock ("Series C Preferred"). During the quarter
ending June 30, 1997, the Company redeemed the Series C Preferred for $1.3
million with a combination of existing cash and financing from the Company's
credit facility. Included in the redemption price was a dividend in the amount
of $0.3 million.
On September 9, 1997, the Company completed a private placement of 500,000
shares or $1.3 million of its Common Stock. The proceeds were used for general
corporate purposes.
<PAGE>
The Board of Directors of Recycling Industries, Inc. authorized the repurchase
of up to 700,000 shares of Common Stock in open market transactions. As of
September 30, 1997, the Company had acquired 66,000 shares for $0.1 million with
cash from operations.
At September 30, 1997 and 1996, $22.6 and $8.4 million, respectively, were
outstanding under a three year credit facility with a lending institution
totaling $25 million. Utilization of the credit facility is limited by existing
debt covenants. As described below under "Events Subsequent to September 30,
1997," the balance outstanding under the credit facility was paid in full in
December 1997. As a result, credit facility will no longer be maintained.
On July 17, 1996, the Company completed a public offering of its Common Stock,
receiving net proceeds, after deducting underwriting discounts and offering
expenses of $14.0 million (the "Public Offering"). These proceeds were used as
follows: $5.2 million to pay a portion of the cash purchase price for Weissman
on August 5, 1996; $5.5 million to repurchase 1,380,585 shares of Common Stock;
$2.4 million to redeem all of the Company's outstanding Series A Convertible
Preferred Stock and repurchase 120,000 shares of Common Stock on August 15,
1996. The remaining proceeds of approximately $900,000 were used for general
corporate purposes.
Management intends to continue seeking opportunities for expansion in the metals
recycling business and believes that the Company's liquidity, capital resources
and borrowing capabilities are adequate for its current operations. 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 financing 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.
EVENTS SUBSEQUENT TO SEPTEMBER 30, 1997
As described in Part 1, Item 1, "General Development of Business Events
Subsequent to September 30, 1997," In December 1997, the Company completed the
acquisitions of six metal recycling facilities for an aggregate purchase price
of approximately $146 million. The acquisitions will be accounted for using the
purchase method of accounting, as such, the purchase price will be allocated to
the acquired assets at their estimated fair value. The acquisitions were
financed in part with proceeds generated in December 1997 from a $150 million
Senior Credit Facility (Credit Facility), the sale of $60 million in Senior
Subordinated Notes and proceeds from the sale of the Company's Common Stock to
various accredited investors in connection with the Credit Facility. The
acquisitions were also financed in part from the issuance of the Company's
Preferred and Common Stock to the owners of the acquired facilities. The
Company will continue the metal recycling operations of the businesses acquired.
Subsequent to September 30, 1997, the Company received $1.7 million in proceeds
from the exercise of warrants into the Company's Common Stock.
In December 1997, the Company incurred $2.3 million in loan prepayment penalties
from refinancing existing debt before its schedule maturity with Senior and
Subordinated debt proceeds. In the first quarter of fiscal 1998, the Company
will recognize approximately $3.5 million of loan fees expense which includes
the prepayment penalty and $1.2 million of prepaid loan fees from early
extinguishment of debt.
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
<PAGE>
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.
The results of operations for the years ended September 30, 1997, 1996 and 1995
have been driven primarily by the Company's acquisition activity.
Net sales for the year ended September 30, 1997, were $62.4 million, an increase
of $34.8 million compared to the same period one year earlier. The increase is
primarily related to a full year's results of operations of Anglo, Mid America,
Weissman and the acquisition of ARC and AIC in April and June 1997,
respectively. The average sales price per ton of prepared ferrous material was
$132, an eight percent increase compared to the same period one year earlier.
The increase in the average selling price is primarily attributable to increased
demand for ferrous material. The average sales price of prepared non-ferrous
material was $0.33 per pound or a 30 percent decrease compared to the same
period one year ago. The decrease in the average sales price of non-ferrous
material resulted from a decline in the demand of the material and changes in
material mix.
Gross profit for the year ended September 30, 1997, was $7.2 million, an
increase of $6.2 million compared to the same period one year earlier. The
increase was primarily related to the acquisitions of Mid-America, Weissman,
ARC, and AIC, and increases in the average selling price of ferrous material.
Gross margin decreased in the fourth quarter compared to the preceding
quarter by 53% as a result of increased processing costs at the South Texas
facilities and Nevada in the fourth quarter and higher than normal repairs
and maintenance expense as discussed in operating income.
Operating income for the year ended September 30, 1997, increased by $5.2
million compared to the same period one year earlier. The increase was
primarily from the acquisitions of Mid-America, Weissman, ARC and AIC,
increases in the average selling price of ferrous material and continued
emphasis on productivity improvements. The Company recognized higher than
usual operating expenses during the fourth quarter of 1997. The increase for
the quarter was primarily related to $0.6 million of additional expense to
purchase and process unprepared non-ferrous material and excessive repairs and
maintenance resulting in significant shredder down time at both Texas and
Nevada facilities. Additionally, in anticipation of growth, the Company
incurred costs relating to staffing and other administrative expenses.
Partially offsetting the increase in expenses incurred during the quarter was
a $1.5 million litigation recovery to offset excess material processing costs,
legal expense and environmental remediation costs incurred in earlier periods.
The Company's Nevada and Texas facilities reported aggregated operating
losses of $0.7 million before a $1.5 million reduction of material processing
costs, legal expense and environmental remediation costs in settlement of a
lawsuit with Anglo Metals, Inc. for the year ended September 30, 1997.
Management is continuously monitoring the operations of the facilities and
has implemented certain cost cutting strategies in an attempt to improve
operating income without reducing net sales.
Net sales for the year ended September 30, 1996, increased by $13.8 million
compared to September 30, 1995 to total $27.6 million. The increase resulted
from the acquisitions of Anglo, Mid-America and Weissman. For the year ended
September 30, 1996, the average sales price per ton of prepared ferrous scrap
was $122, a 1.7% increase compared to $120 per ton for the year ended September
30, 1995. For the year ended September 30, 1996, the average sales price of
non-ferrous scrap was $0.47 per pound, representing a 27% decrease compared to
$0.64 per pound for the year ended September 30, 1995.
Gross profit for the year ended September 30, 1996, decreased by $1.9 million
compared to the same period one year earlier to total $1 million despite the
acquisition of Anglo, Mid-America and Weissman. The decline in gross profit was
primarily related to lower selling prices of non-ferrous material and increased
cost of raw material.
Operating income for the year ended September 30, 1996, declined by $2.9 million
as a result of lower selling prices of non-ferrous material and increases of raw
material costs.
Selling, general, and administrative (SG&A) expenses totaled $4.2 million for
the year ended September 30, 1997 an increase of $1 million compared to the same
period one year earlier. The increase was primarily the result of the
acquisitions of ARC, AIC and other facilities reaching normal operating
<PAGE>
capacity. Partially offsetting the increase in SG&A was a $1.5 million
litigation recovery in the fourth quarter of 1997 to offset excess material
processing costs, legal expense and environmental remediation costs pursuant
to a law suit filed by the Company to recover such costs. SG&A increased by
$1 million for the year ended September 30, 1996 compared to the same period
one year earlier to total $3.3 million. As a percent of sales, SG&A declined
by five percent for the years ended September 30, 1997 and 1996,
respectively, compared to the same periods one year earlier. The decline in
SG&A as a percent of net sales resulted primarily to the $1.5 litigation
recovery. As a result of continued emphasis on productivity improvements, the
Company has managed to achieve increases in sales without significant
increases in support costs as a percentage of sales.
Interest expense, net of capitalized interest of $0.1 million in 1997; totaled
$2.6 million, $0.7 million and $0.4 million for the years ended September 30,
1997, 1996 and 1995, respectively. The increases were primarily related to
increases in long-term debt to finance the acquisitions of Weissman, ARC, Anglo
and Mid-America Shredding.
The Company has generated a net loss carry forward totaling approximately $11.6
million, which expires at various amounts and dates through the year 2012. As a
result of a change in ownership, as defined by Section 382 of the Internal
revenue Code, approximately $8.7 million of the net loss carryforwards are
limited in use to approximately $2.6 million per year.
During fiscal 1997 and 1996 management determined that net operating losses
generated from prior years were more likely than not to be used in the near
future due to taxable income generated by acquired operations. Therefore a net
deferred tax asset has been recorded of $1.4 million at September 30, 1997 and
$0.8 million net of a $1.2 million valuation allowance at September 30, 1996.
Income tax benefit for the years ended September 30, 1997 and 1995 totaled $0.6
million and $0.7 million. There was no income tax benefit for the year ended
September 30, 1996. See Note 6 to the financial statements for further analysis
of income taxes.
Primary earnings (loss) per common share are computed by dividing net earnings,
after deducting preferred stock dividends, by the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Fully diluted computations assume the conversion of outstanding Convertible
Preferred Stock and the exercise of dilutive warrants and stock options.
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.
The Company does not believe its businesses have been adversely affected by
general inflation.
Like any other company, advances and changes in available technology can
significantly impact the business and operations of the Company. For example, a
challenging problem exists as many computer systems worldwide do not have the
capability of recognizing the year 2000 or years thereafter. No easy
technological "quick fix" has yet been developed for this problem. The Company
is expending significant resources to assure that its computer systems are
reprogrammed in time to effectively deal with transactions in the year 2000 and
beyond. This "Year 2000 Computer Problem" creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial transactions. Such failures of the Company
and/or third parties' computer systems could have a material impact on the
Company's ability to conduct is business.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company is required to implement Financial Accounting Standards ("FAS") No.
128, "Earnings per Share" and FAS No. 129 "Disclosure of Information About an
Entity's Capital Structure" in fiscal year 1998. FAS No. 128 provides a
different method of calculating earnings per share than is currently used in
accordance with Accounting Principles Board Opinion 15 "Earnings per Share".
FAS No. 128 provides for the calculation of "basic" and "diluted" earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. FAS No. 129 establishes
standards for disclosing information about an entity's capital structure.
Their implementation is not expected to have a material effect on the
consolidated financial statements.
The Company is also required to implement FAS No. 130 "Reporting Comprehensive
Income" and FAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" in fiscal 1998. FAS No. 130 establishes standards for reporting
and display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, FAS No. 130 requires that all items that are required to be
recognized under current accounting standards as
<PAGE>
components of comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements. FAS No. 131
supersedes FAS No. 14 "Financial Reporting for Segments of a Business
Enterprise". FAS No. 131 establishes standards on the way that public companies
report financial information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. FAS No. 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. FAS 130 and 131 require
comparative information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully evaluate the
impact, if any, the standards may have on the future financial statement
disclosures. Results of operations, financial position and cash flows, however,
will be unaffected by implementation of these standards.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the information set forth on pages F-1 through F-30.
ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
CHANGE IN INDEPENDENT ACCOUNTANTS
On December 19, 1997, A.J. Robbins, P.C. was dismissed as the Registrant's
principal accountant for two of its wholly-owned subsidiaries, NR Holdings,
Inc. and Nevada Recycling, Inc. (the "Subsidiaries"). Statements of the
Subsidiaries for the past two years prepared by A.J. Robbins, P.C. did not
contain an adverse opinion, a disclaimer of opinion, or were qualified or
modified as to uncertainty, audit scope or accounting principles. The
decision to change accountants was approved by the Registrant's audit
committee. During the two most recent fiscal years and through December 19,
1997, there has been no disagreement with A.J. Robbins, P.C. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of A.J. Robbins, P.C. would have caused it to make a reference
to the subject matter of the disagreement in connection with its report.
The Registrant engaged BDO Seidman, LLP as principal independent accountants for
Recycling Industries, Inc. and subsidiaries except NR Holding, Inc. and Nevada
Recycling, Inc. on March 25, 1996. This change in certifying accountants was
previously filed on Form 8-K dated March 30, 1996. The Registrant engaged BDO
Seidman, LLP as principal independent accountants for the Subsidiaries on
December 19, 1997. The Registrant has not consulted BDO Seidman regarding any
accounting principles or disagreements with the Subsidiaries' former principal
independent accountant, A.J. Robbins, P.C. prior to the engagement of BDO
Seidman, LLP.
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the officers and directors and executive officers of
the Company, their age and their respective positions and titles.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
POSITIONS AND FIRST BECAME A
NAME AGE OFFICES WITH COMPANY DIRECTOR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas J. Wiens 45 Chairman of the Board Since 1992
Chief Executive Officer
Luke F. Botica 47 Vice Chairman, Director Since 1997
Brian L. Klemsz 38 Vice President Since 1996
Chief Financial Officer
Treasurer, Director
Jerome B. Misukanis 54 Director (1)(2) Since 1994
Graydon H. Neher 47 Director (1)(2) Since 1995
Barry D. Plost 50 Director (1) Since 1995
John E. McKibben 57 Vice President, Administration -
Harold "Skip" Rouster 48 Chief Operating Officer -
Vice President
- --------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Member of Audit Committee
(2) Member of the Compensation Committee
Each director is elected to hold office until the next annual meeting of
shareholders, and until his successor is elected and qualified.
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.
LUKE F. BOTICA. Mr. Botica was elected to the Board of Directors of the Company
in February 1997, and has served as Vice Chairman of the Company since September
1997. Mr. Botica has 24 years of senior, hands-on experience in fast growth
companies, including over $776 million in financings, IPOs,
<PAGE>
private placements, and commercial bank and lease facilities. His industry
experience includes solid waste and hazardous waste. From November 1996 to
September 1997, Mr. Botica served as the Senior Vice President and Chief
Financial Officer of Donnelley Enterprise Solutions, Inc. Mr. Botica served
as Senior Vice President - Finance and Chief Financial Officer of Allied
Waste Industries, Inc. from 1993 through 1995, and as Vice President -
Corporate Development and Planning for Chemical Waste Management, Inc. from
1990 through 1993.
BRIAN L. KLEMSZ. Mr. Klemsz has served as a Director, Chief Financial Officer
and Treasurer since August 1996. Prior to joining the Company, Mr. Klemsz
served in various management positions for eight years with Advanced Energy
Industries, Inc., a provider of power conversion and control equipment for the
semiconductor and optical coating industries. Mr. Klemsz has over 15 years of
experience in operations management, management information systems and finance.
Mr. Klemsz received a BS in Business Administration from the University of
Colorado, an MS in Finance from Colorado State University and an MS in
Accounting from Colorado State University. Mr. Klemsz is a Certified Public
Accountant and is Certified in Production and Inventory Management by the
American Production and Inventory Control Society.
JEROME B. MISUKANIS. Mr. Misukanis has served as a member of the Company's
Board of Directors since March 1994 and served as Treasurer and Chief Financial
Officer from February 1996 to August 1996. Since 1991 Mr. Misukanis has been a
principal of Misukanis and Dodge, P.A., CPA, a public accounting firm. 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 D. 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, 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.
JOHN E. MCKIBBEN. Mr. McKibben, has served as Vice President-Administration of
the Company since October 1996. Prior to joining the Company, Mr. McKibben was
Vice President-Administration of National Material Trading, a division of
National Material L.P. and a major broker of scrap iron and steel and importer
of iron substitutes for scrap. Previously, Mr. McKibben served in various
executive capacities in his over 30 years in the metals recycling industry with
Antrim Metals Recycling, Inc., and The David J. Joseph Company. Mr. McKibben
received his BS degree in Industrial Management from the University of
Cincinnati.
<PAGE>
HAROLD "SKIP" J. ROUSTER. Mr. Rouster, has served as Vice President and Chief
Operating Officer since September, 1997. Prior to joining the Company, Mr.
Rouster worked for The David J. Joseph Company, the largest scrap metal
recycling and brokerage company in the United States, with annual revenues of
over $1.7 billion, for 22 years most recently serving as Vice President of
Operations and Engineering. Mr. Rouster's experience includes involvement in 15
start-up operations and acquisitions. He led The David J. Joseph Company's
entry into the steel-mill service business and was involved in the development
of innovative approaches in scrap shredding technology and non-ferrous
reclamation. Prior to joining The David J. Joseph Company, Mr. Rouster worked
for Proctor and Gamble for 5 years in sales administration and product
administration
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the officers and directors
of the Company and persons who own more than ten percent of a registered class
of the Company's securities (collectively, Reporting Persons), to file reports
of ownership and changes in ownership on Forms 3, 4, and 5 with the Securities
and Exchange Commission and to furnish the Company with copies of all Forms 3,
4, and 5 filed.
Based solely upon a review of the copies of such forms it has received and
representations from the Reporting Persons; the Company believes all Reporting
Persons have complied with the applicable filing requirements, except that (i)
the Form 3 concerning the appointment of Luke F. Botica as a director on
February 1, 1997 was filed late on February 27, 1997; (ii) the Form 3 concerning
the appointment of Harold J. Rouster as vice president and Chief Operating
Officer on August 26, 1997 was filed late on September 11, 1997; and (iii) the
Form 4 reporting the exercise of an option by Michael I. Price, a former officer
and director of the Company, on August 15, 1997 has not been filed.
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid to the current
executive officers listed in Item 10 above for each of the last three fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AND UNDERLYING FISCAL SALARY OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR COMPENSATION UNDERLYING
OPTIONS OPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens 1997 $300,000 $85,000(1) 1,810,000
Chief Executive 1996 222,000 -0- 300,000
Officer and 1995 205,000 $1,257,197(2) -0-
Chairman of the Board
of Directors
Michael I. Price 1997 $210,000 -0- -0-
Chief Operating 1996 210,000 -0- 450,000
Officer and President 1995 142,500 -0- 150,000
Brian L. Klemsz 1997 $ 76,500 -0- 450,000(3)
Chief Financial 1996 10,937 -0- -0-
Officer 1995 -0- -0- -0-
John E. McKibben 1997 $118,967 -0- 200,000
Vice President- 1996 -0- -0- -0-
Administration 1995 -0- -0- -0-
</TABLE>
(1) Represents amounts loaned to Mr. Wiens under the terms of his employment
agreement, described below under the caption "Executive Employment Agreements."
(2) Although accrued, the Company did not pay any cash compensation to Mr.
Wiens during fiscal 1994. During fiscal 1995, the unpaid 1994 salary of
$147,000 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.
(3) During fiscal 1997, Mr. Klemsz agreed to forgo $36,000 of cash
compensation in exchange for an option to acquire up to 108,000 shares of
the Company's Common Stock at an exercise price of $1.31 per share.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes the stock options granted to the named
executive officers during the year ended September 30, 1997:
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------- Potential Realizable
Percent of Value at Assumed
total Annual Rates of
Number of options Stock Price
Securities granted to Appreciation for
Underlying employees Option Term
Options in fiscal Exercise Expiration --------------------
Name Granted year Price Date 5% 10%
- ---------------- ------------ --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Wiens, 1,810,000(1) 47.3% $1.25 4/30/07 $1,422,824 $3,605,842
Chief Executive
Officer
Michael I. Price, - N/A - - - -
Chief Operating
Officer and
President
Brian L. Klemsz, 100,000(1) 2.6% $1.31 4/30/02 $ 36,193 $ 79,977
Chief Financial
Officer
108,000 2.8% $1.31 4/30/02 $ 39,088 $ 86,374
350,000(1) 9.1% $1.31 4/30/07 $ 288,348 $ 730,731
John E. McKibben, 50,000(1) 1.3% $1.31 4/30/02 $ 18,096 $ 39,988
Vice President -
Administration
150,000(1) 3.9% $1.31 4/30/07 $ 123,578 $ 313,170
</TABLE>
(1) Subject to periodic vesting in accordance with a schedule to be
determined by the Compensation Committee of the Company's Board of
Directors.
STOCK OPTION EXERCISES DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1997,
OUTSTANDING GRANTS AND GAINS AS OF SEPTEMBER 30, 1997
The following table shows stock options exercised by named executive officers
during the fiscal year ended September 30, 1997. In addition, this table
includes the number of shares covered by both exercisable and non-exercisable
stock options as of September 30, 1997 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, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT YEAR-END ($) OPTIONS AT YEAR-END (#)
ACQUIRED REALIZED -------------------------- ------------------------------
NAME ON ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
EXERCISE
(#)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Thomas J. Wiens --- --- 0/2,110,000 0/$9,404,625
Michael I. Price 150,000 $225,938 --- ---
Brian L. Klemsz --- --- 0/450,000 0/$2,082,375
John E. McKibben --- --- 0/200,000 0/$925,500
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company 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, Directors who are not officers of the
Company will be granted options under the Company's 1995 Non-Employee Director
Stock Option Plan. All directors are reimbursed for travel expenses incurred in
attending meetings.
EXECUTIVE EMPLOYMENT AGREEMENTS
THOMAS J. WIENS
- ---------------
On July 1, 1997, the Company entered into a five-year employment agreement with
its Chairman and Chief Executive Officer, Thomas J. Wiens (the "Wiens Employment
Agreement"). The Wiens Employment Agreement provides for an initial annual base
salary of $288,000 and annual bonuses in an amount to be determined by the
Compensation Committee. The Wiens Employment Agreement also provides that the
Company will loan Mr. Wiens up to $1,925,000, to be advanced in increments of
$100,000 (increased by $15,000 for each advance) upon the closing of each
acquisition of a new operating facility subsequent to June 23, 1997 (the
"Loan"). The amount advanced upon the closing of each acquisition may be
increased depending upon the annual revenues of the business being acquired by
the Company. The Loan bears interest at prime plus 2% with interest payable
annually on or before December 31st of each year during the term of the Loan,
commencing December 15, 1998. The Loan matures on July 1, 2004. As of
September 30, 1997, the Company had advanced Mr. Wiens $85,000 under the terms
of the Loan. Subsequent to September 30, 1997, in connection with the
closing of six acquisitions in December 1997, the Company advanced Mr. Wiens
an additional $1,440,000 under the terms of the Loan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Events Subsequent to September 30, 1997," above.
<PAGE>
The Wiens Employment Agreement also provides that the Company will provide a $1
million life insurance policy on Mr. Wiens payable to his spouse or lineal
descendants.
If Mr. Wiens terminates his employment with the Company for "good reason" or is
terminated without cause, the Company shall pay to Mr. Wiens (i) the base salary
and bonus, if any, through the date of termination; (ii) the amount of base
salary that would have been paid through the expiration of the initial five-year
term of the Wiens Employment Agreement; and (iii) an amount equal to the
pro-rata portion of the prior year's annual bonus through the date of
termination. In addition, all amounts advanced to Mr. Wiens under the Loan
shall be forgiven by the Company and the Company shall pay to Mr. Wiens an
amount equal to the income taxes payable by him as a result of such forgiveness.
For purposes of the Wiens Employment Agreement, "good reason" generally means a
material diminishment in Mr. Wiens' duties, any material breach by the Company
of any of the provisions of the Wiens Employment Agreement, or any reduction, or
attempted reduction, at any time during the term of the Wiens Employment
Agreement, of Mr. Wiens' base salary unless: (i) such reduction is part of an
overall proportional reduction in the compensation of the Company's executive
officers implemented by the Board of Directors or, (ii) in his capacity as a
Director, Mr. Wiens recommends or approves the reduction.
If Mr. Wiens's employment is terminated within two years of a "hostile change in
control" of the Company, the Company will pay to Mr. Wiens an amount equal to
the greater of amount of base salary that would have been paid through the
expiration of the initial five-year term of the Wiens Employment Agreement or
2.99 times the sum of the base salary payable on the date of termination plus
the annual bonus paid to Mr. Wiens during the last full fiscal year. In
addition, all amounts advanced to Mr. Wiens under the Loan shall be forgiven by
the Company and the Company shall pay to Mr. Wiens an amount equal to the income
taxes payable by him as a result of such forgiveness. For purposes of the Wiens
Employment Agreement, a "hostile change in control" is defined as the completion
of a tender offer or exchange offer (other than an offer by the Company) which
by its terms could result in the acquisition by an entity, person or group of
30% or more of the Company's common stock, provided such tender offer is not
recommended for acceptance to the shareholders of the Company by the Board of
Directors.
LUKE F. BOTICA
- --------------
On September 8, 1997, the Company entered into a four-year employment agreement
with its Vice-Chairman, Luke F. Botica (the "Botica Employment Agreement"). The
Botica Employment Agreement provides for an annual base salary of $100,000
increasing to $250,000 on September 8, 1998, an annual bonus of $150,000 payable
over the 12 month period commencing September 30, 1997 and annual bonuses in an
amount to be determined by the Compensation Committee.
The Botica Employment Agreement also provides that the Company will provide a
$500,000 life insurance policy on Mr. Botica payable to his spouse or lineal
descendants.
If Mr. Botica terminates his employment with the Company for "good reason" or is
terminated without cause, the Company shall pay to Mr. Botica (i) the base
salary and bonus, if any, through the date of termination; (ii) the amount of
base salary that would have been paid through the expiration of the initial
four-year term of the Botica Employment Agreement; and (iii) an amount equal to
the pro-rata portion of the prior year's annual bonus through the date of
termination. For purposes of the Botica Employment Agreement, "good reason"
generally means a material diminishment in Mr. Botica's duties, any material
breach by the Company of any of the provisions of the Botica Employment
Agreement, or any reduction, or attempted reduction, at any time during the term
of the Botica Employment Agreement, of Mr. Botica's base salary unless: (i) such
reduction is part of an overall proportional reduction in the compensation of
the Company's executive officers implemented by the Board of Directors or, (ii)
in his capacity as a Director, Mr. Botica recommends or approves the reduction.
<PAGE>
If Mr. Botica's employment is terminated within two years of a "hostile change
in control" of the Company, the Company will pay to Mr. Botica an amount equal
to the greater of amount of base salary that would have been paid through the
expiration of the initial four-year term of the Botica Employment Agreement or
2.99 times the sum of the base salary payable on the date of termination plus
the annual bonus paid to Mr. Botica during the last full fiscal year. For
purposes of the Botica Employment Agreement, a "hostile change in control" is
defined as the completion of a tender offer or exchange offer (other than an
offer by the Company) which by its terms could result in the acquisition by an
entity, person or group of 30% or more of the Company's common stock, provided
such tender offer is not recommended for acceptance to the shareholders of the
Company by the Board of Directors.
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of September 30, 1997, the number of shares of
Common Stock beneficially owned by each director and each executive officer of
the Company named in the Summary Compensation Table, named individually, all
executive officers and directors as a group and all beneficial owners of more
than five percent of the Common Stock and the Series D Preferred. The following
shareholders have sole voting and investment power with respect to their
holdings unless otherwise noted:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNED CLASS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Linder Growth Fund 1,000,000 6.9%
c/o Ryback Management
Corporation
7711 Carondelet Avenue,
Box 16900
St. Louis, MO 63105
Series D Nathan S. Addlestone 5,031 50.3%
Preferred PO Drawer 979
Charleston, SC 26402
Series D Susan Berlijn 2,485 24.9%
Preferred PO Drawer 979
Charleston, SC 26402
Series D Keith Rosen 2,484 24.8%
Preferred PO Drawer 979
Charleston, SC 26402
CERTAIN DIRECTORS AND EXECUTIVE OFFICERS
----------------------------------------
Common Stock Thomas J. Wiens 2,284,103 (1) 15.7%
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock Michael I. Price 14,000 *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock John E. McKibben 10,000 *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock Brian L. Klemsz 10,000 *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNED CLASS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Jerome B. Misukanis 42,500 (2) *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock Graydon H. Neher 35,800 (3) *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock Barry D. Plost 33,000 (4) *
9780 Meridian Boulevard, Suite 180
Englewood, CO 80112
Common Stock All executive officers and 2,588,103 17.8%
directors as a group
(nine persons)
- ----------
</TABLE>
*Less than one percent
(1) 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
Holdings, Inc., a corporation controlled by Thomas J. Wiens.
(2) Includes 36,500 shares underlying options.
(3) Includes 18,500 shares underlying Common Stock purchase warrants and
options.
(4) Includes 25,000 shares underlying Common Stock purchase warrants and
options.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Executive Employment Agreements under ITEM 10.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS:
Reports of Independent Accountants
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations for the years ended September 30,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreements related to the acquisition of Addlestone International
Corporation
2.1.1 Asset Purchase Agreement dated February 16, 1997 by and among
Recycling Industries of Georgia, Inc., Recycling Industries, Inc.,
Addlestone Recycling Corporation, Nathan Addlestone, Keith Rosen
and Susan Berlijn, incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K reporting an event of
April 7, 1997, as amended June 20, 1997 on Form 8-K/A, Commission
File No. 0-20179.
2.2 Agreements related to the Acquisition of Addlestone International
Corporation:
2.2.1 Asset Purchase Agreement dated April 8, 1997 by and among
Recycling Industries of South Carolina, Inc., Recycling
Industries, Inc., Addlestone International Corporation and Nathan
Addlestone, incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K reporting an event of June
25, 1997, Commission File No. 0-20179.
2.2.2 First Amendment to the Asset Purchase Agreement dated June 24,
1997 by and among Recycling Industries of South Carolina, Inc.,
Recycling Industries, Inc., Addlestone International Corporation
and Nathan Addlestone, incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K reporting an event
of June 25, 1997, Commission File No. 0-20179.
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
3.2 Amended Bylaws of Recycling Industries, Inc., incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, Commission
File No. 0-20179.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-1, filed May 3,
1996, as amended, Commission File No. 333-4574.
4.2 Form of Series G Warrant Agreement, incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
4.3 Form of Series G Registration Rights Agreement, incorporated by
reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.4 Form of Series I Warrant Agreement, incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
4.5 Form of Series J Warrant Agreement, incorporated by reference to
Exhibit 4.6 to the Company's Registration Statement on Form S-1, filed
May 3, 1996, as amended, Commission File No. 333-4574.
4.6 Form of Series J Registration Rights Agreement, incorporated by
reference to Exhibit 4.7 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.7 Form of 1996 Placement Agents Warrant Agreement, incorporated by
reference to Exhibit 4.11 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No. 333-4574.
4.8 Form of 1996 Placement Agents Registration Rights Agreement,
incorporated by reference to Exhibit 4.12 to the Company's
Registration Statement on Form S-1, filed May 3, 1996, as amended,
Commission File No. 333-4574.
4.9 Designation of Preferences, Limitations and Relative Rights of the
Series C Convertible Preferred Stock of Recycling Industries, Inc.*
4.10 Designation of Preferences, Limitations and Relative Rights of the
Series D Convertible Preferred Stock of Recycling Industries, Inc.,
incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K reporting an event of April 7, 1997, as amended
June 20, 1997 on Form 8-K/A, Commission File No. 0-20179.
10.1 Second Amended and Restated Loan and Security Agreement dated April 7,
1997, by and among Recycling Industries, Inc.; Nevada Recycling, Inc.;
Recycling Industries of Texas, Inc.; Recycling Industries of Missouri,
Inc.; Recycling Industries of Georgia, Inc.; Weissman Industries,
Inc.; and Coast Business Credit, incorporated by reference to Exhibit
10.19 to the Company's Registration Statement on Form S-1, as amended
June 24, 1997, Commission File No. 333-20289.
10.2 Agreements related to the June 1997 Bridge Loan Transaction:
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.2.1 Securities Purchase Agreement dated June 20, 1997, by and among
Recycling Industries, Inc. and Siena Capital Partners, L.P.,
incorporated by reference to Exhibit 10.4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, Commission File No. 0-20179.
10.2.2 Form of $7,000,000 Promissory Note from Recycling Industries, Inc.
to Siena Capital Partners, L.P., incorporated by reference to
Exhibit 10.4.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, Commission File No. 0-20179.
10.2.3 Form of Warrant Agreement between Recycling Industries, Inc. and
Siena Capital Partners, L.P., incorporated by reference to
Exhibit 10.4.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, Commission File No. 0-20179
10.3 Executive Employment Agreement dated July 1, 1997 between the
Company and Thomas J. Wiens.**
10.4 Executive Employment Agreement dated September 8, 1997 between the
Company and Luke F. Botica.**
11.1 Statement regarding computation of per share earnings.*
16.1 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.
16.2 Letter from AJ. Robbins, P.C., dated December 19, 1997, addressed to
the Securities and Exchange Commission, incorporated by reference to
Exhibit 16 to the Company's Current Report on Form 8-K reporting and
event of December 19, 1997, Commission File No. 0-020179.
21.1 List of the subsidiaries of Recycling Industries, Inc.*
27 Financial Data Schedule. *
</TABLE>
- --------------
* Previously filed
** Filed herewith
REPORTS ON FORM 8-K
NONE DURING THE QUARTER ENDED SEPTEMBER 30, 1997
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RECYCLING INDUSTRIES, INC.
Date: February 6, 1998 By: /s/ Thomas J. Wiens
--------------------------------------------
Thomas J. Wiens, Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: February 6, 1998 By: /s/ Thomas J. Wiens
-----------------------------------------
Thomas J. Wiens, Principal Executive
Officer, Director
Date: February 6, 1998 By: /s/ Luke F. Botica
-----------------------------------------
Luke F. Botica, Vice Chairman,
Director
Date: February 6, 1998 By: /s/ Brian L. Klemsz
-----------------------------------------
Brian L. Klemsz, Principal Financial
Officer, Director
Date: February 6, 1998 By: /s/ Jerome B. Misukanis
-----------------------------------------
Jerome B. Misukanis, Director
Date: February 6, 1998 By: /s/ Graydon H. Neher
-----------------------------------------
Graydon H. Neher, Director
Date: February 6, 1998 By: /s/ Barry L. Plost
-----------------------------------------
Barry L. Plost, Director
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1997
--- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20179
RECYCLING INDUSTRIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1103445
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
9780 S. MERIDIAN BLVD, SUITE 180
ENGLEWOOD, COLORADO 80112
- ------------------------------------------------ ----------
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this Report.
CLASS NUMBER OF SHARES OUTSTANDING AS OF:
- ----------------------------- February 5, 1998
Common Stock, $.001 Par Value -----------------------------------
18,006,974
<PAGE>
TABLE OF CONTENTS
<TABLE>
PART I -- FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS*
Consolidated Balance Sheets - December 31, 1997
and September 30, 1997 1-2
Consolidated Statements of Operations for the three months ended
December 31, 1997 and 1996 3
Consolidated Statement of Stockholders' Equity for the three months
ended December 31, 1997 4
Consolidated Statements of Cash Flows for the three months ended
December 31, 1997 and 1996 5
Notes to the Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14-17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 23
</TABLE>
- -----------------------
* The accompanying interim financial statements have not been audited by an
independent certified public accountant. Only those statements corresponding
to a fiscal year-end (September 30) are audited.
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
DECEMBER 31, 1997 SEPTEMBER 30, 1997
--------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,498 $ 746
Accounts receivable, net 26,442 8,820
Inventories 17,677 4,183
Deferred income taxes 1,110 810
Prepaid expenses and other 1,352 445
---------------------------
Total Current Assets 48,079 15,004
---------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 159,010 33,227
---------------------------
OTHER ASSETS:
Notes receivable, related party 2,490 85
Deferred income taxes 1,528 585
Other assets, net of amortization 20,132 6,178
---------------------------
Total Other Assets 24,150 6,848
---------------------------
TOTAL ASSETS $231,239 $55,079
---------------------------
---------------------------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
1
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, 1997 SEPTEMBER 30, 1997
--------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,300 $ 3,300
Accounts payable 8,341 2,661
Accounts payable - related parties - 438
Other current liabilities 1,644 1,049
-------------------------------
Total Current Liabilities 13,285 7,448
-------------------------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 138,280 29,456
Other long-term liabilities 13,157 -
-------------------------------
Total long-term liabilities 151,437 29,456
-------------------------------
Total Liabilities 164,722 36,904
-------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
Redeemable common stock,
$.001 par value, 363,636 shares issued and outstanding 1,500 1,500
-------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized
70,000 and 10,000 shares issued and outstanding 19,660 500
Common Stock ($.001 par value), 50,000,000 shares authorized,
18,006,974 and 14,149,780 shares issued and outstanding 17 14
Additional paid-in capital 58,335 26,846
Accumulated deficit (12,995) (10,685)
-------------------------------
Total Stockholders' Equity 65,017 16,675
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 231,239 $ 55,079
-------------------------------
-------------------------------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
2
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------
<S> <C> <C>
Net sales $ 31,275 $ 10,761
Cost of sales and operating expenses 26,302 9,452
-------------------------------
Gross profit 4,973 1,309
Selling, general and administrative expenses 2,474 1,213
-------------------------------
Operating income 2,499 96
-------------------------------
Other income (expense):
Interest expense (2,169) (459)
Miscellaneous (55) 8
-------------------------------
Total other income (expense) (2,224) (451)
-------------------------------
Earnings (loss) before income taxes and
extraordinary loss 275 (355)
Provision for income taxes 87 -
-------------------------------
Earnings (loss) before extraordinary loss 188 (355)
Extraordinary (loss) on early extinguishment
of debt, net of tax (2,414) -
-------------------------------
Net (loss) (2,226) (355)
Preferred stock dividends 84 -
-------------------------------
Net (loss) available to common
shareholders $ (2,310) $ (355)
-------------------------------
-------------------------------
Basic earnings (loss) per common share:
Before extraordinary item $ 0.01 $ (0.03)
Extraordinary item (0.16) -
-------------------------------
Basic earnings (loss) per common share $ (0.15) $ (0.03)
-------------------------------
-------------------------------
Weighted average number of common shares
outstanding 15,351,000 13,795,000
-------------------------------
-------------------------------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1997
(THOUSANDS OF DOLLARS)
<TABLE>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------- ---------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1997 10,000 $ 500 14,149,780 $14 $26,846 $(10,685) $16,675
Preferred stock issued for
acquisitions 60,000 19,160 - - - - 19,160
Common stock issued in connection
with acquisitions - - 2,564,705 2 20,747 - 20,749
Common stock issued on
exercise of options and warrants - - 1,292,489 1 1,735 - 1,736
Issuance of warrants in connection
with debt financing - - - - 9,007 - 9,007
Preferred stock dividends - - - - - (84) (84)
Net (loss) - - - - - (2,226) (2,226)
------ ------- ---------- --- ------- -------- -------
Balances, December 31, 1997 70,000 $19,660 18,006,974 $17 $58,335 $(12,995) $65,017
------ ------- ---------- --- ------- -------- -------
------ ------- ---------- --- ------- -------- -------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(THOUSANDS OF DOLLARS)
<TABLE>
DECEMBER 31, DECEMBER 31,
1997 1996
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (2,226) $ (355)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,498 532
Prepaid loan fees 1,125 -
Non-operating activities 2,532 -
Deferred income taxes (1,243) -
Changes in Assets and Liabilities:
Accounts receivable 2,501 326
Inventories (3,960) 424
Prepaid expenses and other (132) 128
Accounts payable 3,120 (720)
Current liabilities, excluding debt (1,001) (149)
----------------------
Net Cash provided by Operating Activities 2,214 186
----------------------
INVESTING ACTIVITIES:
Capital expenditures, net (542) (261)
Note receivable, related party (1,440) (35)
Other assets (2,382) (99)
Acquisitions, net of equity issued (114,947) (134)
Cash acquired in acquisitions 1,835 -
----------------------
Net Cash (used in) Investing Activities (117,476) (529)
----------------------
FINANCING ACTIVITIES:
Proceeds from borrowings, net 147,868 2,358
Principal payments on borrowings (32,697) (2,511)
Other long-term liabilities 324 -
Prepayment penalty on debt (2,532) -
Loan fees paid (8,600) (103)
Dividends Paid (84) -
Net proceeds from issuance of stock 11,735 910
----------------------
Net Cash Provided by Financing Activities 116,014 654
----------------------
Increase in Cash 752 311
Cash, beginning of period 746 1,450
----------------------
Cash, end of period $ 1,498 $ 1,761
----------------------
----------------------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit except the September 30, 1997 balance sheet, which was
audited. The Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments, consisting of only normal recurring accruals which are, in
the opinion of management, necessary for a fair statement of the results
of operations for the periods shown. These Financial Statements should be
read in conjunction with the Financial Statements and notes thereto
included in the Company's latest report on Form 10-K/A, dated September 30,
1997.
II. The results of operations for the three months ending December 31, 1997,
and 1996, are not necessarily indicative of the results to be expected
for the full year.
III. Inventories as of December 31, 1997, and September 30, 1997, consisted of
the following:
<TABLE>
DECEMBER 31, 1997 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Raw materials $ 7,731 $2,590
Finished goods 8,108 1,330
Other 1,838 263
------- ------
Total $17,677 $4,183
------- ------
------- ------
</TABLE>
IV. ACQUISITIONS
On December 5, 1997, the Company acquired for approximately $23.8 million
substantially all the assets of Brenner Companies Inc. ("Brenner") located in
Winston-Salem, North Carolina. The purchase price was financed with $15.7
million of proceeds in part from a $150 million Senior Credit Facility (The
Credit Facility), $60 million in Senior Subordinated Debt (Subordinated Debt)
and Sale of Common Stock, 14,000 shares of the Company's Series F 6-1/2%
Redeemable Convertible Preferred Stock (the "Series F Preferred"), valued at
$3.5 million and 14,000 shares of the Company's Series G 6-1/2% Redeemable
Convertible Preferred Stock (the "Series G Preferred"), valued at $3.5
million and the assumption of $1.1 million in deferred compensation
liabilities. The company will continue the metals recycling operations of
Brenner.
On December 5, 1997, the Company acquired for approximately $42 million
substantially all the assets of United Metals Recyclers, a North Carolina
general partnership, headquartered in Greensboro, North Carolina ("UMR"). The
purchase price was financed with $36 million in proceeds in part from The
Credit Facility, Subordinated Debt and Sale of Common Stock and 12,000 shares
of the Company's Series H 6% Secured Redeemable Convertible Preferred Stock
(the "Series H Preferred"), valued at
6
<PAGE>
$6 million. The Company will continue the metals recycling operations of
United.
On December 5, 1997, the Company acquired substantially all the assets of
Money Point Land Holding Corporation and Money Point Diamond Corporation
doing business as Jacobson Metal Company ("Jacobson"), headquartered in
Chesapeake, Virginia, for an aggregate purchase price of approximately $19.9
million. The purchase price was financed with $16.9 million of proceeds in
part from The Credit Facility, Subordinated Debt and Sale of Common Stock and
$3.0 million or 10,000 shares of the Company's Series E Redeemable
Convertible Preferred Stock (the "Series E Preferred"). The company will
continue the metals recycling operations of Jacobson.
On December 5, 1997, the Company acquired for approximately $31 million
substantially all the assets of Central Metals Company, Inc. ("Central")
located in Atlanta, Georgia. The purchase price was financed with $20.7
million of proceeds in part from The Credit Facility, Subordinated Debt, and
Sale of Common Stock, the issuance of 800,000 shares of the Company's Common
Stock having an agreed value of $12.50 per share or $10 million, and the
assumption of $0.3 million of current liabilities. The Company will continue
the metals recycling operations of Central.
On December 5, 1997, the Company acquired for $7.4 million certain assets of
Grossman Bros. Company ("Grossman") located in Milwaukee, Wisconsin and
assumed $0.3 million of trade payables. The purchase price was financed in
part from the proceeds of The Credit Facility, Subordinated Debt, Sale of
Common Stock and a capital lease agreement expiring December 5, 1999 at which
time the Company will pay $4.0 million in the form of cash, stock or a
combination of both. The Company will continue the metals recycling
operations of Grossman.
On December 8, 1997, the Company acquired for approximately $25.5 million all
the outstanding Capital Stock of Wm. Lans Sons' Co. Inc., ("Lans") and
substantially all of the real property and personal property of Idal Realty
Company ("Idal"), both entities located in South Beloit, Illinois. The
purchase was financed with $22 million of proceeds in part from The Credit
Facility, Subordinated Debt and Sale of Common Stock and Series I Redeemable
Convertible Preferred Stock (the "Series I Preferred") valued at $3.5
million. The Company will continue the metals recycling operations of Lans.
The following summarized unaudited pro forma results of operations assumes
the acquisition of Addlestone Recycling Corp. (ARC) and Addlestone
International Corp (AIC) acquired in the third and fourth quarter of fiscal
1997 and the acquisitions of Grossman, Jacobson, Brenner, UMR, Central and
Lans had occurred at the beginning of each period reported.
7
<PAGE>
<TABLE>
Three months ended December 31, 1997 1996
- ------------------------------------------------ ---------- ----------
<S> <C> <C>
Net sales $60,047 $58,171
Depreciation and amortization 2,255 2,210
Operating income 5,248 4,208
Earnings before income taxes and
extraordinary loss 2,081 1,015
Net loss (1,103) (1,847)
Net loss available to common shareholders (1,382) (2,126)
Diluted earnings per share:
Earnings before extraordinary item 0.04 0.02
Loss after extraordinary item $ (0.06) $ (0.13)
Weighted average number of common share
outstanding 24,471,070 16,977,823
EBITDA(1) $ 7,503 $ 6,418
</TABLE>
- ----------------------
(1) The Company has included the calculation of Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) as a supplemental schedule
to the proforma financial information. The EBITDA calculation, which is
not a measure of financial performance under generally accepted accounting
principles, was included as certain investors use the data to determine
the Company's ability to service its indebtedness. EBITDA is not a
substitute for income from continuing operations, net income or cash flows
presentation under generally accepted accounting principles.
The pro forma data is for informational purposes only and may not necessarily
reflect the results of operations of the Company had the acquired businesses
operated as part of the Company for the periods ended December 31, 1997 and
1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere
herein. Statements included on the following discussion concerning
predictions of economic performance and management's plans and objectives are
forward looking statements. These statements involve risks and uncertainties
that could cause actual results to differ materially from the forward looking
statements. Factors which would cause or contribute to such differences are
summarized in the following discussion and include: downturns in the
Company's primary markets; disruptions to the Company's operations from acts
of God or extended maintenance; disruptions in the availability or pricing of
raw materials; transportation difficulties; and the unavailability of
financing to complete management's plans and objectives.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
- -------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
(Dollars in millions) 1997 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current ratio 3.62:1 2.01:1
Working capital $ 34.8 $ 7.6
- -------------------------------------------------------------------------------
</TABLE>
The increased liquidity at December 31, 1997 compared to September 30, 1997
is primarily attributable to increases in accounts receivable and inventory
from acquisitions, financed with long-term debt proceeds as discussed below.
The Company invested $0.5 million in property and equipment, not including
property and equipment acquired in business acquisitions, during the quarter
ended December 31, 1997, for expansion of the Company's ferrous and
non-ferrous processing capacity and general modernization and efficiency
upgrades. Planned capital expenditures during the next year for the
Company's existing facilities are estimated to be $3 million. Included in
this amount are capital expenditures for the Company's shredders and
materials handling equipment designed to increase capacity and improve
operating efficiencies. Management anticipates the capital expenditures will
be paid with cash from operations and long-term debt financing.
In December 1997, the Company entered into a $150 million Senior Credit
Facility ("Credit Facility") with General Electric Capital Corporation and
BankBoston, N.A. as agents for the lenders. The Credit
9
<PAGE>
Facility is comprised of a $45 million revolving credit facility, a $40
million term loan due December 5, 2003, with interest and principal payable
quarterly, a $40 million term loan due on the earlier of December 5, 2005 or
six months prior to the maturity of the Subordinated Notes discussed below
with interest and principal payable quarterly and a $25 million acquisition
line of credit due December 5, 2003, with interest and principal payable
quarterly. The notes bear interest at either (I) the higher of (a) prime
plus .75% or (b) the Federal Funds rate plus 50 basis points per annum plus
.75%, or (II) at the option of the Company upon certain conditions, the LIBOR
rate plus 2.25%. The proceeds from the Credit Facility are secured by
substantially all of the Company's assets and are to be used for
acquisitions, repayment of existing indebtedness and general corporate
purposes.
In December 1997, the Company issued $60 million in Senior Subordinated Notes
(the "Subordinated Debt") to various lenders, the proceeds of which are to be
used for acquisitions, repayment of existing indebtedness and general
corporate purposes. The notes bear interest at 13% and mature in December
2005.
In connection with the Credit Facility and the issuance of the Subordinated
Debt, the Company sold 1,666,666 shares of its Common Stock for an aggregate
of $10 million to various accredited investors in a transaction exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The $10 million in proceeds were used for acquisitions,
repayment of existing indebtedness and general corporate purposes.
The Company issued warrants to acquire up to 1,266,000 shares of Common Stock
in connection with the issuance of the $60 million Subordinated Debt. The
exercise price of the warrants is $0.01 per share. Additionally, warrants
were issued to acquire 200,000 shares of Common Stock with an exercise price
of $2.50 per share as part of entering into the Credit Facility agreement.
For accounting purposes the fair value of the warrants have been recorded as
paid-in-capital and as a discount to the respective debt.
On December 5, 1997, long-term debt of $32.1 million was repaid in advance of
scheduled maturity with proceeds in part from the Credit Facility and the
issuance of the Subordinated Debt and Common Stock as discussed above. As a
result of the early extinguishment of debt, the Company recognized $3.6
million in loan fees expense which includes a prepayment penalty of $2.5
million and $1.1 million of prepaid loan fees both of which were charged to
expense as an extraordinary item.
During the quarter, the Company received $1.7 million in proceeds from the
exercise of warrants and options into the Company's Common Stock.
At December 31, 1997, $7.3 million was outstanding under the Company's $45.0
million revolving credit facility.
ACQUISITIONS
On December 5, 1997, the Company acquired for $23.8 million substantially all
the assets of Brenner Companies Inc. ("Brenner") located in Winston-Salem,
North Carolina. The purchase price was financed with $15.7 million of
proceeds in part from The Credit Facility, Subordinated Debt and Sale of
Common Stock discussed above, 14,000 shares of the Company's Series F 6-1/2%
Redeemable Convertible Preferred Stock (the "Series F Preferred"), valued at
$3.5 million and 14,000 shares of the Company's Series G 6-1/2% Redeemable
Convertible Preferred Stock (the "Series G Preferred"), valued at $3.5
million and the assumption of $1.1 million in deferred compensation
liabilities. The Series F Preferred is subject to mandatory and automatic
conversion provisions at the earlier of a consolidation, merger or share
exchange of the Company or on December 5, 2000. The Series F Preferred will
convert on December 5, 2000 into the number of shares of the Company's Common
Stock as determined by dividing $3.5 million plus an amount in cash equal to
all accrued and unpaid dividends to the date of conversion by the
10
<PAGE>
average market price of the Company's Common Stock, $.001 par value (the
"Common Stock") for the ten trading days preceding the date of conversion.
The Series G Preferred is subject to mandatory and automatic conversion
provisions at the earlier of a consolidation, merger or share exchange of the
Company or on December 5, 2000. The Series G Preferred will convert into the
number of shares of the Company's Common Stock as determined by dividing $3.5
million plus an amount in cash equal to all accrued and unpaid dividends to
the date of conversion by the greater of the average market price of the
Common Stock for the ten trading days preceding the date of conversion, or
2.5 times the average market price for the ten trading days preceding the
date of issuance. At any time prior to conversion, the Company has the right
to redeem the outstanding shares of Series F and G Preferred Stock, in whole
or in part, at a cash redemption price equal to $250 per share plus all
accrued and unpaid dividends to the date of redemption. The Company has
agreed to register on or before December 5, 2000 the shares of Common Stock
received upon conversion of the Series F and G Preferred, unless such shares
may be sold by the holder thereof pursuant to rule 144(k) promulgated under
the Securities Act or any equivalent provision then in effect. The Company
will continue the metals recycling operations of Brenner.
On December 5, 1997, the Company acquired for $42 million substantially all
the assets of United Metals Recyclers, a North Carolina general partnership,
headquartered in Greensboro, North Carolina ("UMR"). The purchase price was
financed with $36 million in proceeds in part from The Credit Facility,
Subordinated Debt and Sale of Common Stock discussed above and 12,000 shares
of the Company's Series H 6% Secured Redeemable Convertible Preferred Stock
(the "Series H Preferred"), valued at $6 million. The Series H Preferred is
subject to mandatory and automatic conversion provisions at the earlier of a
consolidation, merger or share exchange of the Company or on December 5,
2000. Dividend payments and the liquidation preference on the Series H
Preferred is secured by the Company's 50% interest in a scrap metals facility
located in Smithfield, North Carolina. The Series H Preferred will convert
on December 5, 2000 into the number of shares of the Company's Common Stock
as determined by dividing $6 million plus an amount in cash equal to all
accrued and unpaid dividends by the average market price of the Common Stock
for the ten trading days preceding the date of conversion. At any time prior
to conversion, the Company has the right to redeem the outstanding shares of
Series H Preferred Stock, in whole or in part, at a cash redemption price
equal to $500 per share plus all accrued and unpaid dividends to the date of
redemption. If the sale of the shares of Common stock into which the Series H
Preferred is converted yields net proceeds of less than $5,689,000, the
Company will pay the difference to UMR. The Company has agreed to register
on or before December 5, 2000 the shares of Common stock received upon
conversion of the Series H Preferred, unless such shares may be sold by the
holder thereof pursuant to Rule 144(k) promulgated under the Securities Act
or any equivalent provision then in effect. The Company will continue the
metals recycling operations of UMR.
On December 5, 1997, the Company acquired substantially all the assets of
Money Point Land Holding Corporation and Money Point Diamond Corporation
doing business as Jacobson Metal Company ("Jacobson"), headquartered in
Chesapeake, Virginia, for an aggregate purchase price of approximately $19.9
million. The purchase price was financed with $16.9 million of proceeds in
part from The Credit Facility, Subordinated Debt and Sale of Common Stock as
discussed above and $3 million or 10,000 shares of the Company's Series E
Redeemable Convertible Preferred Stock (the "Series E Preferred"). The Series
E Preferred is subject to automatic conversion provisions at the earlier of a
consolidation or merger of the Company or on December 5, 2000. The Series E
Preferred will convert on December 5, 2000 into the number of shares of the
Company's Common Stock as determined by dividing $3 million by the average
market price of the Common Stock for the ten trading days preceding the date
of conversion. Holders of the Series E Preferred are not entitled to
dividends. At any time prior to conversion, the Company has the right to
redeem the outstanding shares of Series E Preferred Stock, in whole or in
part, at a cash redemption price equal to $300 per share. The Company
11
<PAGE>
will continue the metals recycling operations of Jacobson.
On December 5, 1997, the Company acquired for $31 million substantially all
the assets of Central Metals Company, Inc. ("Central") located in Atlanta,
Georgia. The purchase price was financed with $20.7 million of proceeds in
part from The Credit Facility, Subordinated Debt, and Sale of Common Stock as
discussed above, the issuance of 800,000 shares of the Company's Common Stock
having an agreed value of $12.50 per share or $10 million, and the assumption
of $0.3 million of current liabilities. The Company has guaranteed that the
aggregate market value of the 800,000 shares of Common Stock issued to
Central will be at least $10,000,000 on December 4, 1999. If the market
value of the Common Stock is less than $10,000,000, the Company will issue
shares of Common Stock to Central having a market value equal to the
difference between $10,000,000 and the market value of the 800,000 shares of
Common Stock initially issued to Central. In connection with the acquisition,
Central was issued warrants to acquire up to 200,000 shares of the Company's
Common Stock for $15.00 per share, exercisable upon satisfaction of certain
financial performance conditions related to the operations acquired from
Central (the "Contingent Warrants"). The exercise price per share of the
Contingent Warrants is subject to adjustment at the time of exercise so that
the aggregate spread between the exercise price of all Contingent Warrants
and the market value of the Common Stock received upon exercise of the
Contingent Warrants is not less than $1,000,000. The Company granted
"piggyback" registration rights to the holders of the Contingent Warrants
with respect to the shares of Common Stock received upon their exercise. The
Company will continue the metals recycling operations of Central.
On December 5, 1997, the Company acquired for $7.4 million certain assets of
Grossman Bros. Company ("Grossman") located in Milwaukee, Wisconsin including
the assumption of $0.3 million of trade payables. The purchase price was
financed in part from the proceeds of The Credit Facility, Subordinated Debt,
Sale of Common Stock as discussed above, and a capital lease agreement
expiring December 5, 1999 at which time the Company will pay $4.0 million in
the form of cash, stock or a combination of both. The Company will continue
the metals recycling operations of Grossman.
On December 8, 1997, the Company acquired for $25.5 million all the
outstanding Capital Stock of Wm. Lans Sons' Co. Inc., ("Lans") and
substantially all of the real property and personal property of Idal Realty
Company ("Idal"), both entities located in South Beloit, Illinois. The
purchase was financed with $22 million of proceeds in part from The Credit
Facility, Subordinated Debt and Sale of Common Stock as discussed above, and
the issuance of 10,000 shares of Series I Redeemable Convertible Preferred
Stock (the "Series I Preferred") valued at $3.5 million. The Series I
Preferred is subject to automatic and mandatory conversion provisions in the
event of a consolidation or merger. The Series I Preferred will convert on
December 8, 1999 into the number of shares of the Company's Common Stock as
determined by dividing $3.5 million plus all accrued and unpaid dividends to
the date of conversion by the lesser of the average market price of the
Common Stock for the ten trading days preceding the date of conversion or
$15.00. For a period of 25 days prior to December 3, 1999, the Company shall
have the right to redeem the outstanding shares of Series I Preferred Stock,
in whole or in part, at a cash redemption price equal to $350 per share
provided that the market price of the Company's Common Stock is greater than
$15.00 per share. The Company has agreed to register on or before December 5,
2000 the shares of Common Stock received upon conversion of the Series I
Preferred. The Company will continue the metals recycling operations of Lans.
Management believes these acquisitions will have a positive impact on its
future results of operations. The historical results of operations do not
fully reflect the operating efficiencies and improvements that are expected
to be achieved by integrating the acquired businesses into the Company's
operations.
Management intends to continue seeking opportunities for expansion in the
metals recycling business and believes that the Company's liquidity, capital
resources and borrowing capabilities are adequate for its current operations.
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 financing 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.
12
<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 ferrous market prices, it
seeks to minimize this risk by maintaining low inventory levels of raw and
processed scrap.
The results of operations for the quarter ended December 31, 1997 and 1996
have been driven primarily by the Company's acquisition activity.
Net sales for the quarter ended December 31, 1997, were $31.3 million, an
increase of $20.5 million compared to the same period one year earlier. The
increase is primarily related to increased processing capacity resulting from
the acquisition of ARC and AIC during the third and fourth quarter of 1997
and the acquisition of Brenner, UMR, Jacobson, Central and Grossman on
December 5, 1997 and Lans on December 8, 1997 and increases in the average
selling price of ferrous and non-ferrous material. Total tons processed of
ferrous material increased by approximately 190 percent to 165,000 tons
compared to the same period one year earlier. The increase in total ferrous
tons processed was primarily related to new acquisitions as tons processed
during the quarter by facilities acquired prior to the first quarter of
fiscal 1997 were almost unchanged. Total pounds processed of non-ferrous
material for the quarter were approximately 15,441,000 an increase of 78
percent compared to the same quarter one year earlier. The increase was
partially offset by a decline in pounds processed of non-ferrous material
during the quarter for facilities acquired prior to the first quarter of
fiscal 1997. The average sales price per ton of prepared ferrous material
was $143 an increase of approximately $21 per ton compared to the same period
one year earlier. The average sales price per pound of prepared non-ferrous
material was $0.42 an increase of approximately $0.11 per pound compared to
the same period one year ago. The increase in the average sales price of
prepared ferrous and non-ferrous material is primarily attributable to
increased demand and changes in material mix. Net sales from brokerage
activities increased by $0.4 million compared to the same period one year
earlier to total $1.1 million. The increase was primarily related to new
acquisitions and increased brokerage volume at facilities acquired prior to
the first quarter of fiscal 1997.
Gross profit for the quarter ended December 31, 1997, was $4.9 million, an
increase of $3.6 million compared to the same period one year earlier. As a
percent of net sales, gross margin increased by 3.7 percent compared to the
same period one year ago. The increase in margins is principally
attributable to new acquisitions and increases in the average selling price
of prepared ferrous and non-ferrous material which were partially offset by
increases in the average purchase price of unprepared ferrous and non-ferrous
material.
Selling, general, and administrative (SG&A) expenses totaled $2.5 million for
the year ended September 30, 1997 an increase of $1.3 million compared to the
same period one year earlier. The increase was primarily the result of the
new acquisitions and staffing and other related administrative expenses in
anticipation of planned growth. As a percent of net sales SG&A was 7.9
percent, a decline of 3.4 percent compared to the same quarter one year
earlier. As a result of continued emphasis on productivity improvements, the
Company has managed to achieve increases in net sales without
13
<PAGE>
significant increases in support costs as a percentage of sales.
Operating income for the quarter ended December 31, 1997 was $2.5 million an
increase of $2.4 million compared to the same period one year earlier. The
increase was principally a result of the new acquisitions and increases in
the average selling price of ferrous and non-ferrous material and continued
emphasis on productivity improvements. Management is continuously monitoring
the operations of the facilities and has implemented certain cost cutting
strategies in an attempt to improve operating income without reducing net
sales.
Interest expense for the quarter ended December 31, 1997 increased by $1.7
million compared to the same period one year earlier to total $2.2 million.
The increase were primarily related to increases in long-term debt to finance
the acquisition of ARC and AIC in the third and fourth quarter of fiscal 1997
and Brenner, UMR, Jacobson, Central, Grossman and Lans in the first quarter
of fiscal 1998.
Miscellaneous expense includes $0.1 million of expense for minority interest
in the earnings of a metals recycling facility.
During the quarter the company recorded a $2.4 million extraordinary loss net
of a tax benefit from early extinguishment of debt. The income tax benefit
of $1.2 million was recorded as an increase in the deferred tax asset.
During the quarter the Company implemented Financial Accounting Standards
("FAS") No. 128 "Earnings per Share". FAS 128 provides for the calculation
of "basic" and "diluted" earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the entity, similar to fully
diluted earnings per share. In loss periods, dilutive common equivalent
shares are excluded, as the effect would be anti-dilutive.
The Company does not believe its businesses have been adversely affected by
general inflation.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.
Incorporated by reference to Item 3 - Legal Proceedings of the Company's
Annual Report On Form 10-K/A for the fiscal year ended September 30, 1997.
ITEM 2 - CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 1997, the Company completed the
following sales of its securities pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. Based upon representations made to the
Company and further investigation by the Company, the Company believes that
each purchaser in the following transactions was an accredited investor as
that term is defined under Rule 501(a) of Regulation D:
14
<PAGE>
1. In connection with the Company's acquisition of substantially
all of the assets of Jacobson, on December 5, 1997, the Company
issued 10,000 shares of Series E Preferred to Money Point Land
Holding Corporation and Money Point Diamond Corporation, as payment
of $3 million of the purchase price for that acquisition. See "Item
2 - Management's Discussion and Analysis of Financial Condition and
Result of Operations - - Acquisitions," above.
The Series E Preferred is subject to automatic conversion
provisions at the earlier of a consolidation or merger of the Company
or on December 5, 2000. The Series E Preferred will convert on
December 5, 2000 into the number of shares of the Company's Common
Stock as determined by dividing $3 million by the average market price
of the Common stock for the ten trading days preceding the date of
conversion. Holders of the Series E Preferred are not entitled to
dividends. At any time prior to conversion, the Company has the right
to redeem the outstanding shares of Series E Preferred Stock, in
whole or in part, at a cash redemption price equal to $300 per share.
2. In connection with the Company's acquisition of substantially
all of the assets of Brenner, on December 5, 1997, the Company issued
14,000 shares of Series F Preferred and 14,000 shares of Series G
Preferred to Brenner Companies, Inc., as payment of $7 million of the
purchase price for that acquisition. See "Item 2 - Management's
Discussion and Analysis of Financial Condition and Result of
Operations - - Acquisitions," above.
The Series F Preferred is subject to mandatory and automatic
conversion provisions at the earlier of a consolidation, merger or
share exchange of the Company or on December 5, 2000. The Series F
Preferred will convert on December 5, 2000 into the number of shares
of the Company's Common Stock as determined by dividing $3.5 million
plus an amount in cash equal to all accrued and unpaid dividends to
the date of conversion by the average market price of the Company's
common stock, $.001 par value (the "common stock") for the ten trading
days preceding the date of conversion. The Series G Preferred is
subject to mandatory and automatic conversion provisions at the
earlier of a consolidation, merger or share exchange of the Company
or on December 5, 2000. The Series G Preferred will convert into the
number of shares of the Company's Common Stock as determined by
dividing $3.5 million plus an amount in cash equal to all accrued and
unpaid dividends to the date of conversion by the greater of the
average market price of the Common stock for the ten trading days
preceding the date of conversion, or 2.5 times $7.81 (the average
market price for the ten trading days preceding the date of issuance).
At any time prior to conversion, the Company has the right to redeem
the outstanding shares of Series F and G Preferred Stock, in whole or
in part, at a cash redemption price equal to $250 per share plus all
accrued and unpaid dividends to the date of redemption. The company
has agreed to register on or before December 5, 2000 the shares of
Common stock received upon conversion of the Series F and G Preferred,
unless such shares may be sold by the holder thereof pursuant to
Rule 144(k)promulgated under the Securities Act or any equivalent
provision then in effect. Holders of the Series F Preferred are
entitled to dividends on a cumulative basis at an annual rate of
6 1/2% which shall accrue and be paid in cash upon the conversion of
the Series F Preferred, to the extent not previously paid.
3. In connection with the Company's acquisition of substantially
all of the assets of UMR, on December 5, 1997, the Company issued
12,000 shares of Series H Preferred to United Metals Recyclers, as
payment of $5.6 million of the purchase price for that acquisition.
See "Item 2 - Management's Discussion and Analysis of Financial
Condition
15
<PAGE>
and Result of Operations -- Acquisitions," above.
The Series H Preferred is subject to mandatory and automatic
conversion provisions at the earlier of a consolidation, merger or
share exchange of the Company or on December 5, 2000. Dividend
payments and the liquidation preference on the Series H Preferred is
secured by the Company's 50% interest in a scrap metals facility
located in Smithfield, North Carolina. The Series H Preferred will
convert on December 5, 2000 into the number of shares of the Company's
Common Stock as determined by dividing $6 million plus an amount in
cash equal to all accrued and unpaid dividends by the average market
price of the Common Stock for the ten trading days preceding the date
of conversion. At any time prior to conversion, the Company has the
right to redeem the outstanding shares of Series H Preferred Stock,
in whole or in part, at a cash redemption price equal to $500 per
share plus all accrued and unpaid dividends to the date of
redemption. If the sale of the shares of Common stock into which the
Series H Preferred is converted yields net proceeds of less than
$5,689,000, the Company will pay the difference to UMR. The Company
has agreed to register on or before December 5, 2000 the shares of
Common stock received upon conversion of the Series H Preferred,
unless such shares may be sold by the holder thereof pursuant to Rule
144(k) promulgated under the Securities Act or any equivalent
provision then in effect. Holders of the Series G Preferred are
entitled to dividends on a cumulative basis at an annual rate of
6 1/2% payable as follows: (i) Dividends that accrue through
December 5, 1998 will be paid in cash on the earlier of conversion of
the Series G Preferred or December 5, 1999, to the extent not
previously paid, and (ii) Dividends that accrue from December 6, 1998
to December 5, 2,000 will be paid in cash on the earlier of the
conversion of the Series G Preferred or December 5, 2000, to the
extent not previously paid.
4. In connection with the Company's acquisition of all the outstanding
Capital Stock of Lans, on December 8, 1997, the Company issued 10,000
shares of Series I Preferred to Wm. Lans Sons' Co. Inc., as payment
of $3.5 million of the purchase price for that acquisition. See
"Item 2 - Management's Discussion and Analysis of Financial Condition
and Result of Operations - - Acquisitions," above.
The Series I Preferred is subject to automatic and mandatory
conversion provisions in the event of a consolidation or merge. The
Series I Preferred will convert on December 5, 2000 into the number
of shares of the Company's Common Stock as determined by dividing
$3.5 million plus all accrued and unpaid dividends to the date of
conversion by the lesser of the average market price of the Common
stock for the ten trading days preceding the date of conversion or
$15.00. For a period of 25 days prior to December 3, 1999, the Company
shall have the right to redeem the outstanding shares of Series I
Preferred Stock, in whole or in part, at a cash redemption price equal
to $350 per share provided that the market price of the Company's
Common Stock is greater than $15.00 per share. The Company has agreed
to register on or before December 5, 2000 the shares of Common Stock
received upon conversion of the Series I Preferred. Holders of the
Series I Preferred are entitled to dividends on a cumulative basis at
an annual rate of 8% which shall accrue and be paid in cash on the
earlier of conversion or December 5, 2000, to the extent not
previously paid.
5. In connection with the Company's acquisition of substantially all of
the assets of Central, on December 5, 1997, the Company issued
800,000 shares of its Common Stock as payment of $10 million of the
purchase price for that acquisition. See "Item 2 - Management's
Discussion and Analysis of Financial Condition and Result of
Operations -- Acquisitions," above.
6. On December 4, 1997, the Company issued Warrants to acquire up to
1,266,000 shares of its Common Stock in connection with the issuance
of $60 million Subordinated Debt. Each warrant is exercisable at a
price of $0.01 per share.
7. On December 4, 1997, the Company issued warrants to acquire up to
200,000 shares of
16
<PAGE>
its Common Stock to Recycling Warrant Holdings, G.P. in connection
with the recent financing. The exercise price is $2.50 per share.
8. On December 4, 1997, in connection with the Credit facility and the
issuance of the Subordinated Debt, the Company sold 1,666,666 shares
of its Common Stock for an aggregate amount of $10 million to various
accredited investors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 17, 1997, the Company held its 1997 Annual Meeting of the
Shareholders. The matters voted upon by the Company's shareholders at the
meeting, including the election of directors, and the votes cast for each
matter, are as follows:
1. ELECTION OF DIRECTORS. The following individuals were elected to serve as
directors of the Company until its next Annual Meeting of the Shareholders
and until their respective successors are elected and qualified:
<TABLE>
- -------------------------------------------------------------------------------
VOTES AGAINST BROKER
DIRECTOR VOTES FOR OR WITHELD ABSTENTIONS NON-VOTES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Weins 11,620,345 46,574 - -
Luke F. Botica 11,626,445 40,974 - -
Brian L. Klemsz 11,626,145 41,274 - -
Jerome B. Misukanis 11,621,445 45,974 - -
Greydon H. Neher 11,621,445 45,974 - -
Barry D. Plost 11,621,445 45,974 - -
- -------------------------------------------------------------------------------
</TABLE>
2. To amend the Company's articles of incorporation to remove provisions
concerning "Substantial Shareholders":
Votes Against or Broker
Votes For Withheld Abstentions Non-Votes
--------- ---------------- ----------- ---------
4,773,964 3,233,005 156,653 3,503,797
3. To approve the 1995 Non-Statutory Stock Option Plan:
Votes Against or Broker
Votes For Withheld Abstentions Non-Votes
--------- ---------------- ----------- ---------
7,716,103 459,076 120,467 3,371,773
4. To approve the 1995 Non-Employee Director Stock Option Plan:
Votes Against or Broker
Votes For Withheld Abstentions Non-Votes
--------- ---------------- ----------- ---------
7,939,258 269,875 160,216 3,298,070
5. To approve the 1997 Executive Stock Option Plan:
17
<PAGE>
Votes Against or Broker
Votes For Withheld Abstentions Non-Votes
--------- ---------------- ----------- ---------
7,275,255 811,644 235,591 3,344,929
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description
- ------- -----------
2.1 Agreements related to the Acquisition of the Assets of Grossman
Brothers Company and Milwaukee Metal Briquetting Co., Inc.
2.1.1 Asset Purchase Agreement dated October 31, 1997, by and among
Recycling Industries of Wisconsin, Inc., a Colorado corporation,
Recycling Industries, Inc., a Colorado corporation, Grossman Brothers
Company, Inc., a Wisconsin corporation, Milwaukee Metal Briquetting
Co., Inc., a Wisconsin corporation, and Arthur Grossman. Incorporated
by reference to Exhibit 2.1.1 to the Company's current report on
Form 8-K as filed with the Commission on December 22, 1997 and amended
on February 11, 1998 on Form 8-K/A, Commission File No. 0-20179.
2.1.2 Amendment to Asset Purchase Agreement dated December 5, 1997, by and
among Recycling Industries of Wisconsin, Inc., Recycling Industries,
Inc., Grossman Brothers Company, Inc. and Milwaukee Metal Briquetting
Co., Inc. Incorporated by reference to Exhibit 2.1.2 to the Company's
current report on Form 8-K as filed with the Commission on
December 22, 1997 and amended on February 11, 1998 on Form 8-K/A,
Commission File No. 0-20179.
2.2 Asset Purchase Agreement dated December 4, 1997 by and among Recycling
Industries, Inc., a Colorado corporation, Recycling Industries of
Atlanta, Inc., a Colorado corporation, and Central Metals Company,
Inc., a Georgia corporation. Incorporated by reference to Exhibit 2.2
to the Company's current report on Form 8-K as filed with the
Commission on December 22, 1997 and amended on February 11, 1998 on
Form 8-K/A, Commission File No. 0-20179.
2.3 Asset Purchase Agreement dated December 5, 1997 by and among Recycling
Industries of Chesapeake, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, Money Point Land Holding
Corporation, a Virginia corporation, Money Point Diamond Corporation,
a Virginia corporation, George B. Ginsburg, the Fred Jacobson
Revocable Trust, a Virginia trust, and the Dorothy G. Jacobson
Revocable Trust, a Virginia trust. Incorporated by reference to
Exhibit 2.3 to the Company's current report on Form 8-K as filed with
the Commission on December 22, 1997 and amended on February 11, 1998
on Form 8-K/A, Commission File No. 0-20179.
2.4 Stock Purchase Agreement dated December 8, 1997, by and among
Recycling Industries, Inc., a Colorado corporation, Wm. Lans Sons'
Co., Inc., an Illinois corporation, Bertram Lans, Bruce Lans and
Scott Lans. Incorporated by reference to Exhibit 2.4 to the Company's
current report on Form 8-K as filed with the Commission on
December 22, 1997 and amended on February 11, 1998 on Form 8-K/A,
Commission File No. 0-20179.
2.5 Asset Purchase Agreement dated December 5, 1997 by and among Recycling
Industries of Winston-Salem, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, Brenner Companies, Inc., a
North Carolina corporation, Frank Brenner, Mike Brenner and the
Shareholder of the Brenner Companies, Inc. Incorporated by reference
to Exhibit 2.5 to the Company's current report on Form 8-K as filed
with the Commission on December 22, 1997 and amended on February 11,
1998 on Form 8-K/A, Commission File No. 0-20179.
2.6 Asset Purchase Agreement dated December 5, 1997 by and among
Recycling Industries of Greensboro, Inc., a Colorado corporation,
Recycling Industries, Inc., a Colorado corporation, United Metal
Recyclers, a North Carolina general partnership, Brenner Companies,
Inc., a North Carolina corporation, and Levin Brothers, Inc., a
North Carolina corporation. Incorporated by reference to Exhibit 2.6
to the Company's current report on Form 8-K as filed with the
Commission on December 22, 1997 and amended on February 11, 1998
on Form 8-K/A, Commission File No. 0-20179.
3(i).1 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series E
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).1 to the Company's current
report on Form 8-K as filed with the Commission on December 22, 1997
and amended on February 11, 1998 on Form 8-K/A, Commission File No.
0-20179.
3(i).2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series F 61/2%
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).2 to the Company's current
report on Form 8-K as filed with the Commission on December 22, 1997
and amended on February 11, 1998 on Form 8-K/A, Commission File No.
0-20179.
3(i).3 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series G 61/2%
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).3 to the Company's current
report on Form 8-K as filed with the Commission on December 22, 1997
and amended on February 11, 1998 on Form 8-K/A, Commission File No.
0-20179.
3(i).4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series H 6%
Secured Redeemable Convertible Preferred Stock of Recycling
Industries, Inc. Incorporated by reference to Exhibit 3(i).4 to the
Company's current report on Form 8-K as filed with the Commission on
December 22, 1997 and amended on February 11, 1998 on Form 8-K/A,
Commission File No. 0-20179.
3(i).5 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series I 8%
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).5 to the Company's current
report on Form 8-K as filed with the Commission on December 22, 1997
and amended on February 11, 1998 on Form 8-K/A, Commission File No.
0-20179.
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, filed May 3, 1996, as amended, Commission File No.
333-4574.
3.2 Amended Bylaws of Recycling Industries, Inc., incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, Commission File No.
0-20179.
4.1 Indenture dated December 4, 1997. Incorporated by reference to
Exhibit 4.1 to the Company's current report on Form 8-K as filed with
the Commission on December 22, 1997 and amended on February 11, 1998
on Form 8-K/A, Commission File No. 0-20179.
10.1 Credit Agreement dated December 4, 1997, among Recycling Industries,
Inc., a Colorado corporation, Nevada Recycling, Inc., a Nevada
corporation, NR Holdings, Inc., a Nevada corporation, Recycling
Industries of Texas, Inc., a Colorado corporation, Recycling
Industries of Missouri, Inc., a Colorado corporation, Recycling
Industries of Georgia, Inc., a Colorado corporation, Recycling
Industries of Atlanta, Inc., a Colorado corporation, Weissman
Industries, Inc., an Iowa corporation, Recycling Industries of South
Carolina, Inc., a Colorado corporation, Recycling Industries of
Chesapeake, Inc., a Colorado corporation, Recycling Industries of
Greensboro, Inc., a Colorado corporation, Recycling Industries of
Winston-Salem, Inc., a Colorado corporation, William Lans Sons
Company, an Illinois corporation, Recycling Industries of Wisconsin,
Inc., a Colorado corporation, and General Electric Capital
Corporation, a New York corporation, and BankBoston, N.A. Incorporated
by reference to Exhibit 10.1 to the Company's current report on
Form 8-K as filed with the Commission on December 22, 1997 and amended
on February 11, 1998 on Form 8-K/A, Commission File No. 0-20179.
27 Financial Data Schedule*
* Filed herewith.
REPORTS OF FORM 8-K
1. Current Report on Form 8-K dated December 22, 1997, reporting
the acquisition of substantially all of the assets of Brenner,
United, Jacobson, Central and Grossman on December 5, 1997 and Lans
on December 8, 1997, Commission File No. 0-20179.
2. Current Report on Form 8-K dated December 22, 1997, reporting a
change in auditors for a subsidiary from A.J. Robbins P.C. to
BDO Seidman, LLP. Commission File No. 0-20179.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Recycling Industries, Inc.
Date: February 14, 1997 By: /s/ Thomas J. Wiens
------------------------------------------
Thomas J. Wiens, Chairman & Chief
Executive Officer
Date: February 14, 1997 By: /s/ Brian L. Klemsz
------------------------------------------
Brian L. Klemsz, Principal Financial
Officer
19
<PAGE>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
RECYCLING INDUSTRIES, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate Box:)
/ X / No fee required.
/ / $125 Per Exchange Act Rules 0-4 (c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held November 17, 1997
- --------------------------------------------------------------------------------
<PAGE>
Page 3 of 64
TO THE SHAREHOLDERS OF RECYCLING INDUSTRIES, INC.:
The Annual Meeting of Shareholders of Recycling Industries, Inc., a
Colorado corporation, ("Recycling" or the "Company") will be held at the
Inverness Hotel, 200 Inverness Drive West, Englewood, Colorado 80112
Colorado, at 8:00 a.m. Mountain Standard Time, on November 17, 1997, to
consider and/or take action on the following matters:
1. To elect a board of six directors to serve until the next Annual
Meeting of Shareholders and until their respective successors are
elected and qualified;
2. To amend the Company's articles of incorporation to remove
provisions concerning "Substantial Shareholders";
3. To approve the 1995 Non-Statutory Stock Option Plan;
4. To approve the 1995 Non-Employee Director Stock Option Plan;
5. To approve the 1997 Executive Stock Option Plan; and
6. To transact such other and further business as may properly come
before the meeting or any postponements or adjournments thereof.
The discussion of the proposals set forth above is intended as a
summary, and is qualified in its entirety by the information contained in the
accompanying Proxy Statement.
Only shareholders of record at the close of business on September 15,
1997 are entitled to notice of and to vote at the Meeting or any
postponements or adjournments thereof.
All shareholders are cordially invited to attend the meeting. Whether
or not you expect to attend, you are respectfully requested by the Board of
Directors to sign, date and promptly return the enclosed proxy. Shareholders
who execute proxies retain the right to revoke them at any time prior to
voting thereof. A return envelope, which requires no postage if mailed in
the United States, is enclosed for your convenience.
By Order of the Board of Directors,
/s/ Thomas J. Wiens
--------------------------------------
Thomas J. Wiens, Chairman
YOUR VOTE IS IMPORTANT
<PAGE>
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
- -------------------------------------------------------------------------------
PROXY STATEMENT
<PAGE>
Page 4 of 64
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 17, 1997
- -------------------------------------------------------------------------------
October 16, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Recycling
Industries, Inc. ("Recycling" or the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Shareholders of the Company (the "Meeting") and any
postponements or adjournments thereof. The Meeting will be held at 8:00 a.m.
Mountain Standard Time, at the Inverness Hotel, 200 Inverness Drive West,
Englewood, Colorado 80112, on November 17, 1997, for the purposes set forth
in the Notice of Annual Meeting of Shareholders. The Notice of Annual
Meeting, this Proxy Statement and the accompanying proxy card (collectively
the "Proxy Materials") will be first mailed to the shareholders on or about
October 16, 1997.
As of the close of business on September 15, 1997, the record date for
entitlement to notice of and vote at the Meeting, the Company had outstanding
14,534,000 shares of common stock, $.001 par value per share (the "Common
Stock"), and 10,000 shares of Series D Convertible Preferred Stock, without
par value (the "Series D Preferred"). The presence, in person or by proxy,
of holders of a majority of the shares of Common Stock entitled to vote at
the Meeting constitutes a quorum for the transaction of business at the
Meeting, and with respect to Proposal Two below, including the presence in
person or by proxy of holders of a majority of the shares of Series D
Preferred entitled to vote at the meeting constitutes a quorum with respect
to that proposal. Each share of Common Stock outstanding on the record date
is entitled to one vote on each matter presented at the Meeting, and each
share of Series D Preferred is entitled to one vote with respect to Proposal
Two as presented at the Meeting.
Abstentions will be treated as shares present or represented and
entitled to vote for purposes of determining the presence of a quorum for the
transaction of business at the Meeting, but will not be considered as votes
cast in determining whether a matter has been approved by the shareholders.
Any shares a broker indicates on its proxy that it does not have the
authority to vote on any particular matter because it has not received
direction from the beneficial owner thereof will not be counted as voting on
the particular matter.
Any shareholder who has given a proxy may revoke it at any time before
it is voted by (i) giving notice of the revocation to the Secretary of the
Company; (ii) filing another proxy with the Secretary; or (iii) attending the
Meeting and voting in person. All properly executed and unrevoked proxies
delivered pursuant to this solicitation, if received in time, will be voted
in accordance with the instructions of the beneficial owners contained
thereon.
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy materials to the
beneficial owners of the Company's Common Stock for whom they hold shares and
will reimburse them for their reasonable expenses in so doing.
PROPOSAL ONE -- ELECTION OF DIRECTORS
The bylaws of the Company provide that the Board of Directors may
consist of not less than two nor more than nine directors as may be
established from time to time by the Board of Directors. By resolution, the
Board of Directors may at any time increase the number of Directors, to a
maximum of nine, and appoint persons to fill these positions to serve until
the next annual meeting
<PAGE>
Page 5 of 64
of shareholders after such appointment. The Board of Directors has set the
number of directors at six.
Management recommends that the persons named below be elected as
directors of the Company and it is intended that the accompanying proxy will
be voted for the election as directors of the six persons named below, unless
the proxy contains contrary instructions. The Company has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve. However, if any of the nominees should become unable or unwilling to
serve as a director, the persons named in the proxy have advised that they
will vote for the election of such person or persons as shall be designated by
management.
Nominees for Election as Directors
- - ----------------------------------
The following table contains information concerning each nominee for
election as a director of the Company
<TABLE>
<CAPTION>
POSITIONS AND FIRST BECAME
NAME AGE OFFICES WITH COMPANY A DIRECTOR
- - ----------------------------------------------------------------------------
- - --
<S> <C> <C> <C>
Thomas J. Wiens 45 Chairman of the Board, Since 1992
Chief Executive Officer
Luke F. Botica 47 Vice Chairman, Director Since 1997
Brian L. Klemsz 38 Director, Chief Financial Since 1996
Officer, Treasurer
Jerome B. Misukanis 54 Director (1)(2) Since 1994
Graydon H. Neher 47 Director (1)(2) Since 1995
Barry D. Plost 50 Director (1) Since 1995
</TABLE>
- - ----------
(1) Member of Audit Committee
(2) Member of the Compensation Committee
Each director is elected to hold office until the next annual meeting
of shareholders, and until his successor is elected and qualified.
INFORMATION CONCERNING EACH NOMINEE FOR ELECTION AS DIRECTOR AND THE
COMPANY'S EXECUTIVE OFFICERS:
Nominees for Director
- - ---------------------
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.
LUKE BOTICA. Mr. Botica was elected to the Board of Directors of the
Company in February 1997, and has served as Vice Chairman of the Company since
<PAGE>
Page 6 of 64
September 1997. Mr. Botica has 24 year of senior, hands-on experience in fast
paced companies including over $776 million in financings, IPOs, private
placements, and commercial bank and lease facilities. His industry
experience includes: solid waste, hazardous waste, manufacturing, retailing,
distribution, processing, high-tech, software, bio-tech, telecommunications,
credit card processing, leasing, transportation, health care, government,
real estate development and regulated and non-regulated utilities. From
November 1996 to September 1997, Mr. Botica served as the Senior Vice
President and Chief Financial Officer of Donnelley Enterprise Solutions, Inc.
Mr. Botica served as Senior Vice President - Finance and Chief Financial
Officer of Allied Waste Industries, Inc. from 1993 through 1995, and as Vice
President - Corporate Development and Planning for Chemical Waste Management,
Inc. from 1990 through 1993.
BRIAN L. KLEMSZ. Mr. Klemsz has served as a Director, Chief Financial
Officer and Treasurer since August 1996. Prior to joining the Company, Mr.
Klemsz served in various management positions for eight years with Advanced
Energy Industries, Inc., a provider of power conversion and control equipment
for the semiconductor and optical coating industries. Mr. Klemsz has over 15
years of experience in operations management, management information systems
and finance. Mr. Klemsz received a BS in Business Administration from the
University of Colorado, an MS in Finance from Colorado State University and
an MS in Accounting from Colorado State University. Mr. Klemsz is a
Certified Public Accountant and is Certified in Production and Inventory
Management by the American Production and Inventory Control Society.
JEROME B. MISUKANIS. Mr. Misukanis has served as a member of the
Company's Board of Directors since March 1994 and served as Treasurer and
Chief Financial Officer from February 1996 to August 1996. Since 1991 Mr.
Misukanis has been a principal of Misukanis and Dodge, P.A., CPA, a public
accounting firm. 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 D. 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, 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.
Executive Officers
- --------------------
JOHN E. MCKIBBEN. Mr. McKibben, age 57, has served as Vice President-
Administration of the Company since October 1996. Prior to joining the Company,
Mr. McKibben was Vice President-Administration of National Material Trading, a
division of National Material L.P. and a major broker of scrap iron and steel
and importer of iron substitutes for scrap. Previously, Mr. McKibben served in
various executive capacities in his over 30 years in the metals recycling
<PAGE>
Page 7 of 64
industry with Antrim Metals Recycling, Inc., and The David J. Joseph Company.
Mr. McKibben received his BS degree in Industrial Management from the University
of Cincinnati.
HAROLD "SKIP" J. ROUSTER. Mr. Rouster, age 48, has served as Vice
President and Chief Operating Officer since September, 1997. Prior to
joining the Company, Mr. Rouster worked for The David J. Joseph Company, the
largest scrap metal recycling and brokerage company in the United States,
with annual revenues of over $1.7 billion, for 22 years most recently serving
as Vice President of Operations and Engineering. Mr. Rouster's experience
includes involvement in 15 start-up operations and acquisitions. He led The
David J. Joseph Company's entry into the steel-mill service business and was
involved in the development of innovative approaches in scrap shredding
technology and non-ferrous reclamation. Prior to joining The David J. Joseph
Company, Mr. Rouster worked for Proctor and Gamble for 5 years in sales
administration and product administration.
Information Concerning the Board of Directors
- - ---------------------------------------------
The Board of Directors held 23 meetings, including 5 meetings by
telephone, during the fiscal year ended September 30, 1996, and acted by
unanimous written consent 18 times. Each director attended more than 75
percent of the meetings of the Board of Directors during the period which he
served.
Audit Committee
- - ---------------
The Board of Directors has established an Audit Committee comprised of
Messrs. Neher, Plost and Misukanis. The Audit Committee had 1 meeting and
consulted several times with each other and the Company's auditors by
telephone during the fiscal year ended September 30, 1996. 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
- - ----------------------
In February 1997, the Board of Directors established a Compensation
Committee comprised of Messrs. Misukanis, Neher and Botica. Upon becoming an
officer of the Company on September 18, 1997, Mr. Botica resigned from the
Compensation Committee. The Compensation Committee determines compensation
for the Company's executive officers in addition to administering the
Company's stock option plans.
EXECUTIVE COMPENSATION
Summary Compensation Table
- - --------------------------
The table below sets forth the compensation, for the past three fiscal
years, as received by all executive officers of the Company who earned in
excess of $100,000 during the fiscal year ended September 30, 1996. The
Company has no restricted stock award or long-term incentive plans.:
ANNUAL COMPENSATION
---------------------
<PAGE>
Page 8 of 64
<TABLE>
<CAPTION>
LONG TERM
OTHER ANNUAL COMPENSATION
NAME AND PRINCIPAL YEAR SALARY COMPENSATION OPTIONS
POSITION ($) ($) (#)
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens, 1996 222,000 --- ---
Chief Executive Officer 1995 205,000 1,257,197 (1) ---
and Chairman of the Board 1994 147,000 (1) --- ---
Michael I. Price (2) 1996 210,000 --- ---
Chief Operating Officer 1995 142,000 --- 150,000 (3)
and President 1994 112,000 (4) --- (3)
</TABLE>
- - ----------
(1) Although accrued, the Company did not pay any cash compensation to Mr.
Wiens during fiscal 1994. During fiscal 1995, the unpaid 1994 salary of
$147,000 was forgiven by Mr. Wiens along with the transfer of certain
technology to the Company in exchange for the right to acquire shares of
the Company's Common Stock, which right was exercised on August 8, 1995.
The amount reported as "Other Annual Compensation" represents the
difference between the purchase price of the Common Stock under such
right and the market value of the Common Stock on August 8, 1995 related
to the forgiven salary.
(2) On August 4, 1997, the Board of Directors removed Mr. Price from his
positions as Chief Operating Officer and President of the Company.
(3) Represents options originally granted to Mr. Price in fiscal 1994 and
repriced in 1995.
(4) Paid during fiscal 1995.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
- - --------------------------------------------------------------------------
No stock options were exercised during the fiscal year ended September
30, 1996 by executive officers named in the Summary Compensation table. The
table below sets forth the number of shares covered by both exercisable and
non-exercisable stock options as of September 30, 1996 and the values for
"in-the-money" options which represent the positive spread between the
exercise price of any such existing stock options and the price of the Common
Stock at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE
SHARES OPTIONS AT MONEY OPTIONS
ACQUIRED VALUE YEAR-END ($) AT YEAR-END (#)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens --- --- --- ---
Michael I. Price --- --- 150,000/0 277,500/0
</TABLE>
Compensation of Directors
- - -------------------------
<PAGE>
Page 9 of 64
Directors who are not officers of the Company 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, Directors who are not
officers of the Company 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.
Performance Graph
- - -----------------
The following graph compares the cumulative total return of the
Company's Common Stock during the four year period for which the Company's
Common Stock has been publicly traded beginning September 30, 1992 and
ending September 30, 1996, with the NASDAQ CRSP Index for US Companies (the
"NASDAQ CRSP") and a peer group of other public companies that are in
similar businesses as the Company (the "Recycling Industry Peer Group").
Each index assumes the investment of $100 at the close of trading on
September 30, 1992 and the investment of dividends.
<TABLE>
<CAPTION>
Measurement
Period (Fiscal NASDAQ Recycling Industry
Year Covered) RECY CRSP Peer Group
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 25.00 130.98 111.64
1994 28.57 132.05 98.64
1995 22.17 182.39 123.20
1996 15.71 216.44 116.23
</TABLE>
The Company's Common Stock has been listed on the NASDAQ National Market
System since July 18, 1996 under the symbol "RECY." Prior to its approval
for listing on the NASDAQ National Market, the Common Stock was quoted on the
NASDAQ SmallCap Market under the symbol "RECY."
Historically, the majority of the Company's shares have been held by
management. The number of unrestricted shares of Common Stock has
historically been relatively low in relation to the total number of shares
issued and, therefore, trading in the Common Stock has been limited. As a
result, the Company believes the historical market quotations for the Common
Stock are not a reliable indicator of value.
The following graph compares the revenue of the Company during a five
year period beginning with the fiscal year ended September 30, 1992, and
ending September 30, 1996, with a peer group of other public companies that
are in similar businesses as the Company (the "Recycling Industry Peer
Group"). The Recycling Industry Peer Group is indexed from a base line of
100 for fiscal 1992 revenues to provide a comparison of revenue growth
between the Company and the Peer Group.
<TABLE>
<CAPTION>
Measurement
Period (Fiscal RECY Recycling Industry
Year Covered) (in millions) Peer Group Indexed
- - ----------------------------------------------------------------------
<S> <C> <C>
1992 0.00 100.00
1993 0.00 131.27
1994 4.80 143.21
1995 13.80 181.20
1996 27.60 196.64
</TABLE>
Board Report on Compensation
- - ----------------------------
<PAGE>
Page 10 of 64
The Compensation Committee of the Board of Directors (the "Committee")
is composed of two outside directors. The Committee is responsible for
developing and establishing compensation policies and the levels of
compensation to be paid to the Company's executive officers. In addition,
the Committee has responsibility for the administration of the Company's
stock option plans. The Committee, in conjunction with the Chief Executive
Officer of the Company, have used information published by a nationally
recognized compensation and benefits consulting firm to assist the Company in
developing competitive compensation practices.
The focus for the Compensation Committee when setting compensation for
the executive staff has been to set up rewards for increasing the revenues
and the profitability of the Company. The Compensation Committee believes
that linking compensation to increases in revenues and profitability will
align the interests of the executive staff and the shareholders of the
Company. The Company's strategy is to acquire companies in the recycling
industry and to that end the Compensation Committee has granted options with
provisions directly tied to the increase of revenues. The options granted
under the 1997 Executive Stock Option Plan have vesting rights directly tied
to reaching significantly increased levels of revenue. Approximately sixty
perecent of the options granted under this plan vest once the Company reports
annualized revenues of $250,000,000 and the Company is profitable. The
remainder of the options granted vest once the Company reports annualized
revenues of $350,000,000 and the Company is profitable. The Compensation
Committee believes these are attainable vesting criteria that will in turn
directly benefit the shareholders of the Company.
The objectives of the Company's executive compensation program are to
attract and retain highly qualified executives, and to motivate them to
maximize shareholder returns by achieving both short-term and long-term
strategic Company goals. The three basic components of the executive
compensation program are base salary, annual incentive bonus dependent on
corporate performance, and stock options.
Base Salary
Executive officers are compensated within salary ranges that generally are
competitive with ranges for similar positions in companies of comparable
size and complexity to the Company. The actual salary of each officer is
based upon individual contribution and is in keeping with the Company's
total compensation objectives described above.
Annual Incentive Bonus
The Committee also authorizes annual cash bonuses for executive officers of
the Company, based upon the compensation objective described above. For
fiscal 1996, no bonuses were paid to the executive officers of the Company.
Stock Options
The stock option program which includes the 1995 Non-Statutory Stock Option
Plan and the 1997 Executive Stock Option Plan, is the Company's principal
long-term incentive plan for executive officers. The objectives of the
stock options are to align executive and shareholder long-term interest by
creating a strong and direct link between executive compensation and
shareholder return, and to create incentives for executives to remain with
the Company for the long-term. For during fiscal 1996, options to acquire
up to 300,000 shares of common stock at an effective price of $2.87 per
share were granted to one executive officer of the Company under the 1995
Non-statutory Stock Option Plan, which is subject to shareholder approval.
Chief Executive Officer Compensation
Mr. Wiens' compensation is set annually within the range approved by the
Committee, which is based on similar positions in comparable companies as
well as information provided by a nationally recognized compensation and
<PAGE>
Page 11 of 64
benefits consulting firm. Mr. Wiens' base compensation was increased for
fiscal 1996 by approximately 8.3% from 1995 to $222,000. Mr. Wiens did not
receive an incentive bonus or additional stock options in fiscal 1996.
Compensation Committee
Graydon H. Neher
Jerome B. Misukanis
Executive Employment Agreement
- - ------------------------------
On July 1, 1997, the Company entered into a five-year employment
agreement with its Chairman and Chief Executive Officer, Thomas J. Wiens,
(the "Employment Agreement"). The Employment Agreement provides for an
annual base salary of $288,000 and annual bonuses in an amount to be
determined by the Compensation Committee. The Employment Agreement also
provides the Company will loan Mr. Wiens up to $1,925,000, to be advanced in
increments of $100,000 (increased by $15,000 for each advance) upon the
closing of each acquisition of a new operating facility subsequent to June
23, 1997 (the "Loan"). The amount advanced upon the closing of each
acquisition may be increased depending upon the annual revenues of the
business being acquired by the Company. The Loan bears interest at prime
plus 2% with interest payable annually on or before December 31st of each
year during the term of the Loan, commencing December 15, 1998. The Loan
matures on July 1, 2004. As of the date of this Proxy Statement, the Company
has advanced Mr. Wiens $85,000 under the terms of the Loan and Mr. Wiens may
request additional advances of up to $295,000 on or before October 1, 1997.
The employment agreement also provides that the Company will provide a
one million dollar life insurance policy on Mr. Wiens payable to his spouse
or lineal descendants.
If Mr. Wiens terminates his employment with the Company for "good
reason" or is terminated without cause, the Company shall pay to Mr. Wiens
(i) the base salary and bonus, if any, through the date of termination; (ii)
the amount of base salary that would have been paid through the expiration of
the initial five-year term of the Employment Agreement; and (iii) an amount
equal to the pro-rata portion of the prior year's annual bonus through the
date of termination. In addition, all amounts advanced to Mr. Wiens under
the Loan shall be forgiven by the Company and the Company shall pay to Mr.
Wiens an amount equal to the income taxes payable by him as a result of such
forgiveness. For purposes of the Employment Agreement, "good reason"
generally means a material diminishment in Mr. Wiens' duties, any material
breach by the Company of any of the provisions of the Employment Agreement,
or any reduction, or attempted reduction, at any time during the term of the
Employment Agreement, of Mr. Wiens' base salary unless: (i) such reduction is
part of an overall proportional reduction in the compensation of the
Company's executive officers implemented by the Board of Directors; or (ii)
in his capacity as a Director, Mr. Wiens recommends or approves the
reduction.
If Mr. Wiens' employment is terminated within two years of a "hostile
change in control" of the Company, the Company will pay to Mr. Wiens an
amount equal to the greater of amount of base salary that would have been
paid through the expiration of the initial five-year term of the Employment
Agreement or 2.99 times the sum of the base salary payable on the date of
termination plus the annual bonus paid to Mr. Wiens during the last full
fiscal year. In addition, all amounts advanced to Mr. Wiens under the Loan
shall be forgiven by the Company and the Company shall pay to Mr. Wiens an
amount equal to the income taxes payable by him as a result of such
<PAGE>
Page 12 of 64
forgiveness. For purposes of the Employment Agreement, a "hostile change in
control" is defined as the completion of a tender offer is not recommended
for acceptance to the shareholders of the Company by the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth, as of September 30, 1997, the number of
shares of Common Stock beneficially owned by each director and each executive
officer of the Company named in the Summary Compensation Table, named
individually, all executive officers and directors as a group and all
beneficial owners of more than five percent of the Common Stock and the
Series D Preferred. The following shareholders have sole voting and
investment power with respect to their holdings unless otherwise noted.:
<TABLE>
<CAPTION>
Amount
Name and Address of Beneficially Percent of
Title of Class Beneficial Owner Owned Class
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Linder Growth Fund 1,000,000 6.9%
c/o Ryback Management Corp.
7711 Carondelet Avenue,
Box 16900
St. Louis, MO 63105
Series D Nathan S. Addlestone 5,031 50.3%
Preferred P.O. Drawer 979
Charleston, SC 26402
Series D Susan Berlijn 2,485 24.9%
Preferred P.O. Drawer
Charleston, SC 26402
Series D Keith Rosen 2,484 24.8%
Preferred P.O. Drawer 979
Charleston, SC 26402
CERTAIN DIRECTORS
AND
EXECUTIVE OFFICERS
Common Stock Thomas J. Wiens 2,284,103 (1) 15.7%
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock Michael I. Price 14,000 *
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock John E. McKibben 10,000 *
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock Brian L. Klemsz 10,000 *
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock Jerome B. Misukanis 42,500 (2) *
<PAGE>
Page 13 of 64
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock Graydon H. Neher 35,800 (3) *
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock Barry D. Plost 33,000 (4) *
384 Inverness Dr. South,
Ste. 211
Englewood, CO 80112
Common Stock All executive officers and
directors as a group
(nine persons) 2,588,103 17.8%
</TABLE>
- - ----------
* Less than one percent
(1) 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
Holdings, Inc., a corporation controlled by Thomas J. Wiens.
(2) Includes 36,500 shares underlying options.
(3) Includes 18,500 shares underlying Common Stock purchase
warrants and options.
(4) Includes 25,000 shares underlying Common Stock purchase
warrants and options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities (collectively,
"Reporting Persons"), to file reports of ownership and changes in ownership
on Forms 3, 4, and 5 with the Securities and Exchange Commission ("SEC").
Reporting Persons are required by SEC regulation to furnish the Company with
copies of all Forms 3, 4, and 5 as filed.
Based solely upon a review of the copies of such forms it has received
and representations from the Reporting Persons, the Company believes all
Reporting Persons have complied with the applicable filing requirements,
except that (i) the Form 3 for an event occurring on August 26, 1996
concerning the appointment of Brian L. Klemsz as chief financial officer and
a director was filed late on September 11, 1996; (ii) the Form 3 for an event
occurring on February 1, 1997 concerning the appointment of Luke F. Botica as
a director was filed late on February 27, 1997; and (iii) the Form 3 for an
event occurring on August 26, 1997, concerning the appointment of Harold J.
Rouster as vice president and Chief Operating Officers was filed late on
September 11, 1997.
Vote Required
- - -------------
Directors are elected by a plurality of the votes cast at the Meeting.
PROPOSAL TWO -- AMENDMENT TO ARTICLES OF INCORPORATION
The Company's Board of Directors has adopted an amendment to the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") eliminating provisions concerning the Company's right to
limit the voting rights
<PAGE>
Page 14 of 64
of a "Substantial Stockholder" and to redeem at a discount all or a portion
of the Common Stock beneficially owned by a Substantial Stockholder. If the
amendment is approved by the shareholders, the Company will incorporate it
into an Amendment to the Articles of Incorporation to be filed with the
Colorado Secretary of State. The amendment will eliminate Section C of
Article IV of the Articles of Incorporation.
Reasons for and Effects of Amendment
- - ------------------------------------
The Board of Directors adopted this amendment pursuant to an agreement
with the underwriter for the Company's July 1996 public offering.
The Company's Articles of Incorporation currently 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 ten percent 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. Additionally, all shares
of Common Stock beneficially owned by a Substantial Stockholder in excess of
ten percent are not entitled to any voting rights and will be deemed not
outstanding for purposes of determining a quorum. As of June 30, 1997, the
Company's Board of Directors had not determined any person or entity to be a
Substantial Stockholder.
In addition to restricting the voting 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 written redemption notice or the
average market price of the shares for each of the preceding 30 trading days
preceding during which shares of the Common Stock have been traded
immediately preceding the date upon which the Substantial Stockholder
beneficially owned more than five percent of the issued and outstanding
Common Stock. A Substantial Stockholder has no rights, voting or otherwise,
regarding shares subject to a redemption notice.
Vote Required
- - -------------
Approval of the proposal for the Company to amend the Articles of
Incorporation requires the affirmative vote of two-thirds of the outstanding
shares of the Company's Common Stock and two-thirds of the outstanding Series
D Preferred. The Board of Directors makes no recommendation with respect to
the adoption of this proposal, because it was adopted pursuant to an
agreement with the underwriter for the Company's July 1996 public offering.
PROPOSAL THREE -- APPROVAL OF 1995 STOCK OPTION PLAN
On December 27, 1995, the Board of Directors adopted, subject to
shareholder approval, the 1995 Non-Statutory Stock Option Plan (the "1995
Plan"). The Company believes that the 1995 Plan is a valuable incentive to
induce qualified persons to become employees, officers or employee directors
of the Company and its subsidiaries. The Board of Directors believes that
the 1995 Plan rewards employees, and employee directors for past services to
the Company. The Board of Directors further believes that the 1995 Plan
encourages employees and employee directors to remain in the employ of or
associated with the Company and to put forth maximum efforts for the success
of the business of the Company.
The following is a brief summary of the 1995 Plan. The complete text is
attached as Exhibit A and reference is made to it for a complete statement of
the provisions of the 1995 Plan.
<PAGE>
Page 15 of 64
Administration
- - --------------
The 1995 Plan is administered by the Compensation Committee of the Board
of Directors of the Company.
Eligibility
- - -----------
Any person who is an employee, officer or employee director of the
Company may be granted options under the 1995 Plan. In determining the
persons to whom options will be granted and the number of shares to be
covered by each option, the Compensation Committee will take into account the
duties of the respective persons, their present and potential contributions
to the success of the Company and such other factors as the Compensation
Committee deems relevant to accomplish the purposes of the 1995 Plan.
As of September 15, 1997 there were approximately 295 persons eligible
to receive options under the 1995 Plan, including 290 employees and 5
executive officers (3 of whom were also directors).
Shares Subject to the 1995 Plan
- - -------------------------------
A maximum of 2,000,000 shares of Common Stock may be subject to stock
options awarded under the 1995 Plan. The number of shares is subject to
adjustments for changes in capitalization or in connection with certain
corporate transactions. Any shares subject to options which lapse without
being exercised may again be used for a stock option under the 1995 Plan.
Since grants of options under the 1995 Plan are subject to determination by
the Compensation Committee, it is not determinable how many options may be
granted to one class of participants as compared to another.
Exercise Schedule
- - -----------------
A stock option granted under the 1995 Plan will become exercisable at
such times and for such amount of Common Stock as may be determined by the
Compensation Committee granting such option. The Compensation Committee will
retain authority, however, to accelerate exercisability of options granted.
Grants of Options, Exercise Price and Payment
- - ---------------------------------------------
Options granted under the 1995 Plan must have an exercise price of not
less than 80 percent of the fair market value of the Common Stock on the date
of the grant. Payment of the exercise price may be made in cash, in shares
of the Company's Common Stock having 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 to Date
- - -----------------------
The table below sets forth options granted, subject to shareholder
approval, by the Company under the 1995 Plan as of September 15, 1997:
<TABLE>
<CAPTION>
Number of Exercise Price Date of
Name Date of Grant Shares Per Share Expiration
- - ------------------------------------------------------------------------------
<PAGE>
Page 16 of 64
<S> <C> <C> <C> <C>
Thomas J. Wiens 12/27/95 300,000 $2.87 12/26/00
Chairman and Chief
Operating Officer
Harold J. Rouster, 08/26/97 35,000 $2.00 08/25/07
Vice President &
Chief Operating
Officer
John E. McKibben 04/30/97 50,000 $1.31 04/30/07
Secretary &
Vice President of
Administration
Brian L. Klemsz 04/30/97 100,000 $1.31 04/30/07
Director &
Chief Financial
Officer
Executive officers 485,000
as a group
(four people)
Non-executive officers 04/30/97 204,700 $1.31 04/30/07
and directors as a
group (21 people)
</TABLE>
- - ----------
Term of Plan and Options
- - ------------------------
The 1995 Plan will terminate on December 27, 2006 except as to the
rights of option holders to exercise outstanding options granted prior to
such date. The term of any option granted under the 1995 Plan may not exceed
ten years. The Compensation Committee may, in its sole discretion, extend or
accelerate the exercisability of any outstanding option.
Transferability
- - ---------------
Stock 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 terminate 90 days
thereafter. If the optionee is terminated for cause, all unexercised options
terminate immediately. If the optionee's employment is terminated by reason
of death, disability or retirement, all unexercised options terminate one
year thereafter.
Shareholder Status
- - ------------------
Recipients of stock options under the 1995 Plan do not have any rights
as shareholders by virtue of the grant of a stock option except with respect
to shares of Common Stock actually issued or delivered to such recipient upon
exercise of their option.
Termination, Modification or Amendment of the 1995 Plan
- - -------------------------------------------------------
The Compensation Committee, without further approval of the
shareholders, may at any time terminate the 1995 Plan. Any such termination
of the 1995 Plan
<PAGE>
Page 17 of 64
will not affect stock options already granted, and such stock options will
remain in full force and effect as if the 1995 Plan had not been terminated,
modified or amended. The Compensation Committee, without further approval of
the shareholders, may amend the 1995 Plan at any time in any respect as the
Board of Directors deems advisable, subject to any required shareholder or
regulatory approval and to any conditions established by the terms of an
amendment, provided that in no event will the 1995 Plan be amended more than
once every six months other than to comport with changes in the Internal
Revenue Code of 1986 (the "Code"), the Employee Retirement Income Security
Act, or the rules promulgated thereunder.
Federal Income Tax Consequences
- - -------------------------------
The federal income tax discussion set forth below is included for
general information only. Option holders are urged to consult their tax
advisors to determine the particular tax consequences applicable to them,
including the application and effect of foreign, state and local income and
other tax laws.
Options under the 1995 Plan are not intended to qualify as incentive
stock options under the Code. An optionee will not realize taxable income
upon the granting of an option under the 1995 Plan, nor would the Company be
subject to a deduction upon such grant. Upon the exercise of an option, the
optionee shall realize compensation income in the amount of the excess of the
fair market value of the Common Stock on the day of exercise over the option
exercise price, and the Company will receive a corresponding deduction. The
tax basis of any Common Stock received will be the fair market value of such
shares on the date the option is exercised.
Vote Required and Recommended
- - -----------------------------
Approval of the proposal for the Company to effect an adoption of the
1995 Plan requires the affirmative vote of a majority of the shares of the
Company's Common Stock, present and entitled to vote at the meeting. The
Board of Directors of the Company recommends that the shareholders vote FOR
the proposal to adopt the 1995 Plan. To the extent of the options already
granted under the 1995 Plan and to the extent that management personnel will
be eligible to receive additional options which may be granted under the 1995
Plan, management has an interest in seeing the 1995 Plan approved by the
shareholders. Unless otherwise specified, the enclosed proxy will be voted
"FOR" the approval of the proposal.
PROPOSAL FOUR -- APPROVAL OF 1995 DIRECTOR STOCK OPTION PLAN
On December 27, 1995, the Board of Directors adopted, subject to
shareholder approval, the 1995 Non-Employee Director Stock Option Plan (the
"Director Plan"). The Company believes that the Director Plan encourages
stock ownership by directors of the Company who are not employees and induces
qualified persons to be directors of the Company.
The following is a brief summary of the Director Plan. The complete
text is attached as Exhibit B and reference is made to it for a complete
statement of the provisions of the Director Plan.
Administration
- - --------------
The Director Plan is administered by the Compensation Committee of the
Board of Directors of the Company.
Eligibility
- - -----------
<PAGE>
Page 18 of 64
Only directors of the Corporation who are not employees of the Company
are eligible to receive options. A recipient is eligible to receive more
than one grant of an option during the term of the Director Plan.
As of September 15, 1997 there were approximately 3 persons eligible to
receive options under the Director Plan.
Shares Subject to the Director Plan
- - -----------------------------------
A maximum of 500,000 shares of Common Stock may be subject to stock
options awarded under the Director Plan. The number of shares is subject to
adjustments for changes in capitalization or in connection with certain
corporate transactions. Any shares subject to options which lapse without
being exercised may again be used for a stock option under the Director Plan.
Exercise Schedule
- - -----------------
A stock option granted under the Director Plan will become exercisable
six months after the date of grant.
Grants of Options, Exercise Price and Payment
- - ---------------------------------------------
Each 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 a director. Thereafter, and in
addition to the initial grant of options, each person who is serving as a
non-employee 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.
The option price is subject to adjustment. Payment of the exercise
price may be made in cash, in shares of the Company's Common Stock having
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 to Date
- - -----------------------
The table below sets forth options granted, subject to shareholder
approval, by the Company under the Director Plan:
<TABLE>
<CAPTION>
Number of Exercise Price Date of
Name Date of Grant Shares Per Share Expiration
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerome B. Misukanis, 12/27/95 5,000 $2.87 12/27/00
Director 12/31/96 5,000 1.625 12/31/01
Graydon H. Neher, 12/27/95 5,000 2.87 12/27/00
Director 12/31/96 5,000 1.625 12/31/01
Barry D. Plost, 12/27/95 5,000 2.87 12/27/00
Director 12/31/96 5,000 1.375 12/31/01
Luke F. Botica 02/01/97 5,000 1.375 02/01/02
Vice Chairman &
Director
</TABLE>
<PAGE>
Page 19 of 64
<TABLE>
<S> <C> <C> <C> <C>
Executive officers as
a group (no persons) -- 5,000 -- --
Non-executive 30,000
directors as a
group(three persons)
</TABLE>
- - ----------
Term of Plan and Options
- - ------------------------
The Director Plan will terminate on December 27, 2006 except as to the
rights of option holders to exercise outstanding options granted prior to
such date. The term of any option granted under the Director Plan may not
exceed five years.
Transferability
- - ---------------
Stock options granted under the Director Plan are not transferable,
except under limited circumstances. If the optionee ceases to be a director
other than by reason of death, disability or cause, all unexercised options
ranted under the Director Plan terminate 90 days thereafter. If the optionee
is removed from the Board for cause, all unexercised options terminate
immediately. If the optionee's service as a director is terminated by reason
of death, disability or retirement, all unexercised options terminate one
year thereafter.
Shareholder Status
- - ------------------
Recipients of stock options under the Director Plan do not have any
rights as shareholders by virtue of the grant of a stock option except with
respect to shares of Common Stock actually issued or delivered to such
recipient upon exercise of their option.
Termination, Modification or Amendment of the Director Plan
- - -----------------------------------------------------------
The Compensation Committee, without further approval of the
shareholders, may at any time terminate the Director Plan. Any such
termination of the Director Plan will not affect stock options already
granted, and such stock options will remain in full force and effect as if
the Director Plan had not been terminated. The Compensation Committee,
without further approval of the shareholders, may amend the Director Plan at
any time in any respect as the Board of Directors deems advisable, subject to
any required shareholder or regulatory approval and to any conditions
established by the terms of an amendment, provided that in no event will the
Director Plan be amended more than once every six months other than to
comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules promulgated thereunder.
Federal Income Tax Consequences
- - -------------------------------
The federal income tax discussion set forth below is included for
general information only. Option holders are urged to consult their tax
advisors to determine the particular tax consequences applicable to them,
including the application and effect of foreign, state and local income and
other tax laws.
Options under the Director Plan are not intended to qualify as incentive
stock options under the Code. An optionee will not realize taxable income
upon the granting of an option under the Director Plan, nor would the Company
<PAGE>
Page 20 of 64
be subject to a deduction upon such grant. Upon the exercise of an option,
the optionee shall realize compensation income in the amount of the excess of
the fair market value of the Common Stock on the day of exercise over the
option exercise price, and the Company will receive a corresponding
deduction. The tax basis of any Common Stock received will be the fair
market value of such shares on the date the option is exercised.
Vote Required and Recommended
- - -----------------------------
Approval of the proposal for the Company to effect an adoption of the
Director Plan requires the affirmative vote of a majority of the shares of
the Company's Common Stock, present and entitled to vote at the meeting. The
Board of Directors of the Company recommends that the shareholders vote FOR
the proposal to adopt the Director Plan. To the extent that non-employee
directors will be eligible to receive option grants under the Director Plan,
the non-employee directors have an interest in seeing the Director Plan
approved by the shareholders. Unless otherwise specified, the enclosed proxy
will be voted "FOR" the approval of the proposal.
PROPOSAL FIVE -- APPROVAL OF 1997 EXECUTIVE STOCK OPTION PLAN
On April 18, 1997, the Board of Directors adopted, subject to
shareholder approval, the 1997 Executive Stock Option Plan (the "1997
Executive Plan"). The Company believes that the 1997 Executive Plan is a
valuable incentive to induce qualified persons to become employees, officers,
or employee directors of the Company and its subsidiaries. The Board of
Directors believes that the 1997 Executive Plan rewards employees, and
employee directors for past services to the Company. The Board of Directors
further believes that the 1997 Executive Plan encourages employees, officers
and employee directors to remain in the employ of or associated with the
Company and to put forth maximum efforts for the success of the business of
the Company.
The following is a brief summary of the 1997 Executive Plan. The
complete text is attached as Exhibit C and reference is made to it for a
complete statement of the provisions of the 1997 Executive Plan.
Administration
- - --------------
The 1997 Executive Plan is administered by the Compensation Committee of
the Board of Directors of the Company. The Compensation Committee has the
authority and discretion to determine the persons to whom and when options
will be granted and the number of options to be granted. It also may
determine which options may be intended to qualify for special treatment
under the Code as incentive stock options ("Incentive Options") or
non-statutory stock options ("Non-Statutory Options") which are not intended
to so qualify.
Eligibility
- - -----------
Any person who is an employee, officer or employee director of the
Company may be granted options under the 1997 Executive Plan. In determining
the persons to whom options will be granted and the number of shares to be
covered by each option, the Compensation Committee will take into account the
duties of the respective persons, their present and potential contributions
to the success of the Company and such other factors as the Compensation
Committee deems relevant to accomplish the purposes of the 1997 Executive
Plan.
As of July 31, 1997, there were approximately 6 officers eligible to
receive options under the 1997 Executive Plan.
<PAGE>
Page 21 of 64
Shares Subject to the 1997 Executive Plan
- - -----------------------------------------
A maximum of 4,000,000 shares of Common Stock may be subject to stock
options awarded under the 1997 Executive Plan. The number of shares is
subject to adjustments for changes in capitalization or in connection with
certain corporate transactions. Any shares subject to options which lapse
without being exercised may again be used for a stock option under the 1997
Executive Plan. Since grants of options under the 1997 Executive Plan are
subject to determination by the Compensation Committee, it is not
determinable how many options may be granted to one class of participants as
compared to another.
Exercise Schedule
- - -----------------
A stock option granted under the 1997 Executive Plan will become
exercisable at such times and for such amount of Common Stock as may be
determined by the Compensation Committee granting such option. The
Compensation Committee will retain authority, however, to accelerate
exercisability of options granted.
Grants of Options, Exercise Price and Payment
- - ---------------------------------------------
Options granted under the 1997 Executive Plan must have an exercise
price of not less than 100 percent of the fair market value of the Common
Stock on the date of the grant, provided, however, any Incentive Option
granted to a person owning more than ten percent of the total combined voting
power of the Common Stock shall be at a price not less than 110 percent of
the fair market value of the Common Stock on the date of the grant.
Payment of the exercise price may be made in cash, in shares of the
Company's Common Stock having 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 or borrowed
from the Company pursuant to repayment terms and conditions determined by the
Compensation Committee.
Options Granted to Date
- - -----------------------
As of September 15, 1997, the following options had been granted by the
Company under the 1997 Executive Plan.:
<TABLE>
<CAPTION>
Number of Exercise Price Date of
Name Date of Grant Shares Per Share Expiration
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Wiens, 04/30/97 1,810,000 $1.25 04/30/07
Chairman & CEO
Luke F. Botica, 09/08/97 254,321 $2.43 09/08/07
Vice Chairman
Harold J. Rouster, 08/26/97 168,000 $2.00 08/26/07
Vice President,
Chief Operations
Officer
John E. McKibben 04/30/97 150,000 $1.31 04/30/07
Vice President -
Administration
</TABLE>
<PAGE>
Page 22 of 64
<TABLE>
<S> <C> <C> <C> <C>
Brian L. Klemsz, 04/30/97 350,000 $1.31 04/30/07
Vice President,
Chief Financial
Officer
Executive Officers 2,792,312
as a group
(five people)
Non-Executive Officers 06/30/97 125,000 $2.00 06/30/07
and employees as a
group (one person)
</TABLE>
Term of Plan and Options
- - ------------------------
The 1997 Executive Plan will terminate on April 18, 2007 except as to the
rights of option holders to exercise outstanding options granted prior to such
date. The term of any option granted under the 1997 Executive Plan may not
exceed ten years.
Transferability
- - ---------------
Stock options granted under the 1997 Executive 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 1997 Executive Plan terminate
three months thereafter. If the optionee is terminated for cause, all
unexercised options terminate immediately. If the optionee's employment is
terminated by reason of death, disability or retirement, all unexercised
options terminate one year thereafter.
Shareholder Status
- - ------------------
Recipients of stock options under the 1997 Executive Plan do not have any
rights as shareholders by virtue of the grant of a stock option except with
respect to shares of Common Stock actually issued or delivered to such
recipient upon exercise of their option.
Termination, Modification or Amendment of the 1997 Executive Plan
- - -----------------------------------------------------------------
The Compensation Committee, without further approval of the shareholders,
may at any time suspend, terminate, modify or amend the 1997 Executive Plan.
Any such suspension, termination, modification or amendment of the 1997
Executive Plan will not affect stock options already granted, unless written
consent of the optionee is obtained, and such stock options will remain in
full force and effect as if the 1997 Executive Plan had not been suspended,
terminated, modified or amended.
Federal Income Tax Consequences
- - -------------------------------
The federal income tax discussion set forth below is included for general
information only. Option holders are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state and local income and other tax laws.
Incentive Options
- - -----------------
<PAGE>
Page 23 of 64
No income results to the holder of an Incentive Option under the grant of
the option or issuance of shares upon exercise of the option. The amount
realized on the sale or taxable exchange of the option shares in excess of the
exercise price will be considered a capital gain, except that, if a sale,
taxable exchange or other disposition occurs within one year after exercise of
the Incentive Option or two years after the grant of the Incentive Option
(generally considered to be a "disqualifying disposition"), the optionee will
realize compensation, for federal income tax purposes, on the amount by which
the lesser of (i) the fair market value on the date of exercise; or (ii) the
amount realized on the sale of the shares, exceeds the exercise price. The
difference between the exercise price and the fair market value of the shares
acquired at the time of exercise is a tax preference for the purpose of
calculating the alternative minimum tax on individuals under the Code.
However, this preference amount will not be included again in alternative
minimum taxable income in the year the taxpayer disposes of the shares. The
result is achieved by adding the preference amount included in alternative
minimum taxable income in the year of exercise to the basis of the stock.
However, for alternative minimum tax purposes the basis of stock is the fair
market value of the stock on the date of exercise. This rule reduces the
amount of income subject to the alternative minimum tax in the year of sale.
Non-Statutory Options
- - ---------------------
No compensation will be realized by the recipient of a Non-Statutory
Option at the time it is granted provided the exercise price is at least equal
to the value of the underlying shares at the time of the grant. Upon the
exercise of a Non-Statutory Option, an optionee will realize compensation for
federal income tax purposes on the difference between the exercise price and
the fair market value of the shares acquired at the time of exercise. If the
optionee exercises a Non-Statutory Option by surrendering shares of the
Company's Common Stock, he will recognize no income or gain at that time.
Consequences to the Company
- - ---------------------------
The Company recognizes no deduction at the time of grant or exercise of
an Incentive Option. The Company recognizes no deduction at the time of grant
of a Non-Statutory Option provided the exercise price of the option is at
least equal to the value of the underlying shares. The Company will recognize
a deduction at the time of exercise of a Non-Statutory Option to the extent
the exercise price of the option is less than the value of the shares acquired
or to the extent the optionee recognizes income upon a disqualifying
disposition of shares underlying an Incentive Option.
Vote Required and Recommended
- - -----------------------------
Approval of the proposal for the Company to effect an adoption of the
1997 Executive Plan requires the affirmative vote of a majority of the
shares of the Company's Common Stock, present and entitled to vote at the
meeting. The Board of Directors of the Company recommends that the
shareholders vote FOR the proposal to adopt the 1997 Executive Plan. To the
extent that management personnel will be eligible to receive options which may
be granted under the 1997 Executive Plan, management has an interest in seeing
the 1997 Executive Plan approved by the shareholders. Unless otherwise
specified, the enclosed proxy will be voted "FOR" the approval of the proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended September
30, 1996 were audited by BDO Seidman, LLP ("BDO"). The Board of Directors has
selected BDO as the Company's independent public accountants for the fiscal
<PAGE>
Page 24 of 64
year ending September 30, 1997.
On March 25, 1996, the Company engaged BDO to serve as its independent
auditors, replacing AJ Robbins P.C. ("Robbins"), who was dismissed as the
Company's independent auditors on March 25, 1996. This change in independent
auditors was recommended by the Audit Committee of the Company's Board of
Directors and approved by the Company's Board of Directors.
During the past two fiscal years through March 25, 1996, Robbins' 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 Robbins on any
matters of accounting principles or practice, financial statement disclosure
or auditing scope or procedure which, if not resolved to the satisfaction of
Robbins would have caused them to make reference to the subject matter of the
disagreement in their report.
A representative of BDO is expected to be present at the Meeting and will
have an opportunity to make a statement if desired, and will be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual
meeting of shareholders should be addressed to the Company at 384 Inverness
Drive South, Suite 211, Englewood, Colorado 80112, Attention: Corporate
Secretary, and must be received by the Company by February 27, 1998. Upon
receipt of any such proposal, the Company will determine whether or not to
include any such proposal in the Proxy Statement and proxy in accordance with
applicable law. It is suggested that such proposals be forwarded by Certified
Mail-Return Receipt Requested.
ANNUAL REPORT ON FORM 10-K
AND QUARTERLY REPORTS ON FORM 10-Q
The Company's Annual Report on Form 10-K for the year ended September 30,
1996 and its Quarterly Reports on Form 10-Q for the periods ended December 31,
1996, March 31, 1997 and June 30, 1997 accompany this proxy statement, but are
not considered proxy solicitation materials.
OTHER MATTERS
The management of the Company knows of no other matters to be presented
at the Meeting. Should any other matter arise at the Meeting which requires a
vote of the Company's shareholders, the persons named in the proxy will vote
the proxies in accordance with their best judgment.
By Order of the Board of Directors
/s/ Thomas J. Wiens
--------------------------------------
Thomas J. Wiens, Chairman
<PAGE>
RECYCLING INDUSTRIES, INC.
384 Inverness Drive South, Suite 211
Englewood, CO 80112
<PAGE>
Page 25 of 64
PROXY This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned shareholder(s) of Recycling Industries, Inc. (the
"Company") hereby appoints Thomas J. Wiens and Brian L. Klemsz, and each
of them proxies to represent, with full power of substitution, at the Annual
Meeting of Shareholders to be held at the Inverness Hotel, 200 Inverness Drive
West, Englewood, Colorado 80112 Colorado, at 8:00 a.m. Mountain Standard Time,
on November 17, 1997, or at any postponements or adjournments thereof.
1. ELECTION OF DIRECTORS. / / FOR ALL nominees listed below
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY
to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee
mark the box next to the nominee's name below.)
/ / Thomas J. Wiens / / Brian L. Klemsz / / Jerome B. Misukanis
/ / Graydon H. Neher / / Barry L. Plost / / Luke F. Botica
2. Proposal to approve an amendment to the Company's articles of
incorporation to remove provisions concerning "Substantial Shareholders."
/ / For / / Against / / Abstain
3. Proposal to approve the 1995 Non-Statutory Stock Option Plan.
/ / For / / Against / / Abstain
4. Proposal to approve the 1995 Non-Employee Director Stock Option Plan.
/ / For / / Against / / Abstain
5. Proposal to approve the 1997 Executive Stock Option Plan.
/ / For / / Against / / Abstain
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder(s). If no direction is made
this proxy will be voted FOR the election as directors of all nominees, for
proposals 3 through 5.
Dated:--------,----1997
------------------------------------
Signature of Shareholder(s)
<PAGE>
Page 26 of 64
NOTE: Signature should agree with name on stock certificate as printed
thereon. Executors, administrators, trustees, and other fiduciaries should so
indicate when signing.
Please check if you intend to be present at the Meeting --------
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY.
<PAGE>
RECYCLING INDUSTRIES, INC.
1995 NON-STATUTORY STOCK OPTION PLAN
1. PURPOSES OF AND BENEFITS UNDER THE PLAN. This 1995 Non-Statutory
Stock Option Plan (the "Plan") is intended to encourage stock ownership by
employees, officers and employee directors of RECYCLING INDUSTRIES, INC.,
its divisions, Subsidiary corporations and Parent corporations (the
"Corporation"), so that they may acquire or increase their proprietary
interest in the Corporation, to (i) induce qualified persons to become
employees, officers or employee directors of the Corporation; (ii) reward
employees, and employee directors for past services to the Corporation and
(iii) encourage such persons to remain in the employ of or associated with
the Corporation and to put forth maximum efforts for the success of the
business of the Corporation.
Options granted by the Committee pursuant to this Plan shall
constitute "non-statutory stock options" ("Non-Statutory Stock Options").
2. DEFINITIONS. As used in this Plan, the following words and phrases
shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Code" means Internal Revenue Code of 1986, as amended from
time to time.
(c) "Committee" means the Compensation Committee appointed by the
Board, if one has been appointed. If no Committee has been appointed, the
term "Committee" shall mean the Board.
(d) "Common Stock" mean the Corporation's $.001 par value common
stock.
(e) "Disability" means a Recipient's inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than 12 months, or such other meaning ascribed in Section 22(e)(3) of
the Code or any successor provision. If the Recipient has a disability
insurance policy, the term "Disability" shall be as defined therein;
provided that said definition is not inconsistent with the meaning ascribed
in Section 22(e)(3) of the Code or any successor provision.
(f) "Exchange Act" means Securities Exchange Act of 1934, as
amended from time to time.
<PAGE>
Page 27 of 64
(g) "Fair Market Value" per share as of a particular date means
the average of the last sale price of the Corporation's Common Stock for the
ten days preceding the date of grant as reported on a national securities
exchange or on the NASDAQ National Market or Small Cap System or, if the
quotation for the last sale reported is not available for the Corporation's
Common Stock, the average of the closing bid and asked prices of the
Corporation's Common Stock for the ten days preceding the date of grant as
reported by NASDAQ Over the Counter Bulletin Board service or, if none, the
National Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are
unavailable, the value determined by the Committee in accordance with its
discretion in making a bona fide, good faith determination of fair market
value. If the Corporation's Common Stock is traded in more than one market,
the Committee shall select the principal market. Fair Market Value shall be
determined without regard to any restriction other than a restriction which,
by its terms, never will lapse.
(h) "Option" means a Non-statutory Stock Option granted under
the Plan.
(i) "Option Price" means the purchase price of the shares of
Common Stock covered by an Option determined in accordance with Section 7(b)
hereunder.
(j) "Parent" means any corporation which is a "parent
corporation" as defined in Section 424(e) of the Code, with respect to the
Corporation.
(k) "Plan" means this 1995 Non-Statutory Stock Option Plan.
(l) "Recipient" means any person granted an Option hereunder.
(m) "Section 16 Persons" means persons who are subject to
Section 16(a) of the 1934 Act
(n) "Securities Act" means the Securities Act of 1933, as
amended from time to time.
(o) "Subsidiary" means any corporation which is a "subsidiary
corporation" as defined in Section 424(f) of the Code, with respect to the
Corporation.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically conferred
under the Plan or necessary or advisable in the administration of the Plan,
including the authority to grant Options; to determine the vesting schedules
and other restrictions, if any, relating to Options; to determine the Option
Price; to determine the persons to whom, and the time or times at which,
Options shall be granted; to determine the number of shares to be covered by
each Option; to determine Fair Market Value; to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the Option agreements (which need not
be identical) entered into in connection with Options; and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
(b) Options shall be evidenced by duly adopted resolutions of
<PAGE>
Page 28 of 64
the Committee included in the minutes of the meeting at which they are
adopted or in a unanimous written consent.
(c) The Committee shall endeavor to administer the Plan and
grant Options hereunder in a manner that is compatible with the obligations
of Section 16 Persons, however compliance with Section 16 is a personal
responsibility of each Section 16 person and is not the responsibility of
the Corporation or the Committee, or any person thereof. None of the
Committee, the Board or the Corporation shall assume any legal
responsibility for a Recipient's compliance with his obligations under
Section 16 of the Exchange Act. Any Option which would subject or subjects
the Recipient to liability under Section 16(b) of the Exchange Act is void
ab initio as if it had never been granted.
(d) No member of the Committee or the Board shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any Option.
<PAGE>
4. ELIGIBILITY.
(a) Subject to certain limitations hereinafter set forth,
Options may be granted to employees, officers, and employee directors of the
Corporation. In determining the persons to whom Options shall be granted
and the number of shares to be covered by each Option, the Committee shall
take into account the duties of the respective persons, their present and
potential contributions to the success of the Corporation and such other
factors as the Committee shall deem relevant to accomplish the purposes of
the Plan.
(b) A Recipient shall be eligible to receive more than one
grant of an Option during the term of the Plan, on the terms and subject to
the restrictions herein set forth.
5. STOCK RESERVED.
(a) The stock subject to Options hereunder shall be shares of
Common Stock. Such shares, in whole or in part, may be authorized but
unissued shares or shares that shall have been or that may be reacquired by
the Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan (the "Available
Shares") initially shall not exceed 2,000,000 shares. The number of
Available Shares shall be subject to adjustment as provided in Section 7(h)
hereof.
(b) If any outstanding Option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares
of Common Stock allocable to the unexercised portion of such Option shall
become available for subsequent grants of Options unless the Plan shall have
been terminated.
6. GRANT OF OPTIONS UNDER PLAN. Options shall be granted under the
Plan at the discretion of the Committee in accordance with the provisions of
Section 7 hereof.
7. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be evidenced
by a written Option agreement between the Corporation and the Recipient,
which agreement substantially shall be in the form of Exhibit A hereto as
modified from time to time by the Committee in its discretion, and which
shall comply with and be subject to the following terms and conditions:
(a) NUMBER OF SHARES. Each Option agreement shall state the
number of shares of Common Stock covered by the Option.
<PAGE>
Page 29 of 64
(b) OPTION PRICE. Each Option agreement shall state the Option
Price, which shall be determined by the Committee subject only to the
following restrictions:
(1) The Option Price shall be no less than 80% of the Fair
Market Value on the date of grant of the Option; and
(2) The Option Price shall be subject to adjustment as
provided in Section 7(h) hereof.
(c) TERM OF OPTION. Each Option agreement shall state the
period during and times at which the Option shall be exercisable; provided,
however:
(1) The date on which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such
Option is granted, unless a future date is specified in the resolution;
provided, however, the Recipient shall have no rights under the grant until
the Recipient has executed an Option agreement with respect to such Option.
(2) The exercise period shall not exceed ten years from
the date of grant of the Option.
(3) The Committee shall have the authority to accelerate
or extend the exercisability of any outstanding Option at such time and
under such circumstances as it, in its sole discretion, deems appropriate.
No exercise period may be extended to increase the term of the Option beyond
ten years from the date of the grant.
(4) The exercise period shall be subject to earlier
termination as provided in Sections 7(e) and 7(f) hereof and, furthermore,
shall be terminated upon surrender of the Option by the holder thereof if
such surrender has been authorized in advance by the Committee.
(d) METHOD OF EXERCISE AND MEDIUM AND TIME OF PAYMENT.
(1) An Option may be exercised as to any or all whole
shares of Common Stock as to which it then is exercisable.
(2) Each exercise of an Option, whether in whole or in
part, shall be by written notice to the secretary of the Corporation
designating the number of shares as to which the Option is being exercised,
and shall be accompanied by payment in full of the Option Price for the
number of shares so designated, together with any written statements
required by any applicable securities laws.
(3) The Option Price shall be paid in cash or shares of
Common Stock having a Fair Market Value equal to such Option Price or in a
combination of cash and shares and, subject to approval of the Committee,
may be effected in whole or in part with monies received from the
Corporation at the time of exercise as a compensatory cash payment.
(4) Applicable taxes shall be paid in the manner
specified by Section 8 hereof.
(e) TERMINATION. Except as provided herein, an Option may not
be exercised unless the Recipient then is an employee, officer or employee
director of the Corporation or a Subsidiary or Parent of the Corporation,
and unless the Recipient has remained continuously as an employee, officer
or employee director of the Corporation since the date of grant of the
Option.
(1) If the Recipient ceases to be an employee, officer or
employee director of the Corporation or a Subsidiary or Parent to the
Corporation for cause (other than by reason of death, Disability or retirement),
<PAGE>
Page 30 of 64
all Options theretofore granted to such Recipient, but not theretofore
exercised, shall immediately terminate.
(2) If the Recipient ceases to be an employee, officer or
employee director of the Corporation or a Subsidiary or Parent to the
Corporation (other than by reason of death, Disability or retirement), other
than for cause, all Options theretofore granted to such Recipient, but not
theretofore exercised, shall terminate 90 days after the date the Recipient
ceased to be an employee, officer or employee director of the Corporation.
(3) Nothing in the Plan or in any Option shall confer
upon an individual any right to continue in the employ of or other
relationship with the Corporation or interfere in any way with the right of
the Corporation to terminate such employment or other relationship between
the individual and the Corporation.
(f) DEATH, DISABILITY OR RETIREMENT OF RECIPIENT. If a
Recipient shall die while an employee, officer or employee director of the
Corporation, or if the Recipient's employment, officer or employee director
status, shall terminate by reason of Disability or retirement, all Options
theretofore granted to such Recipient, whether or not otherwise exercisable,
unless earlier terminated in accordance with their terms, may be exercised
by the Recipient or by the Recipient's estate or by a person who acquired
the right to exercise such Options by bequest or inheritance or otherwise by
reason of the death or Disability of the Recipient, at any time within one
year after the date of death, Disability or retirement of the Recipient.
(g) TRANSFERABILITY RESTRICTION.
(1) Options shall not be transferable other than: (i) by will;
laws of descent and distribution; (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), or the rules thereunder; or (iii) with
the prior written consent of the Corporation. Options may be exercised during
the lifetime of the Recipient only by the Recipient; and, thereafter, only by
his legal representative or by a person who acquired the right to exercise such
Options by bequest, inheritance or operation of law.
(2) Any attempted sale, pledge, assignment, hypothecation
or other transfer of an Option contrary to the provisions hereof and the
levy of any execution, attachment or similar process upon an Option shall be
null and void and without force or effect and shall result in a termination
of the Option.
(3)(A) As a condition to the transfer of any shares of
Common Stock issued upon exercise of an Option, the Corporation may require
an opinion of counsel, satisfactory to the Corporation, to the effect that
such transfer will not be in violation of the Securities Act or any other
applicable securities laws or that such transfer has been registered under
federal and all applicable state securities laws. (B) Further, the
Corporation shall be authorized to refrain from delivering or transferring
shares of Common Stock issued under this Plan until the Committee determines
that such delivery or transfer will not violate applicable securities laws
and the Recipient has tendered to the Corporation any federal, state or
local tax owed by the Recipient as a result of exercising the Option or
disposing of any Common Stock when the Corporation has a legal liability to
satisfy such tax. (C) The Corporation shall not be liable for damages due
to delay in the delivery or issuance of any stock certificate for any reason
whatsoever, including, but not limited to, a delay caused by listing
requirements of any securities exchange, the National Association of
Securities Dealers, Inc., or any registration requirements under the
Securities Act, the Exchange Act, or under any other state or federal law,
rule or regulation. (D) The Corporation is under no obligation to take any
<PAGE>
Page 31 of 64
action or incur any expense in order to register or qualify the delivery or
transfer of shares of Common Stock under applicable securities laws or to
perfect any exemption from such registration or qualification. (E)
Furthermore, the Corporation will not be liable to any Recipient for failure
to deliver or transfer shares of Common Stock if such failure is based upon
the provisions of this paragraph.
(h) EFFECT OF CERTAIN CHANGES.
(1) If there is any change in the number of shares of
Common Stock through the declaration of stock dividends, or through a
recapitalization resulting in stock splits, or combinations or exchanges of
such shares, the number of shares of Common Stock available for Options and
the number of such shares covered by outstanding Options, and the exercise
price per share of the outstanding Options, shall be proportionately
adjusted by the Committee to reflect any increase or decrease in the number
of issued shares of Common Stock; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated.
(2) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, or a merger or consolida-
tion of the Corporation with another corporation, the Committee may provide
that the holder of each Option then exercisable shall have the right to
exercise such Option (at its then current Option Price) solely for the kind
and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation, corporate
separation or division, or merger or consolidation by a holder of the number
of shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate separation
or division, or merger or consolidation; or in the alternative the Committee
may provide that each Option shall terminate as of a date fixed by the
Committee; provided, however, that not less than 30 days' written notice of
the date so fixed shall be given to each Recipient, who shall have the
right, during the period of 30 days preceding such termination, to exercise
the Option as to all or any part of the shares of Common Stock covered
thereby, including shares as to which such Option would not otherwise be
exercisable.
(3) Paragraph (2) of this Section 7(h) shall not apply to
a merger or consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into or exchanged
for stock, securities of any other corporation, cash or any other thing of
value. Notwithstanding the preceding sentence, in case of any consolidation
or merger of another corporation into the Corporation in which the
Corporation is the surviving corporation and in which there is a
reclassification or change (including a change to the right to receive cash
or other property) of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination, but including any change in such shares into two or more
classes or series of shares), the Committee may provide that the holder of
each Option then exercisable shall have the right to exercise such Option
solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by the holder of the
number of shares of Common Stock for which such Option might have been
exercised.
(4) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the
<PAGE>
Page 32 of 64
Plan.
(5) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
(6) Notwithstanding any other provision of this Section 7,
no adjustment required by this Section 7 shall be made if the effect of such
adjustment is less than ten percent of the current Option Price or number
shares subject to Options. Such adjustment shall only be made when the
cumulative effect of all such adjustments shall be equal to or greater than
ten percent of the current Option Price or number of shares subject to
Options
(7) Except as expressly provided in this Section 7(h), the
Recipient shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation; and any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. The grant of an Option shall not affect
in any way the right or power of the Corporation to make adjustments,
reclassification, reorganizations or changes of its capital or business
structures or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or part of its business or assets.
(i) RIGHTS AS SHAREHOLDER - NON-DISTRIBUTIVE INTENT.
(1) Neither a person to whom an Option is granted, nor such
person's legal representative, heir, legatee or distributee, shall be deemed
to be the holder of, or to have any rights of a holder with respect to, any
shares subject to such Option until after the Option is exercised and the
shares are issued to the person exercising such Option.
(2) Upon exercise of an Option at a time when there is no
registration statement in effect under the Securities Act relating to the
shares issuable upon exercise, shares may be issued to the Recipient only if
the Recipient represents and warrants in writing to the Corporation that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof and provides the Corporation with sufficient information
to establish an exemption from the registration requirements of the
Securities Act. A form of subscription agreement is attached hereto as
Exhibit B.
(3) No shares shall be issued upon the exercise of an Option
unless and until there shall have been compliance with any then applicable
requirements of the Securities and Exchange Commission, or any other
regulatory agencies having jurisdiction over the Corporation.
(4) No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 7(h) hereof.
(j) OTHER PROVISIONS. Option agreements evidencing Options shall
contain such other provisions, including, without limitation, the imposition
of restrictions upon the exercise of an Option.
8. AGREEMENT BY RECIPIENT REGARDING TAXES.
(a) Each Recipient agrees that upon exercise of an Option,
<PAGE>
Page 33 of 64
in addition to the payment of the Exercise Price as provided in Section 7(d)
hereof, the Recipient shall pay in cash to the Corporation, an amount
sufficient to allow the Corporation to pay federal, state and local taxes of
any kind required by law to be withheld upon the exercise of such Option from
any payment of any kind otherwise due to the Recipient, if any.
(b) Each Option Recipient must acknowledge the possible
availability of an election under Section 83(b) of the Code, or any successor
provision.
9. TERM OF PLAN. Options may be granted from time to time within a
period of 11 years from the date the Plan is adopted by the Board.
10. APPROVAL OF SHAREHOLDERS. The Plan shall take effect upon its
adoption by the Board but shall be subject to approval at a duly called and
held meeting of shareholders in conformance with the vote required by the
Corporation's charter documents, resolution of the Board, any other
applicable law and the rules and regulations thereunder, or the rules and
regulations of any national securities exchange upon which the Common Stock
is listed and traded, each to the extent applicable. No Option granted prior
to the approval of this Plan by the shareholders of the Corporation shall be
effective until after such approval has been obtained.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) (1) The Committee at any time and from time to time may
terminate, modify or amend the Plan;
(2) provided, the Plan shall not be amended more than
once every six months, other than to comply with changes in Code, ERISA, or
the rules thereunder;
(3) provided further, however, that any amendment that
would not:
(a) materially increase the number of
securities issuable under the Plan to Section 16 Persons; or
(b) grant eligibility to a class of Section
16 Persons not included within the terms of the Plan prior to the amendment;
(c) materially increase the benefits accruing
under the Plan to Section 16 Persons; or
(d) require shareholder approval under
applicable state law, the rules and regulations of any national securities
exchange on which the Corporation's securities then may be listed, the Code
or any other applicable law, shall be subject to the approval of the
shareholders of the Corporation as provided in Section 10 hereof;
(4) provided further that any such increase or
modification that may result from adjustments authorized by Section 6(g)
hereof or which are required for compliance with the 1934 Act, the Code,
ERISA, their rules or other laws or judicial order, shall not require
approval of shareholders.
(b) Except as provided in Section 6 hereof, no termination,
modification or amendment of the Plan may adversely affect any Option
previously granted, unless the written consent of the Recipient is obtained.
12. ASSUMPTION. Subject to Section 7, the terms and conditions of
any outstanding Options shall be assumed by, be binding upon and shall inure
to the benefit of any successor corporation to the Corporation and continue
to be governed by, to the extent applicable, the terms and conditions of this
Plan. Such successor corporation may, but shall not be obligated to,
<PAGE>
Page 34 of 64
assume this Plan.
13. TERMINATION OF RIGHT OF ACTION. Every right of action arising
out of or in connection with the Plan by or on behalf of the Corporation, or
by any shareholder of the Corporation against any past, present or future
member of the Board, or against any employee, or by an employee (past,
present or future) against the Corporation, irrespective of the place where
an action may be brought and of the place of residence of any such
shareholder, director or employee, will cease and be barred by the expiration
of three years from the date of the act or omission in respect of which such
right of action is alleged to have arisen or such shorter period as may be
provided by law.
14. ADOPTION AND EFFECTIVE DATE.
(a) This Plan was approved by the Board of Directors of the
Corporation on December 26, 1995. This Plan is effective as of such date
subject to approval by the Company's shareholders as provided in Section 10
hereof.
(b) This Plan was approved by the shareholders of the
Corporation at a meeting on---------------, 1997.
RECYCLING INDUSTRIES, INC.
By--------------------------------------
Thomas J. Wiens, Chairman
<PAGE>
EXHIBIT A
FORM OF
NON-STATUTORY STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of this ----- day of ---------, 199--,
between RECYCLING INDUSTRIES, INC., a Colorado corporation (the
"Corporation"), and -----------------------(the "Recipient").
In accordance with its 1995 Non-Statutory Stock Option Plan (the
"Plan"), a copy of which is attached and is incorporated herein by reference,
the Corporation desires, in connection with the services of the Recipient, to
provide the Recipient with an opportunity to acquire $.001 par value common
stock ("Common Stock") of the Corporation on favorable terms and thereby
increase the Recipient's proprietary interest in the Corporation and as
incentive to put forth maximum efforts for the success of the business of the
Corporation.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth and other good and valuable consideration, the Corporation
and the Recipient agree as follows:
1. CONFIRMATION OF GRANT OF OPTION. Pursuant to a determination of the
Compensation Committee of the Board of Directors of the Corporation (the
"Committee") (if such a Committee has been appointed) or in the absence of a
Committee, by the Board of Directors of the Corporation (the "Board) made on
December 26, 1995 (the "Date of Grant"), the Corporation, subject to the
terms of the Plan and of this Agreement, confirms that the Recipient has
<PAGE>
Page 35 of 64
been irrevocably granted on the Date of Grant, as a matter of separate
inducement and agreement, and in addition to and not in lieu of salary or
other compensation for services, a Non-statutory Stock Option pursuant to
Section 6 of the Plan (the "Option") to purchase an aggregate of -------
shares of Common Stock on the terms and conditions herein set forth.
2. OPTION PRICE. The Option Price of shares of Common Stock covered by
the Option will be $2.87 per share (the "Option Price") subject to adjustment
as provided in Paragraph 7(h) hereof.
3. EXERCISE OF OPTION AND VESTING PROVISIONS. Except as otherwise
provided in Section 7 of the Plan the Option may be exercised in whole or in
part at any time during the term of the Option, provided, however, no Option
shall be exercisable after the expiration of the term thereof, and no Option
shall be exercisable unless the holder shall at the time of exercise have
been an employee, officer or employee director of the Corporation for a
period of at least three months.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 10 hereof and
Section 7(d) of the Plan.
4. TERM OF OPTION. The term of the Option will be through-------------,
- - --------, subject to earlier termination or cancellation as provided in
this Agreement and the Plan.
The holder of the Option will not have any rights to dividends or any
other rights of a shareholder with respect to any shares of Common Stock
subject to the Option until such shares shall have been issued (as evidenced
by the appropriate transfer agent of the Corporation) upon purchase of such
shares through exercise of the Option.
5. TRANSFERABILITY RESTRICTION. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated in any way
(whether by operation of law or otherwise) except in strict compliance with
Section 7(g) of the Plan. Any assignment, transfer, pledge, hypothecation or
other disposition of the Option or any attempt to make any such levy of
execution, attachment or other process will cause the Option to terminate
immediately upon the happening of any such event; provided, however, that any
such termination of the Option under the foregoing provisions of this
Paragraph 5 will not prejudice any rights or remedies which the Corporation
may have under this Agreement or otherwise.
6. EXERCISE UPON TERMINATION. The Recipient's rights to exercise this
Option upon termination of employment or cessation as an officer, or employee
director shall be as set forth in Section 7(e) of the Plan.
7. DEATH, DISABILITY OR RETIREMENT OF RECIPIENT. The Recipient's rights
to exercise this Option upon the death, Disability or retirement of the
Recipient shall be as set forth in Section 7(f) of the Plan.
8. ADJUSTMENTS. The Option shall be subject to adjustment upon the
occurrence of certain events as set forth in Section 6(h) of the Plan.
9. NO REGISTRATION OBLIGATION. The Recipient understands that the Option
is not registered under the Securities Act of 1933, as amended (the
"Securities Act") and the Corporation has no obligation to register under the
Securities Act the Option or any of the shares of Common Stock subject to and
issuable upon the exercise of the Option. The Recipient represents that the
Option is being acquired by him and that such shares of Common Stock will be
acquired by him for investment and all certificates for the shares issued
upon exercise of the Option will bear the following legend unless such shares
are registered under the Securities Act prior to their issuance:
<PAGE>
Page 36 of 64
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Securities Act"), and are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from
registration under the Securities Act, the availability of which is to
be established to the satisfaction of the Company.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the
Corporation are able to establish the existence of an exemption from
registration under the Securities Act and applicable state laws.
10. NOTICES. Each notice relating to this Agreement will be in writing
and delivered in person or by certified mail to the proper address. Notices
to the Corporation shall be addressed to the Corporation c/o Thomas J. Wiens,
Chairman, at 384 Inverness Drive South, Suite 211, Englewood, Colorado 80112
. Notices to the Recipient or other person or persons then entitled to
exercise the Option shall be addressed to the Recipient or such other person
or persons at the Recipient's address specified below. Anyone to whom a
notice may be given under this Agreement may designate a new address by
notice to that effect given pursuant to this Paragraph 10.
11. AGREEMENT BY RECIPIENT REGARDING TAXES.
(a) The Recipient agrees that upon exercise of an Option, in
addition to the payment of the Exercise Price as provided in Section 7(d) of
the Plan, the Recipient shall pay in cash to the Corporation, an amount
sufficient to allow the Corporation to pay federal, state and local taxes of
any kind required by law to be withheld upon the exercise of such Option from
any payment of any kind otherwise due to the Recipient, if any.
(b) The Recipient acknowledges the possible availability of an
election under Section 83(b) of the Code and agrees to give the Corporation
prompt written notice of any election made by such person under Section 83(b)
of the Code, or any similar provision thereof.
12. SECTION 16 COMPLIANCE. The Recipient acknowledges that Recipient is
solely responsible for filing all reports that may be required under Section
16 of the Securities Exchange Act of 1934, and that the filing of such
reports is not the responsibility of the Corporation or the Committee, or any
person thereof.
13. APPROVAL OF COUNSEL. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities Act,
the Securities Exchange Act of 1934, as amended, applicable state securities
laws, the rules and regulations thereunder, and the requirements of any
national securities exchange upon which the Common Stock then may be listed.
14. BENEFITS OF AGREEMENT. This Agreement will inure to the benefit of
and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Recipient and all rights granted to the
Corporation under this Agreement will be binding upon the Recipient's heirs,
legal representatives and successors.
15. GOVERNMENTAL AND OTHER REGULATIONS. The exercise of the Option and
the Corporation's obligation to sell and deliver shares upon the exercise of
rights to purchase shares is subject to all applicable federal and state
laws, rules and regulations, and to such approvals by any regulatory or
governmental agency which may, in the opinion of counsel for the Corporation,
be required.
<PAGE>
Page 37 of 64
16. INCORPORATION OF THE PLAN. The Plan is attached hereto and
incorporated herein by reference. In the event that any provision in this
Agreement conflicts with a provision in the Plan, the Plan shall govern. All
capitalized terms not otherwise defined herein shall be as defined in the
Plan.
17. TERMINATION OF OPTION WITHOUT SHAREHOLDER APPROVAL. This Option shall
not be effective, and shall terminate, unless the Plan has been approved by
the shareholders of the Corporation on or before December 31, 1997. If the
shareholders of the Corporation do not approve the Plan on or before such
date, this Agreement shall terminate and be of no further force or effect,
and the Option shall be deemed never to have been issued.
Executed in the name and on behalf of the Corporation by one of its
duly authorized officers and by the Recipient all as of the date first above
written.
RECYCLING INDUSTRIES, INC.
By-------------------------------
Name---------------------------
Title--------------------------
The undersigned Recipient understands the terms of this Option
Agreement and the attached Plan and hereby agrees to comply therewith.
Date ----------- ----, 19---
Recipient: -----------------------
Tax ID Number:--------------------
Address: ------------------------
----------------------------------
----------------------------------
<PAGE>
EXHIBIT B
FORM OF
SUBSCRIPTION AGREEMENT
THE SECURITIES OF RECYCLING INDUSTRIES, INC. BEING SUBSCRIBED FOR HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE BLUE
SKY OR SECURITIES LAWS AND ARE OFFERED UNDER EXEMPTIONS FROM THE REGISTRATION
PROVISIONS OF SUCH LAWS.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
<PAGE>
Page 38 of 64
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
This Subscription Agreement is entered for the purpose of the
Undersigned acquiring --------- shares of the $.001 par value common stock
(the "Securities") of RECYCLING INDUSTRIES, INC., a Colorado corporation (the
"Corporation") from the Corporation upon the exercise of an Option pursuant
to the Recycling Industries, Inc. 1995 Non-Statutory Stock Option Plan (the
"Plan"). It is understood that no exercise of an Option at a time when no
registration statement relating thereto is effective under the Securities Act
of 1933, as amended (the "Securities Act") can be completed until the
Undersigned executes this Subscription Agreement and delivers it to the
Corporation, and then such grant or exercise is effective only in accordance
with the terms of the Plan and this Subscription Agreement.
In connection with the Undersigned's acquisition of the Securities, the
Undersigned represents and warrants to the Corporation as follows:
1. The Undersigned has been provided, and has reviewed all available
reports filed by the Corporation pursuant to the Securities Exchange Act of
1934, including (without limitation) the Corporation's most recent annual
report on Form 10-K for the most recently-completed fiscal year and all Forms
10-Q for the quarters subsequent to the end of the most recent fiscal year,
the Plan, and such other information as the Undersigned may have requested of
the Corporation regarding its business, operations, management, and financial
condition (all of which is referred to herein as the "Available Information").
2. The Corporation has given the Undersigned the opportunity to ask
questions of and to receive answers from persons acting on the Corporation's
behalf concerning the terms and conditions of this transaction and the
opportunity to obtain any additional information regarding the Corporation,
its business and financial condition which the Corporation possesses or can
acquire without unreasonable effort or expense.
3. The Securities are being acquired by the Undersigned for his own
account and not on behalf of any other person or entity. The Undersigned's
present financial condition is such that it is unlikely that it would be
necessary for the Undersigned to dispose of any portion of the Securities in
the foreseeable future.
4. The Undersigned understands that the Securities being acquired hereby
have not been registered under the Securities Act or any state or foreign
securities laws, and are and will continue to be restricted securities within
the meaning of Rule 144 of the General Rules and Regulations under the
Securities Act and applicable state statutes, and consents to the placement
of an appropriate restrictive legend or legends on any certificates
evidencing the Securities and any certificates issued in replacement or
exchange therefor and acknowledges that the Corporation will cause its stock
transfer records to note such restrictions.
5. By the Undersigned's execution below, it is acknowledged and
understood that the Corporation is relying upon the accuracy and completeness
hereof in complying with certain obligations under applicable securities laws.
6. This Agreement binds and inures to the benefit of the representatives,
successors and permitted assigns of the respective parties hereto.
7. The Undersigned acknowledges and agrees that the Corporation has
withheld --------- shares for the payment of taxes as a result of the
exercise of an Option in satisfaction of federal withholding taxes.
<PAGE>
Page 39 of 64
8. INCORPORATION OF THE PLAN. The Plan is attached hereto and
incorporated herein by reference. In the event that any provision in this
Agreement conflicts with a provision in the Plan, the Plan shall govern. All
capitalized terms not otherwise defined herein shall be as defined in the
Plan.
(Undersigned)
Date ---------, 19--- -------------------------------
Recipient: --------------------
Tax ID Number:-----------------
Address: ---------------------
-------------------------------
-------------------------------
<PAGE>
RECYCLING INDUSTRIES, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE; RESTRICTIONS ON AMOUNT AVAILABLE UNDER THE PLAN. This 1996
Non-Employee Director Stock Option Plan (the "Plan") is intended to encourage
stock ownership by directors of RECYCLING INDUSTRIES, INC. (the
"Corporation") who are not employees of the Corporation and, therefore, are
precluded from participation in the Corporation's 1996 Non-Statutory Stock
Option Plan (the "Non-Qualified Plan") and thereby to induce qualified
persons to be willing to serve in such capacity. It is intended that options
granted under this Plan shall constitute "non-statutory stock options."
2. DEFINITIONS. As used in this Plan, the following words and phrases
shall have the meanings indicated:
a. "Board" means the Board of Directors of the Corporation.
b. "Code" means Internal Revenue Code of 1986, as amended from
time to time.
c. "Committee" means the Compensation Committee appointed by the
Board, if one has been appointed. If no Committee has been appointed, the
term "Committee" shall mean the Board.
d. "Common Stock" mean the Corporation's $.001 par value common stock.
e. "Disability" means a Recipient's inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or that has
lasted or can be expected to last for a continuous period of not less than 12
months, or such other meaning ascribed in Section 22(e)(3) of the Code or any
successor provision. If the Recipient has a disability insurance policy, the
term "Disability" shall be as defined therein; provided that said definition
is not inconsistent with the meaning ascribed in Section 22(e)(3) of the Code
or any successor provision.
f. "Fair Market Value" per share as of a particular date means the
average of the last sale price of the Corporation's Common Stock for the ten
days preceding the date of grant as reported on a national securities
exchange or on the NASDAQ National Market or Small Cap System or, if the
<PAGE>
Page 40 of 64
quotation for the last sale reported is not available for the Corporation's
Common Stock, the average of the closing bid and asked prices of the
Corporation's Common Stock for the ten days preceding the date of grant as
reported by NASDAQ over the Counter Bulletin Service or, if none, the
National Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are
unavailable, the value determined by the Committee Board in accordance with
its discretion in making a bona fide, good faith determination of fair market
value. Fair Market Value shall be determined without regard to any
restriction other than a restriction which, by its terms, never will lapse.
g. "Option" means a Non-statutory Stock Option granted under the Plan.
h. "Option Price" means the purchase price of the shares of Common
Stock covered by an Option determined in accordance with Section 6(b)
hereunder.
i. "Parent" means any corporation which is a "parent corporation" as
defined in Section 424(e) of the Code, with respect to the Corporation.
j. "Plan" means this 1995 Non-Employee Director Stock Option Plan.
k. "Recipient" means any person granted an Option hereunder.
l. "Section 16 Persons" means persons who are subject to Section 16(a)
of the 1934 Act.
m. "Securities Act" means the Securities Act of 1933, as amended from
time to time.
n. "Subsidiary" means any corporation which is a "subsidiary
corporation" as defined in Section 424(f) of the Code, with respect to the
Corporation.
3. ADMINISTRATION.
a. The Plan shall be administered by the Committee, but this Plan is
intended to be a "formula plan" as that term is defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "1934 Act"). It is
intended, therefore, that Options hereunder qualify as exempt purchases under
Rule 16b-3 of the 1934 Act.
b. The Committee shall have the authority in its discretion, subject
to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including (without limitation) the authority to:
interpret the Plan; prescribe, amend and rescind rules and regulations
relating to the Plan provided such actions are consistent with this Plan;
determine the terms and provisions of the Option agreements (which need not
be identical) entered into in connection with Options; and make all other
determinations deemed necessary or advisable for the administration of the
Plan.
The Committee may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
c. Because this Plan is intended to be a formula plan, Options need
not be evidenced by duly adopted resolutions of the Committee.
d. The Committee shall not have the authority to: select directors
who are eligible to participate in the Plan; determine the number of shares
subject to any Option; determine the Option price; or determine the exercise
<PAGE>
Page 41 of 64
period of any Option.
e. The Committee shall endeavor to administer the Plan in a manner
that is compatible with the obligations of Section 16 Persons, however
compliance with Section 16 is a personal responsibility of each Section 16
Person and is not the responsibility of the Corporation or the Committee, or
any member thereof. None of the Committee, the Board or the Corporation
shall assume any legal responsibility for a Recipient's compliance with his
obligations under Section 16 of the 1934 Act. Any Option which would subject
or subjects the Recipient to liability under Section 16(b) of the 1934 Act is
void ab initio as if it had never been granted.
f. No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option.
4. ELIGIBILITY. Only directors of the Corporation who are not employees of
the Corporation are eligible to receive Options. A Recipient shall be
eligible to receive more than one grant of an Option during the term of the
Plan, on the terms and subject to the restrictions herein set forth.
5. STOCK RESERVED.
a. The stock subject to Options shall be shares of Common Stock. Such
shares, in whole or in part, may be authorized but unissued shares or shares
that shall have been or that may be reacquired by the Corporation. The
aggregate number of shares of Common Stock as to which Options may be granted
from time to time shall not exceed 500,000. The limitation established by
the preceding sentences shall be subject to adjustment as provided in Section
6(g) hereof.
b. If any outstanding Option for any reason expires or is terminated
without having been exercised in full, the shares of Common Stock allocable
to the unexercised portion of such Option shall become available for
subsequent grants of Options, unless the Plan shall have been terminated.
6. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be evidenced by a
written Option agreement between the Corporation and the Recipient,
substantially in the form of Exhibit "A" attached hereto as modified from
time to time by the Committee in its discretion, and which shall comply with
and be subject to the following terms and conditions:
a. GRANT. Each director of the Corporation who is not an employee of
the Corporation shall receive an initial grant of Options under this Plan to
acquire up to 5,000 shares of the Company's Common Stock at an Option Price
described in paragraph 6(b), except that the FMV shall be determined as of
the date such person first becomes a director of the Corporation.
Thereafter, each director of the Corporation who is serving as a director on
December 31 of each year, commencing with December 31, 1996, shall be
automatically granted an Option to acquire up to 5,000 of shares of the
Company's Common Stock at the Option Price described in paragraph 6 (b).
The Options will be exercisable commencing six months after the
date of grant and continuing for five years from the date of the grant
subject to the other terms and conditions hereof.
b. OPTION PRICE. Options will have an Option Price equal to the Fair
Market Value of the Common Stock on the date of grant. The Option Price
shall be subject to adjustment as provided in Section 6(g) hereof.
c. METHOD OF EXERCISE AND MEDIUM AND TIME OF PAYMENT.
1) An Option may be exercised as to any or all whole shares of
Common Stock as to which it then is exercisable.
2) Each exercise of an Option, whether in whole or in
<PAGE>
Page 42 of 64
part, shall be by written notice to the secretary of the Corporation
designating the number of shares as to which the Option is being exercised,
and shall be accompanied by payment in full of the Option Price for the
number of shares so designated, together with any written statements required
by any applicable securities laws.
3) The Option Price shall be paid in cash or shares of Common
Stock having a Fair Market Value equal to such Option Price or in a
combination of cash and shares and, subject to approval of the Committee, may
be effected in whole or in part with monies received from the Corporation at
the time of exercise as a compensatory cash payment.
4) Applicable taxes shall be paid in the manner specified by
Section 7 hereof.
d. TERMINATION. Except as provided herein, an Option may not be
exercised unless the Recipient then is an employee, officer or director of
the Corporation or a Subsidiary or Parent of the Corporation, and unless the
Recipient has remained continuously as an employee, officer or director of
the Corporation since the date of grant of the Option.
1) If the Recipient ceases to be an employee, officer or director
of the Corporation or a Subsidiary or Parent of the Corporation (other than
by reason of death, Disability or retirement), other than for cause, all
Options theretofore granted to such Recipient but not theretofore exercised
shall terminate 90 days after the date the Recipient ceased to be an
employee, officer or director of the Corporation.
2) Nothing in the Plan or in any Option shall confer upon an
individual any right to continue in the employ of or other relationship with
the Corporation or interfere in any way with the right of the Corporation or
its shareholders to terminate such employment or other relationship between
the individual and the Corporation.
e. DEATH OR DISABILITY OF RECIPIENT. If a Recipient shall die while a
director of the Corporation, or if the Recipient's director status shall
terminate by reason of Disability, all Options theretofore granted to such
Recipient, whether or not otherwise exercisable, unless earlier terminated in
accordance with their terms, may be exercised at any time within one year
after the date of death or Disability of the Recipient.
f. TRANSFERABILITY RESTRICTION.
1) Options shall not be transferable other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), or the rules thereunder. Options may
be exercised, during the lifetime of the Recipient, only by the Recipient and
thereafter only by his legal representative or by a person who acquired the
rights to exercise such Options by bequest, inheritance or operation of law.
2) Any attempted sale, pledge, assignment, hypothecation or other
transfer of an Option contrary to the provisions hereof and the levy of any
execution, attachment or similar process upon an Option shall be null and
void and without force or effect and shall result in a termination of the
Option.
3) a) As a condition to the transfer of any shares of Common
Stock issued upon exercise of an Option, the Corporation may require an
opinion of counsel, satisfactory to the Corporation, to the effect that such
transfer will not be in violation of the Securities Act or any other
applicable securities laws or that such transfer has been registered under
federal and all applicable state securities laws.
b) The Corporation shall be authorized to refrain
<PAGE>
Page 43 of 64
from delivering or transferring shares of Common Stock issued under this Plan
until the Committee determines that such delivery or transfer will not
violate applicable securities laws and the Recipient has tendered to the
Corporation any federal, state or local tax owed by the Recipient as a result
of exercising the Option or disposing of any Common Stock when the
Corporation has a legal liability to satisfy such tax.
c) The Corporation shall not be liable for damages due to
delay in the delivery or issuance of any stock certificate for any reason
whatsoever, including, but not limited to, a delay caused by listing
requirements of any securities exchange, the National Association of
Securities Dealer, Inc., or any registration requirements under the
Securities Act, the 1934 Act, or under any other state or federal law, rule
or regulation.
d) The Corporation is under no obligation to take any action
or incur any expense in order to register or qualify the delivery or transfer
of shares of Common Stock under applicable securities laws or to perfect any
exemption from such registration or qualification.
e) The Corporation will not be liable to any Recipient for
failure to deliver or transfer shares of Common Stock if such failure is
based upon the provisions of this paragraph.
g. EFFECT OF CERTAIN CHANGES.
1) If there is any change in the number of shares of Common Stock
through the declaration of stock dividends, or through a recapitalization
resulting in stock splits, or combinations or exchanges of such shares, the
number of shares of Common Stock available for Options and the number of such
shares covered by outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately adjusted by the Committee
to reflect any increase or decrease in the number of issued shares of Common
Stock; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
2) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division, including, but not
limited to, split-up, split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, the Committee may provide that the
holder of each Option then exercisable shall have the right to exercise such
Option (at its then current Option Price) solely for the kind and amount of
shares of stock and other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation, corporate separation
or division, or merger or consolidation by a holder of the number of shares
of Common Stock for which such Option might have been exercised immediately
prior to such dissolution, liquidation, or corporate separation or division,
or merger or consolidation; or in the alternative, the Committee may provide
that each Option shall terminate as of a date fixed by the Committee;
provided, however, that not less than 30 days written notice of the date so
fixed shall be given to each Recipient, who shall have the right, during the
period of 30 days preceding such termination, to exercise the Option as to
all or any part of the shares of Common Stock covered thereby, including
shares as to which such Option would not otherwise be exercisable.
3) Paragraph (2) of this Section 6(g) shall not apply to a merger
or consolidation in which the Corporation is the surviving corporation and
shares of Common Stock are not converted into or exchanged for stock,
securities of any other corporation, cash or any other thing of value.
Not-withstanding the preceding sentence, in case of any consolidation or
merger of another corporation into the Corporation in which the Corporation
is the surviving corporation and in which there is a reclassification or
change (including a change to the right to receive cash or other property) of
the shares of Common Stock (other than a change in par value, or from par
value
<PAGE>
Page 44 of 64
to no par value, or as a result of a subdivision or combination, but
including any change in such shares into two or more classes or series of
shares), the Committee may provide that the holder of each Option then
exercisable shall have the right to exercise such Option solely for the kind
and amount of shares of stock and other securities (including those of any
new direct or indirect Parent of the Corporation), property, cash or any
combination thereof receivable upon such reclassification, change,
consolida-tion or merger by the holder of the number of shares of Common
Stock for which such Option might have been exercised.
4) If there is a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par
value or without par value, the shares resulting from any such change shall
be deemed to be the Common Stock within the meaning of the Plan.
5) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
6) Notwithstanding any other provision of this Section 6, no
adjustment required by this Section 6 shall be made if the effect of such
adjustment is less than ten percent of the current Option Price or number of
shares subject to Options. Such adjustment shall only be made when the
cumulative effect of all such adjustments shall be equal to or greater than
ten percent of the current Option Price or number of shares subject to
Options.
7) Except as expressly provided in this Section 6(g), the
Recipient shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation; and any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. The grant of an Option shall not affect
in any way the right or power of the Corporation to make adjustments,
reclassification, reorganizations or changes of its capital or business
structures or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or part of its business or assets.
h. RIGHTS AS SHAREHOLDER - NON-DISTRIBUTIVE INTENT.
1) Neither a person to whom an Option is granted, nor such
person's legal representative, heir, legatee or distributee, shall be deemed
to be the holder of, or to have any rights of a holder with respect to, any
shares subject to such Option until after the Option is exercised and the
shares are issued to the person exercising such Option.
2) Upon exercise of an Option at a time when there is no
registration statement in effect under the Securities Act relating to the
shares issuable upon exercise, shares may be issued to the Recipient only if
the Recipient represents and warrants in writing to the Corporation that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof, and provides the Corporation with sufficient
information to establish an exemption from the registration requirements of
the Securities Act. A form of subscription agreement is attached hereto as
Exhibit B.
3) No shares shall be issued upon the exercise of an Option unless
and until there shall have been compliance with any then
<PAGE>
Page 45 of 64
applicable requirements of the Securities and Exchange Commission, or any
other regulatory agencies having jurisdiction over the Corporation.
4) No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6(g) hereof.
i. OTHER PROVISIONS. Option agreements evidencing Options shall
contain such other provisions, including, without limitation, the imposition
of restrictions upon the exercise of an Option.
7. AGREEMENT BY RECIPIENT REGARDING TAXES.
a. Each Recipient agrees that upon exercise of an Option, in addition
to the payment of the Exercise Price as provided in Section 6(c) hereof, the
Recipient shall pay in cash to the Corporation, an amount sufficient to allow
the Corporation to pay federal, state and local taxes of any kind required by
law to be withheld upon the exercise of such Option from any payment of any
kind otherwise due to the Recipient, if any.
b. Each Recipient must acknowledge the possible availability of an
election under Section 83(b) of the Code, or any successor provision.
8. TERM OF PLAN. Options may be granted pursuant to the formula contained
in Section 6(a) hereof, within a period of eleven years from the date the
Plan is adopted by the Board.
9. AMENDMENT AND TERMINATION OF THE PLAN.
a. 1) The Committee at any time and from time to time may terminate,
modify or amend the Plan.
2) provided, the Plan shall not be amended more than once every
six months, other than to comply with changes in Code, ERISA, or the rules
thereunder;
3) provided further, however, that any amendment that would not:
a) materially increase the number of securities issuable under
the Plan to Section 16 Persons; or
b) grant eligibility to a class of Section 16 Persons not
included within the terms of the Plan prior to the amendment;
c) materially increase the benefits accruing under the Plan to
Section 16 Persons; or
d) require shareholder approval under applicable state law,
the rules and regulations of any national securities exchange on which the
Corporation's securities then may be listed, the Code or any other applicable
law, shall be subject to the approval of the shareholders of the Corporation
as provided in Section 10 hereof;
4) provided further that any such increase or modification that
may result from adjustments authorized by Section 6(g) hereof or which are
required for compliance with the 1934 Act, the Code, ERISA, their rules or
other laws or judicial order, shall not require approval of shareholders.
b. Except as provided in Section 6 hereof, no termination,
modification or amendment of the Plan may adversely affect any Option
previously granted, unless the written consent of the Recipient is obtained.
10. APPROVAL OF SHAREHOLDERS. The Plan shall take effect upon its adoption
by the Board but shall be subject to approval at a duly called and
<PAGE>
Page 46 of 64
held meeting of shareholders in conformance with the vote required by the
Corporation's charter documents, resolution of the Board, any other
applicable law and the rules and regulations thereunder, or the rules and
regulations of any national securities exchange upon which the Common Stock
is listed and traded, each to the extent applicable. No Option granted prior
to the approval of this Plan by the shareholders of the Corporation shall be
effective until after such approval has been obtained.
11. ASSUMPTION. Subject to Section 6, the terms and conditions of any
outstanding Options shall be assumed by, be binding upon and shall inure to
the benefit of any successor corporation to the Corporation and continue to
be governed by, to the extent applicable, the terms and conditions of this
Plan. Such successor corporation may but shall not be obligated to assume
this Plan.
12. TERMINATION OF RIGHT OF ACTION. Every right of action arising out of or
in connection with the Plan by or on behalf of the Corporation, or by any
shareholder of the Corporation against any past, present or future member of
the Board, or against any employee, or by an employee (past, present or
future) against the Corporation, irrespective of the place where an action
may be brought and of the place of residence of any such shareholder,
director or employee, will cease and be barred by the expiration of three
years from the date of the act or omission in respect of which such right of
action is alleged to have risen or such shorter period as may be provided by
law.
13. ADOPTION AND EFFECTIVE DATE.
a. This Plan was approved by the Board of Directors of the Corporation
on December 26, 1995. This Plan is effective as of such date subject to
approval by the Company's shareholders as approved under Section 10 hereof.
b. This Plan was approved by the shareholders of the Corporation at a
meeting on ______________, 1997.
RECYCLING INDUSTRIES, INC.
By:
-------------------------------
Thomas J. Wiens, Chairman
<PAGE>
EXHIBIT "A"
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of this --- day of ---------, 199--, between
RECYCLING INDUSTRIES, INC., a Colorado corporation (the "Corporation"), and
- - ----------------(the "Recipient").
In accordance with its 1995 Non-Employee Director Stock Option Plan (the
"Plan") as adopted by the Board of Directors of the Corporation on
December 26, 1995, the Corporation desires, in connection with the services
of the Recipient, to provide the Recipient with an opportunity to acquire
$.001 par value common stock (the "Common Stock") of the Corporation on
favorable terms and thereby increase the Recipient's proprietary interest in
the continued progress and success of the business of the Corporation.
NOW, THEREFORE, in consideration of the premises and mutual covenants
<PAGE>
Page 47 of 64
herein set forth and other good and valuable consideration, the Corporation
and the Recipient agree as follows:
1 CONFIRMATION OF GRANT OF OPTION. Pursuant to the requirements of the
Plan (but subject to shareholder approval of the Plan as required by
Securities and Exchange Commission Rule 16b-3), and effective December 26,
1995 (the "Date of Grant"), the Corporation, subject to the terms of the Plan
and of this Agreement, confirms that the Recipient has been irrevocably
granted on the Date of Grant, as a matter of separate inducement and
agreement, and in addition to and not in lieu of salary or other compensation
for services, a Non-Statutory Stock Option (the "Option") to purchase up to
30,000 shares of Common Stock on the terms and conditions herein set forth,
subject to adjustment as provided in Section 8 hereof.
2. OPTION PRICE. The purchase price of shares of Common Stock covered by
the Option will be $2.87 per share (the "Option Price") subject to adjustment
as provided in Section 7 hereof.
3. EXERCISE OF OPTION. Except as otherwise provided in Section 6 of
the Plan, the Option may be exercised in whole or part at any time during the
term of the Option; provided, however, no Option shall be exercisable after
the expiration of the term thereof, and no Option shall be exercisable unless
the holder shall at the time of exercise have been a director of the
Corporation for a period of at least three months.
The Option may be exercised, as provided in this Paragraph 3, by notice
and payment to the Corporation as provided in Paragraph 10 hereof and Section
6(c) of the Plan.
4. TERM OF OPTION. The term of the Option will be through December 31,
199--, subject to earlier termination or cancellation as provided in this
Agreement.
The holder of the Option will not have any rights to dividends or any
other rights of a shareholder with respect to any shares of Common Stock
subject to the Option until such shares shall have been issued (as evidenced
by the appropriate transfer agent of the Corporation) upon purchase of such
shares through exercise of the Option.
5. TRANSFERABILITY RESTRICTION. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated in any way
(whether by operation of law or otherwise) except in strict compliance with
Section 6(f) of the Plan. Any assignment, transfer, pledge, hypothecation or
other disposition of the Option or any attempt to make any such levy of
execution, attachment or other process will cause the Option to terminate
immediately upon the happening of any such event; provided, however, that any
such termination of the Option under the foregoing provisions of this
Paragraph 5 will not prejudice any rights or remedies which the Corporation
may have under this Agreement or otherwise.
6. DEATH OR DISABILITY OF RECIPIENT. The Recipient's rights to
exercise this Option upon the death or disability of the Recipient shall be
as set forth in Section 6(e) of the Plan.
7. ADJUSTMENTS. The Option shall be subject to adjustment upon the
occurrence of certain events as set forth in Section 6(g) of the Plan.
8. NO REGISTRATION OBLIGATION. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as amended (the
"Securities Act") and the Corporation has no obligation to register under the
Securities Act the Option or any of the shares of Common Stock subject to and
issuable upon the exercise of the Option. The Recipient represents that the
Option is being acquired by him and that such shares of Common Stock will be
acquired by him for investment and all certificates for the shares issued
<PAGE>
Page 48 of 64
upon exercise of the Option will bear the following legend unless such shares
are registered under the Securities Act prior to their issuance:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Securities Act"), and are
"restricted securities" as that term is defined in Rule 144
under the Securities Act. The shares may not be offered for
sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Securities Act or
pursuant to an exemption from registration under the Securities
Act, the availability of which is to be established to the
satisfaction of the Company.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the
Corporation are able to establish the existence of an exemption from
registration under the Securities Act and applicable state laws.
9. NOTICES. Each notice relating to this Agreement will be in writing and
delivered in person or by certified mail to the proper address. Notices to
the Corporation shall be addressed to the Corporation c/o Thomas J. Wiens,
Chairman, at 384 Inverness Drive South, Suite 211, Englewood, CO 80112.
Notices to the Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other person or
persons at the Recipient's address below specified. Anyone to whom a notice
may be given under this Agreement may designate a new address by notice to
that effect given pursuant to this Paragraph 10.
10. AGREEMENT BY RECIPIENT REGARDING TAXES.
a. The Recipient agrees that upon exercise of an Option, in addition
to the payment of the Exercise Price as provided in Section 6(c) of the Plan,
the Recipient shall pay in cash to the Corporation, an amount sufficient to
allow the Corporation to pay federal, state and local taxes of any kind
required by law to be withheld upon the exercise of such Option from any
payment of any kind otherwise due to the Recipient, if any.
b. The Recipient acknowledges the possible availability of an election
under Section 83(b) of the Code and agrees to give the Corporation prompt
written notice of any election made by such person under Section 83(b) of the
Code, or any similar provision thereof.
11. SECTION 16 COMPLIANCE. The Recipient acknowledges that Recipient is
solely responsible for filing all reports that may be required under Section
16 of the Securities and Exchange Act of 1934, and that the filing of such
reports is not the responsibility of the Corporation or the Committee, or any
member thereof.
12. APPROVAL OF COUNSEL. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities Act,
the Securities Exchange Act of 1934, applicable state securities laws, the
rules and regulations thereunder, and the requirements of any national
securities exchange upon which the Common Stock then may be listed.
13. BENEFITS OF AGREEMENT. This Agreement will inure to the benefit of and
be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Recipient and all rights granted to the
Corporation under this Agreement will be binding upon the Recipient's heirs,
legal representatives and successors.
14. GOVERNMENTAL AND OTHER REGULATIONS. The exercise of the Option and the
Corporation's obligation to sell and deliver shares upon the exercise of
rights to purchase shares is subject to all applicable federal and state
<PAGE>
Page 49 of 64
laws, rules and regulations, and to such approvals by any regulatory or
governmental agency which may, in the opinion of counsel for the Corporation,
be required.
15. INCORPORATION OF THE PLAN. The Plan is attached hereto and incorporated
herein by reference. In the event that any provision in this Agreement
conflicts with a provision in the Plan, the Plan shall govern. All
capitalized terms not otherwise defined herein shall be as defined in the
Plan.
16. TERMINATION OF OPTION WITHOUT SHAREHOLDER APPROVAL. This Option shall
not be effective, and shall terminate, unless the Plan has been approved by
the shareholders of the Corporation on or before December 31, 1997. If the
shareholders of the Corporation do not approve the Plan on or before such
date, this Agreement shall terminate and be of no further force or effect,
and the Option shall be deemed never to have been issued.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed
in its name by its Chairman or President, and the Recipient has executed this
Agreement all as of the date first above written.
RECYCLING INDUSTRIES, INC.
By:
-------------------------------
Thomas J. Wiens, Chairman
The undersigned Recipient understands the terms of this Option Agreement and
the attached Plan and hereby agrees to comply therewith.
(Undersigned)
Date , 19
----------------- -- --------------------------------
Recipient:
----------------------
Tax ID Number:
------------------
Address:
------------------------
--------------------------------
--------------------------------
<PAGE>
EXHIBIT "B"
FORM OF
SUBSCRIPTION AGREEMENT
THE SECURITIES OF RECYCLING INDUSTRIES, INC. BEING SUBSCRIBED FOR, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND ARE "RESTRICTED
SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO
BE ESTABLISHED TO THE SATISFACTION OF THE CORPORATION.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
<PAGE>
Page 50 of 64
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR
AN INDEFINITE PERIOD OF TIME.
This Subscription Agreement is entered for the purpose of the
Undersigned acquiring ---------- shares of the $.0011 par value common stock
(the "Securities") of RECYCLING INDUSTRIES, INC., a Colorado corporation (the
"Corporation") from the Corporation upon the exercise of an Option pursuant
to the Recycling Industries, Inc. 1995 Non-Employee Director Stock Option
Plan (the "Plan"). It is understood that exercise of an Option at a time
when no registration statement relating thereto is effective under the
Securities Act of 1933, as amended (the "Securities Act") cannot be
completed until the Undersigned executes this Subscription Agreement and
delivers it to the Corporation, and then such exercise is effective only in
accordance with the terms of the Plan and this Subscription Agreement.
In connection with the Undersigned's acquisition of the Securities, the
Undersigned represents and warrants to the Corporation as follows:
1. The Undersigned has been provided, and has reviewed all available
reports filed by the Corporation pursuant to the Securities Exchange Act of
1934, including (without limitation) the Corporation's most recent annual
report on Form 10-K for the most recently-completed fiscal year and all Forms
10-Q for the quarters subsequent to the end of the most recent fiscal year,
the Plan, and such other information as the Undersigned may have requested of
the Corporation regarding its business, operations, management, and financial
condition (all of which is referred to herein as the "Available
Information").
2. The Corporation has given the Undersigned the opportunity to ask
questions of and to receive answers from persons acting on the Corporation's
behalf concerning the terms and conditions of this transaction and the
opportunity to obtain any additional information regarding the Corporation,
its business and financial condition which the Corporation possesses or can
acquire without unreasonable effort or expense.
3. The Securities are being acquired by the Undersigned for his own
account and not on behalf of any other person or entity. The Undersigned's
present financial condition is such that it is unlikely that it would be
necessary for the Undersigned to dispose of any portion of the Securities in
the foreseeable future.
4. The Undersigned understands that the Securities being acquired hereby
have not been registered under the Securities Act or any state or foreign
securities laws, and are and will continue to be restricted securities within
the meaning of Rule 144 of the General Rules and Regulations under the
Securities Act and applicable state statutes, and consents to the placement
of an appropriate restrictive legend or legends on any certificates
evidencing the Securities and any certificates issued in replacement or
exchange therefor and acknowledges that the Corporation will cause its stock
transfer records to note such restrictions.
5. By the Undersigned's execution below, it is acknowledged and
understood that the Corporation is relying upon the accuracy and completeness
hereof in complying with certain obligations under applicable securities
laws.
<PAGE>
Page 51 of 64
6. This Agreement binds and inures to the benefit of the representatives,
successors and permitted assigns of the respective parties hereto.
(Undersigned)
Date , 19
----------------- -- --------------------------------
Recipient:
----------------------
Tax ID Number:
------------------
Address:
------------------------
--------------------------------
--------------------------------
<PAGE>
RECYCLING INDUSTRIES, INC.
1997 EXECUTIVE STOCK OPTION PLAN
1. PURPOSES OF AND BENEFITS UNDER THE PLAN. This Executive Stock
Option Plan (the "Plan") is intended to encourage stock ownership by employees,
officers and employee directors of RECYCLING INDUSTRIES, INC., its
divisions, Subsidiary corporations and Parent corporations (the
"Corporation"), so that they may acquire or increase their proprietary
interest in the Corporation, to (i) induce qualified persons to become
employees, officers, consultants to or employee directors of the
Corporation; (ii) reward employees and employee directors for past services
to the Corporation; and (iii) encourage such persons to remain in the employ
of or associated with the Corporation and to put forth maximum efforts for
the success of the business of the Corporation.
It is intended that options granted by the Committee pursuant to
Section 6(a) of this Plan shall constitute "incentive stock options"
("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code, and the regulations issued thereunder, and options
granted by the Committee pursuant to Section 6(b) of this Plan shall
constitute "non-statutory stock options" ("Non-statutory Stock Options").
2. DEFINITIONS. As used in this Plan, the following words and
phrases shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Code" means Internal Revenue Code of 1986, as amended
from time to time.
(c) "Committee" means the Compensation Committee appointed by
the Board, if one has been appointed. If no Committee has been appointed, the
term "Committee" shall mean the Board.
(d) "Common Stock" means the Corporation's $.001 par value
common stock.
(e) "Disability" means a Recipient's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than 12 months, or such other meaning ascribed in Section 22(e)(3) of
the Code or any successor provision. If the Recipient has a disability
<PAGE>
Page 52 of 64
insurance policy, the term "Disability" shall be as defined therein; provided
that said definition is not inconsistent with the meaning ascribed in Section
22(e)(3) of the Code or any successor provision.
(f) "Exchange Act" means Securities Exchange Act of 1934,
as amended from time to time.
(g) "Option" means either a Non-statutory Stock Option or
Incentive Stock Option.
(h) "Option Price" means the purchase price of the shares of
Common Stock covered by an Option determined in accordance with Section 7(c)
hereunder.
(i) "Parent" means any corporation which is a "parent
corporation" as defined in Section 424(e) of the Code, with respect to the
Corporation.
(j) "Plan" means this 1997 Executive Stock Option Plan.
(k) "Recipient" means any person granted an Option hereunder.
(l) "Retirement" means retirement from active employment
with the Corporation at or after age 60. The Committee's determination
regarding an individual's retirement shall be conclusive on all parties.
(m) "Securities Act" means the Securities Act of 1933, as
amended from time to time.
(n) "Subsidiary" means any corporation which is a
"subsidiary corporation" as defined in Section 424(f) of the Code, with
respect to the Corporation.
3. Administration.
(a) The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically conferred
under the Plan or necessary or advisable in the administration of the Plan,
including the authority to grant Options; to determine the vesting schedules
and other restrictions, if any, relating to Options; to determine the Option
Price; to determine the persons to whom, and the time or times at which,
Options shall be granted; to determine the number of shares to be covered by
each Option; to determine fair market value per share; to interpret the Plan;
to prescribe, amend and rescind rules and regulations relating to the Plan;
to determine the terms and provisions of the Option agreements (which need
not be identical) entered into in connection with Options granted under the
Plan; and to make all other determinations deemed necessary or advisable for
the administration of the Plan. The Committee may delegate to one or more of
its members or to one or more agents such administrative duties as it may
deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan.
(b) Options granted under the Plan shall be evidenced by
duly adopted resolutions of the Committee included in the minutes of the
meeting at which they are adopted or in a unanimous written consent.
(c) The Committee shall endeavor to administer the Plan and
grant Options hereunder in a manner that is compatible with the obligations
of persons subject to Section 16 of the Exchange Act ("Section 16 Persons"),
however compliance with Section 16 is a personal responsibility of each
Section 16 person and is not the responsibility of the Corporation or the
<PAGE>
Page 53 of 64
Committee, or any person thereof. None of the Committee, the Board or the
Corporation shall assume any legal responsibility for a Recipient's
compliance with his obligations under Section 16 of the Exchange Act. Any
Option granted hereunder which would subject or subjects the Recipient to
liability under Section 16(b) of the Exchange Act is void ab initio as if it
had never been granted.
(d) No member of the Committee or the Board shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any Option granted hereunder.
4. ELIGIBILITY.
(a) Subject to certain limitations hereinafter set forth,
Options may be granted to employees, officers and employee directors of the
Corporation. In determining the persons to whom Options shall be granted and
the number of shares to be covered by each Option, the Committee shall take
into account the duties of the respective persons, their present and
potential contributions to the success of the Corporation and such other
factors as the Committee shall deem relevant to accomplish the purposes of
the Plan.
(b) A Recipient shall be eligible to receive more than one
grant of an Option during the term of the Plan, on the terms and subject to
the restrictions herein set forth.
5. STOCK RESERVED.
(a) The stock subject to Options hereunder shall be shares
of Common Stock. Such shares, in whole or in part, may be authorized but
unissued shares or shares that shall have been or that may be reacquired by
the Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan (the "Available
Shares") initially shall not exceed 4,000,000 shares. The number of
Available Shares shall be subject to adjustment as provided in Section 7(i)
hereof.
(b) If any outstanding Option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares of
Common Stock allocable to the unexercised portion of such Option shall become
available for subsequent grants of Options under the Plan unless the Plan
shall have been terminated.
6. STOCK OPTIONS
(a) INCENTIVE STOCK OPTIONS.
(1) Options granted pursuant to this Section 6(a)
are intended to constitute Incentive Stock Options and shall be subject to
the following special terms and conditions, in addition to the general terms
and conditions specified in Section 7 hereof. Only employees of the
Corporation (as the term "employees" is defined for the purposes of the
Internal Revenue Code) shall be entitled to receive Incentive Stock Options.
(2) The aggregate fair market value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common
Stock with respect to which Incentive Stock Options granted under this and
any other plan of the Corporation or any Parent Corporation or Subsidiary
Corporation are exercisable for the first time by any Recipient during any
calendar year may not exceed the amount set forth in Section 422(d) of the
Internal Revenue Code.
(3) Incentive Stock Options granted under this Plan
are intended to satisfy all requirements for incentive stock options under
<PAGE>
Page 54 of 64
Section 422 of the Internal Revenue Code and the Treasury Regulations
thereunder and, notwithstanding any other provision of this Plan, the Plan
and all Incentive Stock Options granted under it shall be so construed, and
all contrary provisions shall be so limited in scope and effect and, to the
extent they cannot be so limited, they shall be void.
(b) NON-STATUTORY STOCK OPTIONS. Options granted pursuant
to this Section 6(b) are intended to constitute Non-statutory Stock Options
and shall be subject only to the general terms and conditions specified in
Section 7 hereof.
7. TERMS AND CONDITIONS OF OPTIONS. Each Option granted pursuant
to the Plan shall be evidenced by a written Option agreement between the
Corporation and the Recipient, which agreement substantially shall be in the
form of Exhibit A hereto as modified from time to time by the Committee in
its discretion, and which shall comply with and be subject to the following
terms and conditions:
(a) NUMBER OF SHARES. Each Option agreement shall state the
number of shares of Common Stock covered by the Option.
(b) TYPE OF OPTION. Each Option agreement shall
specifically identify the portion, if any, of the Option which constitutes an
Incentive Stock Option and the portion, if any, which constitutes a
Non-statutory Stock Option.
(c) OPTION PRICE.
(1) The Option Price shall be fixed by the Committee
at the time of grant of such option and shall not be less than 100% of the
fair market value of the Common Stock at the time the Option is granted. The
Committee shall, in good faith, determine the fair market value of the Common
Stock (without regard to any restrictions other than a restriction which, by
its terms, will never lapse) based upon a reasonable method of valuation
adopted by the Committee, or such other method as may be permitted by the
Code, or regulations or rulings promulgated thereunder. In no event shall
the Option Price be less than the par value of the Common Stock. The
Committee will use its best efforts to determine the fair market value of the
Common Stock subject to the Option, but neither the Committee or the Company
will be responsible for the payment of any tax imposed upon the participants,
nor will they reimburse participants for their payment of any tax so imposed.
Neither the Company, the Committee, nor any member thereof shall make any
representation or warranty to any participant regarding federal or state
income tax consequences or effects of participating in the Plan.
(2) The Option Price of any Incentive Stock Option
granted under the Plan to a person owning more than ten percent of the total
combined voting power of the Common Stock shall be a price not less than 110%
of the fair market value per share, determined by the Committee pursuant to
Paragraph 7(c)(1), above, on the date of grant of the Incentive Stock Option.
(3) The Option Price shall be subject to adjustment
as provided in Section 7(i) hereof.
(4) The date on which the Committee adopts a
resolution expressly granting an option shall be considered the day on which
such option is granted, unless a future date is specified in the resolution.
(d) TERM OF OPTION. Each Option agreement shall state the
period during and times at which the Option shall be exercisable; provided,
however:
(1) The date on which the Committee adopts a
resolution expressly granting an Option shall be considered the day on which
such Option is granted, although such grant shall not be effective until the
<PAGE>
Page 55 of 64
Recipient has executed an Option agreement with respect to such Option.
(2) Except as further restricted in paragraph
7(d)(3), the exercise period shall not exceed ten years from the date of
grant of the option.
(3) The exercise period for Incentive Stock Options
granted to a person owning more than ten percent of the total combined voting
power of the Common Stock of the Corporation shall be for no more than five
years.
(4) The Committee shall have the authority to
accelerate or extend the exercisability of any outstanding option at such
time and under such circumstances as it, in its sole discretion, deems
appropriate. No exercise period may be extended to increase the term of the
option beyond ten years from the date of the grant.
(5) The exercise period shall be subject to earlier
termination as provided in Sections 7(f) and 7(g) hereof, and furthermore
shall be terminated upon surrender of the Option by the holder thereof if
such surrender has been authorized in advance by the Committee.
(e) METHOD OF EXERCISE AND MEDIUM AND TIME OF PAYMENT.
(1) An Option may be exercised as to any or all
whole shares of Common Stock as to which it then is exercisable.
(2) Each exercise of an Option granted hereunder,
whether in whole or in part, shall be by written notice to the secretary of
the Corporation designating the number of shares as to which the Option is
being exercised, and shall be accompanied by payment in full of the Option
Price for the number of shares so designated, together with any written
statements required by any applicable securities laws.
(3) The Option Price shall be paid in cash, in
shares of Common Stock having a fair market value equal to such Option Price,
as determined by the Committee in its sole discretion, or in a combination of
cash and shares and, subject to approval of the Committee, may be effected in
whole or in part (A) with monies received from the Corporation at the time of
exercise as a compensatory cash payment, or (B) with monies borrowed from the
Corporation pursuant to repayment terms and conditions as shall be determined
from time to time by the Committee, in its discretion, separately with
respect to each exercise of an Option and each Recipient; provided, however,
that each such method and time for payment and each such borrowing and the
terms and conditions of repayment shall be permitted by and be in compliance
with applicable law.
(4) The Recipient shall make provision for the
withholding of taxes as required by Paragraph 8 hereof.
(f) TERMINATION. Except as provided herein or in any option
agreement entered into pursuant hereto, an Option may not be exercised unless
the Recipient then is an employee, officer of or director of or consultant to
the Corporation, and unless the Recipient has remained continuously as an
employee, officer or director of or consultant to the Corporation since the
date of grant of the Option.
(1) If the Recipient ceases to be an employee,
officer or director of, or consultant to, the Corporation for cause (other
than by reason of death, Disability or retirement), and except as otherwise
provided in any option agreement for the grant of Non-statutory Stock Options
pursuant to Section 6(b) hereof, all Options theretofore granted to such
Recipient but not theretofore exercised shall immediately terminate.
<PAGE>
Page 56 of 64
(2) If the Recipient ceases to be an employee,
officer or director of, or consultant to, the Corporation (other than by
reason of death, Disability or retirement), other than for cause, and except
as otherwise provided in any option agreement for the grant of Non-statutory
Stock Options pursuant to Section 6(b) hereof, all Options theretofore
granted to such Recipient but not theretofore exercised shall terminate three
months following the date the Recipient ceased to be an employee, officer or
director of, or consultant to, the Corporation.
(3) Nothing in the Plan or in any Option granted
hereunder shall confer upon an individual any right to continue in the employ
of or other relationship with the Corporation or interfere in any way with
the right of the Corporation to terminate such employment or other
relationship between the individual and the Corporation.
(g) DEATH, DISABILITY OR RETIREMENT OF RECIPIENT. If a
Recipient shall die while an employee, officer or director of or a consultant
to the Corporation, or if the Recipient's employment, officer or director
status or consulting relationship, shall terminate by reason of Disability or
Retirement, all Options theretofore granted to such Recipient, whether or not
otherwise exercisable, unless earlier terminated in accordance with their
terms, may be exercised by the Recipient or by the Recipient's estate or by a
person who acquired the right to exercise such Options by bequest or
inheritance or otherwise by reason of the death or Disability of the
Recipient, at any time within one year after the date of death, Disability or
Retirement of the Recipient; provided, however, that in the case of Incentive
Stock Options such one-year period shall be limited to three months in the
case of Retirement.
(h) TRANSFERABILITY RESTRICTION.
(1) Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code or Title I of the Employee Retirement Income Security Act of
1974, or the rules thereunder. Options may be exercised, during the lifetime
of the Recipient, only by the Recipient and thereafter only by his or her
legal representative.
(2) Any attempted sale, pledge, assignment,
hypothecation or other transfer of an Option contrary to the provisions
hereof and the levy of any execution, attachment or similar process upon an
Option shall be null and void and without force or effect and shall result in
a termination of the Option.
(3) As a condition to the transfer of any shares of
Common Stock issued upon exercise of an Option granted under this Plan, the
Corporation may require an opinion of counsel, satisfactory to the
Corporation, to the effect that such transfer will not be in violation of the
Securities Act or any other applicable securities laws or that such transfer
has been registered under federal and all applicable state securities laws.
Further, the Corporation shall be authorized to refrain from delivering or
transferring shares of Common Stock issued under this Plan until the
Committee determines that such delivery or transfer will not violate
applicable securities laws and the Recipient has tendered to the Corporation
any federal, state or local tax owed by the Recipient as a result of
exercising the Option or disposing of any Common Stock when the Corporation
has a legal liability to satisfy such tax. The Corporation shall not be
liable for damages due to delay in the delivery or issuance of any stock
certificate for any reason whatsoever, including, but not limited to, a delay
caused by listing requirements of any securities exchange or any registration
requirements under the Securities Act, the Exchange Act, or under any other
state or federal law, rule or regulation. The Corporation is under no
obligation to take any action or incur any expense in order to
<PAGE>
Page 57 of 64
register or qualify the delivery or transfer of shares of Common Stock under
applicable securities laws or to perfect any exemption from such registration
or qualification. Furthermore, the Corporation will not be liable to any
Recipient for failure to deliver or transfer shares of Common Stock if such
failure is based upon the provisions of this paragraph.
(i) EFFECT OF CERTAIN CHANGES.
(1) If there is any change in the number of shares
of Common Stock through the declaration of stock dividends, or through a
recapitalization resulting in stock splits, or combinations or exchanges of
such shares, the number of shares of Common Stock available for Options and
the number of such shares covered by outstanding Options, and the exercise
price per share of the outstanding Options, shall be proportionately adjusted
by the Committee to reflect any increase or decrease in the number of issued
shares of Common Stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
(2) In the event of the proposed dissolution or
liquidation of the Corporation, or any corporate separation or division,
including, but not limited to, split-up, split-off or spin-off, or a merger
or consolidation of the Corporation with another corporation, the Committee
may provide that the holder of each Option then exercisable shall have the
right to exercise such Option (at its then current Option Price) solely for
the kind and amount of shares of stock and other securities, property, cash
or any combination thereof receivable upon such dissolution, liquidation,
corporate separation or division, or merger or consolidation by a holder of
the number of shares of Common Stock for which such Option might have been
exercised immediately prior to such dissolution, liquidation, or corporate
separation or division, or merger or consolidation; or in the alternative the
Committee may provide that each Option granted under the Plan shall terminate
as of a date fixed by the Committee; provided, however, that not less than 30
days written notice of the date so fixed shall be given to each Recipient,
who shall have the right, during the period of 30 days preceding such
termination, to exercise the Option as to all or any part of the shares of
Common Stock covered thereby, including shares as to which such Option would
not otherwise be exercisable.
(3) Paragraph (2) of this Section 7(i) shall not
apply to a merger or consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into or exchanged
for stock, securities of any other corporation, cash or any other thing of
value. Notwithstanding the preceding sentence, in case of any consolidation
or merger of another corporation into the Corporation in which the
Corporation is the surviving corporation and in which there is a
reclassification or change (including a change to the right to receive cash
or other property) of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination, but including any change in such shares into two or more classes
or series of shares), the Committee may provide that the holder of each
Option then exercisable shall have the right to exercise such Option solely
for the kind and amount of shares of stock and other securities (including
those of any new direct or indirect Parent of the Corporation), property,
cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by the holder of the number of shares of
Common Stock for which such Option might have been exercised.
(4) In the event of a change in the Common Stock of
the Corporation as presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
<PAGE>
Page 58 of 64
(5) To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each Incentive Stock Option granted
pursuant to this Plan shall not be adjusted in a manner that causes such
option to fail to continue to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Internal Revenue Code.
(6) Except as expressly provided in this Section
7(i), the Recipient shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock
of any class or by reason of any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another corporation; and any
issue by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to the Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structures or to merge or to consolidate
or to dissolve, liquidate or sell, or transfer all or part of its business or
assets.
(j) RIGHTS AS SHAREHOLDER - NON-DISTRIBUTIVE INTENT.
(1) Neither a person to whom an Option is granted,
nor such person's legal representative, heir, legatee or distributee, shall
be deemed to be the holder of, or to have any rights of a holder with respect
to, any shares subject to such Option until after the Option is exercised and
the shares are issued to the person exercising such Option.
(2) Upon exercise of an Option at a time when there
is no registration statement in effect under the Securities Act relating to
the shares issuable upon exercise, shares may be issued to the Recipient only
if the Recipient represents and warrants in writing to the Corporation that
the shares purchased are being acquired for investment and not with a view to
the distribution thereof and provides the Corporation with sufficient
information to establish an exemption from the registration requirements of
the Securities Act. A form of subscription agreement is attached hereto as
Exhibit B.
(3) No shares shall be issued upon the exercise of
an Option unless and until there shall have been compliance with any then
applicable requirements of the Securities and Exchange Commission, or any
other regulatory agencies having jurisdiction over the Corporation.
(4) No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distribution or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 7(i) hereof.
(k) OTHER PROVISIONS. Option Agreements authorized under
the Plan shall contain such other provisions, including, without limitation,
(i) the imposition of restrictions upon the exercise of an option; and (ii)
in the case of an Incentive Stock Option, the inclusion of any condition not
inconsistent with such option qualifying as an Incentive Stock Option, as the
Committee shall deem advisable.
8. AGREEMENT BY RECIPIENT REGARDING TAXES.
(a) Each Recipient agrees that upon exercise of an Option
granted under this Plan, in addition to the payment of the Option Price as
provided in Section 7(e) hereof, the Recipient shall pay in cash to the
Corporation, an amount sufficient to allow the Corporation to pay federal,
<PAGE>
Page 59 of 64
state and local taxes of any kind required by law to be withheld upon the
exercise of such Option from any payment of any kind otherwise due to the
Recipient.
(b) Each Option Recipient must acknowledge the possible
availability of an election under Section 83(b) of the Code, or any
successor provision.
9. TERM OF PLAN. Options may be granted under this Plan from time
to time within a period of five years from the date the Plan is adopted by the
Board.
10. AMENDMENT AND TERMINATION OF THE PLAN. The Committee at any
time and from time to time may suspend, terminate, modify or amend the Plan.
Except as provided in Section 7 hereof, no suspension, termination,
modification or amendment of the Plan may adversely affect any Option
previously granted, unless the written consent of the Recipient is obtained.
11. ASSUMPTION. Subject to Section 7, the terms and conditions of any
outstanding Options granted pursuant to this Plan shall be assumed by, be
binding upon and shall inure to the benefit of any successor corporation to
the Corporation and continue to be governed by, to the extent applicable, the
terms and conditions of this Plan. Such successor corporation may but shall
not be obligated to assume this Plan.
12. TERMINATION OF RIGHT OF ACTION. Every right of action arising out
of or in connection with the Plan by or on behalf of the Corporation, or by
any shareholder of the Corporation against any past, present or future
member of the Board, or against any employee, or by an employee (past,
present or future) against the Corporation, irrespective of the place where
an action may be brought and of the place of residence of any such
shareholder, director or employee, will cease and be barred by the
expiration of three years from the date of the act or omission in respect of
which such right of action is alleged to have risen or such shorter period
as may be provided by law.
13. ADOPTION.
(a) This Plan was approved by the Board of Directors of the
Corporation on April 18, 1997.
(b) This Plan was approved by the shareholders of the
Corporation on-------------, 1997.
(c) If this Plan is not approved by the shareholders of the
Corporation within 12 months of the date the Plan was approved by the Board
as required by Section 422(b)(1) of the Internal Revenue Code, this Plan and
the options granted hereunder shall be and remain effective for all
Recipients, but the reference to Incentive Stock Options herein shall be
deleted and all options granted hereunder shall be Non-statutory Stock
Options pursuant to Section 6(b) hereof.
(d) Notwithstanding any other provision of this Plan, if any
person who is granted options under this Plan prior to shareholder approval of
this Plan, ceases to be an officer or employee of the Company prior to
shareholder approval of this Plan, all options granted to that person shall
immediately terminate.
RECYCLING INDUSTRIES, INC.
By------------------------------
Thomas J. Wiens, Chairman and
Chief Executive Officer
<PAGE>
Page 60 of 64
EXHIBIT A
FORM OF
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of this --- day of ------, 199---,
between RECYCLING INDUSTRIES, INC., a Colorado corporation (the
"Corporation"), and ---------------(the "Recipient").
In accordance with its 1997 Executive Stock Option Plan (the "Plan"), a
copy of which is attached and is incorporated herein by reference, the
Corporation desires, in connection with the services of the Recipient, to
provide the Recipient with an opportunity to acquire no par value common
stock ("Common Stock") of the Corporation on favorable terms and thereby
increase the Recipient's proprietary interest in the Corporation and as
incentive to put forth maximum efforts for the success of the business of
the Corporation.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth and other good and valuable consideration, the Corporation
and the Recipient agree as follows:
1. CONFIRMATION OF GRANT OF OPTION. Pursuant to a determination of
the Compensation Committee of the Board of Directors of the Corporation (the
"Committee") (if such a Committee has been appointed) or in the absence of a
Committee, by the Board of Directors of the Corporation (the "Board") made on
- - --------, ---- 199--- (the "Date of Grant"), the Corporation, subject to the
terms of the Plan and of this Agreement, confirms that the Recipient has
been irrevocably granted on the Date of Grant, as a matter of separate
inducement and agreement, and in addition to and not in lieu of salary or
other compensation for services, [an Incentive/a Non-statutory] Stock Option
pursuant to Section 6 of the Plan (the "Option") to purchase an aggregate of
- - ------ shares of Common Stock on the terms and conditions herein set forth,
subject to adjustment as provided in Paragraph 8 hereof.
2. OPTION PRICE. The Option Price of shares of Common Stock covered
by the Option will be $-------- per share (the "Option Price") subject to
adjustment as provided in Paragraph 7(i) of the Plan.
3. VESTING OF OPTION. This Option shall vest as follows \\to be
tailored to each executive\\
4. EXERCISE OF OPTION. Except as otherwise provided in Section 7 of
the Plan, the Option may be exercised in whole or in part at any time during
the term of the Option, provided, however, no Option shall be exercisable
after the expiration of the term thereof, and no Option shall be exercisable
unless the holder shall at the time of exercise have been an employee,
officer, consultant to or employee director of the Corporation for a period
of at least three months.
The Option may be exercised, as provided in this Paragraph 4, by
notice and payment to the Corporation as provided in Paragraph 11 hereof and
Section 7(e) of the Plan.
5. TERM OF OPTION. The term of the Option will be through ------
years from the Date of Grant, subject to earlier termination or cancellation
as provided in this Agreement.
The holder of the Option will not have any rights to dividends or
any other rights of a shareholder with respect to any shares of Common Stock
subject to the Option until such shares shall have been issued upon purchase
<PAGE>
Page 61 of 64
of such shares through exercise of the Option.
6. TRANSFERABILITY RESTRICTION. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated in any way
(whether by operation of law or otherwise) except in strict compliance with
Section 7(h) of the Plan. Any assignment, transfer, pledge, hypothecation
or other disposition of the Option or any attempt to make any such levy of
execution, attachment or other process will cause the Option to terminate
immediately upon the happening of any such event, provided, however, that
any such termination of the Option under the foregoing provisions of this
Paragraph 6 will not prejudice any rights or remedies which the Corporation
may have under this Agreement or otherwise.
7. EXERCISE UPON TERMINATION. The Recipient's rights to exercise
this Option upon termination of employment or cessation as an officer or
employee director shall be as set forth in Section 7(f) of the Plan.
8. DEATH, DISABILITY OR RETIREMENT OF RECIPIENT. The Recipient's
rights to exercise this Option upon the death, Disability or Retirement of
the Recipient shall be as set forth in Section 7(g) of the Plan.
9. ADJUSTMENTS. The Option shall be subject to adjustment upon the
occurrence of certain events as set forth in Section 7(i) of the Plan.
10. NO REGISTRATION OBLIGATION. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as amended (the
"Securities Act") and the Corporation has no obligation to register under
the Securities Act the Option or any of the shares of Common Stock subject
to and issuable upon the exercise of the Option. The Recipient represents
that the Option is being acquired by him or her and that such shares of
Common Stock will be acquired by him or her for investment and all
certificates for the shares issued upon exercise of the Option will bear the
following legend unless such shares are registered under the Securities Act
prior to their issuance:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Securities Act"), and are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from
registration under the Securities Act, the availability of which is to
be established to the satisfaction of the Company.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the
Corporation are able to establish the existence of an exemption from
registration under the Securities Act and applicable state laws.
11. NOTICES. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the proper address.
Notices to the Corporation shall be addressed to the Corporation, 384
Inverness Way South, Suite 211, Englewood, Colorado 80112, Attn: Secretary.
Notices to the Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other person or persons
at the Recipient's address below specified. Anyone to whom a notice may be
given under this Agreement may designate a new address by notice to that
effect given pursuant to this Paragraph 17.
12. AGREEMENT BY RECIPIENT REGARDING TAXES.
(a) The Recipient agrees that upon exercise of an Option, in
addition to the payment of the Option Price as provided in Section 7(e) of
the Plan, the Recipient shall pay in cash to the Corporation, an amount
sufficient to allow the Corporation to pay federal, state and local taxes of
<PAGE>
Page 62 of 64
any kind required by law to be withheld upon the exercise of such Option
from any payment of any kind otherwise due to the Recipient.
(b) The Recipient acknowledges the possible availability of an
election under Section 83(b) of the Code and agrees to give the Corporation
prompt written notice of any election made by such person under Section
83(b) of the Code, or any similar provision thereof.
13. SECTION 16 COMPLIANCE. The Recipient acknowledges that it is
solely responsible for filing all reports that may be required under Section
16 of the Securities Exchange Act of 1934, and that the filing of such reports
is not the responsibility of the Corporation or the Committee, or any person
thereof.
14. APPROVAL OF COUNSEL. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities Act,
the Securities Exchange Act of 1934, as amended, applicable state securities
laws, the rules and regulations thereunder, and the requirements of any
national securities exchange upon which the Common Stock then may be listed.
15. BENEFITS OF AGREEMENT. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the Corporation. All
obligations imposed upon the Recipient and all rights granted to the
Corporation under this Agreement will be binding upon the Recipient's heirs,
legal representatives and successors.
16. GOVERNMENTAL AND OTHER REGULATIONS. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon the exercise
of rights to purchase shares is subject to all applicable federal and state
laws, rules and regulations, and to such approvals by any regulatory or
governmental agency which may, in the opinion of counsel for the
Corporation, be required.
17. INCORPORATION OF THE PLAN. The Plan is attached hereto and
incorporated herein by reference. In the event that any provision in this
Agreement conflicts with a provision in the Plan, the Plan shall govern.
All capitalized terms not otherwise defined herein shall be as defined in
the Plan.
Executed in the name and on behalf of the Corporation by one of
its duly authorized officers and by the Recipient all as of the date first
above written.
RECYCLING INDUSTRIES, INC.
By--------------------------------
Name----------------------------
Title---------------------------
The undersigned Recipient understands the terms of this Option
Agreement and the attached Plan and hereby agrees to comply therewith.
Date ----------------, 19----- --------------------------------
Recipient:----------------------
<PAGE>
Page 63 of 64
Tax ID Number:------------------
Address:------------------------
--------------------------------
--------------------------------
<PAGE>
EXHIBIT B
FORM OF
SUBSCRIPTION AGREEMENT
THE SECURITIES OF RECYCLING INDUSTRIES, INC. BEING SUBSCRIBED FOR HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
BLUE SKY OR SECURITIES LAWS AND ARE OFFERED UNDER EXEMPTIONS FROM THE
REGISTRATION PROVISIONS OF SUCH LAWS.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES
HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
This Subscription Agreement is entered for the purpose of the
Undersigned acquiring ------------shares of the no par value common stock
(the "Securities") of RECYCLING INDUSTRIES, INC., a Colorado corporation
(the "Corporation") from the Corporation upon the exercise of an Option
pursuant to the RECYCLING INDUSTRIES, Inc. 1997 Stock Option Plan (the
"Plan"). It is understood that no exercise of an Option at a time when no
registration statement relating thereto is effective under the Securities
Act of 1933, as amended (the "Securities Act") can be completed until the
Undersigned executes this Subscription Agreement and delivers it to the
Corporation, and then such exercise is effective only in accordance with the
terms of the Plan and this Subscription Agreement.
In connection with the Undersigned's acquisition of the Securities, the
Undersigned represents and warrants to the Corporation as follows:
1. The Undersigned has been provided with the following information:
\\need to insert at the time of exercise\\ (all of which is referred to
herein as the "Available Information").
2. The Corporation has given the Undersigned the opportunity to ask
questions of and to receive answers from persons acting on the Corporation's
behalf concerning the terms and conditions of this transaction and the
opportunity to obtain any additional reasonable information regarding the
Corporation, its business and financial condition which the Corporation
possesses or can acquire without unreasonable effort or expense.
3. The Securities are being acquired by the Undersigned for his or
her own account and not on behalf of any other person or entity. The
Undersigned's present financial condition is such that it is unlikely that
<PAGE>
Page 64 of 64
it would be necessary for the Undersigned to dispose of any portion of the
Securities in the foreseeable future.
4. The Undersigned understands that the Securities being acquired
hereby have not been registered under the Securities Act or any state or
foreign securities laws, and are and will continue to be restricted securities
within the meaning of Rule 144 of the General Rules and Regulations under
the Securities Act and applicable state statutes, and consents to the
placement of an appropriate restrictive legend or legends on any
certificates evidencing the Securities and any certificates issued in
replacement or exchange therefor and acknowledges that the Corporation will
cause its stock transfer records to note such restrictions.
5. By the Undersigned's execution below, it is acknowledged and
understood that the Corporation is relying upon the accuracy and
completeness hereof in complying with certain obligations under applicable
securities laws.
6. This Agreement binds and inures to the benefit of the
representatives, successors and permitted assigns of the respective parties
hereto.
7. Incorporation of the Plan. The Plan is attached hereto and
incorporated herein by reference. In the event that any provision in this
Agreement conflicts with a provision in the Plan, the Plan shall govern.
All capitalized terms not otherwise defined herein shall be as defined in
the Plan.
(Undersigned)
Date ----------------, 19----- --------------------------------
Recipient:----------------------
Tax ID Number:------------------
Address:------------------------
--------------------------------
--------------------------------
