Registration No. 333-48517
4,010,284 Shares
HI-RISE RECYCLING SYSTEMS, INC.
Common Stock
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This Prospectus relates to an aggregate of 4,010,284 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
Hi-Rise Recycling Systems, Inc., a Florida corporation (the "Company"), proposed
to be sold from time to time by the Selling Shareholders named herein. See
"Selling Shareholders." The Company will not receive any proceeds from the sale
of Shares by the Selling Shareholders; however, the maximum gross proceeds
payable to the Company from the exercise of all of the Warrants, if exercised in
full, would be $3,679,752.75.
The Company has registered 3,500,762 of the Shares under the Securities
Act of 1933, as amended (the "Securities Act"), for sale by the Selling
Shareholders pursuant to certain Registration Rights Agreements (the
"Registration Rights Agreements") entered into by the Company and certain of the
Selling Shareholders. See "The Company - Recent Events." The Company has been
advised by the Selling Shareholders that they may from time to time sell all or
part of the Shares in one or more transactions in the over-the-counter market,
on the Nasdaq Small-Cap Market (or any exchange on which the Common Stock may
then be listed), in negotiated transactions or otherwise, or pursuant to a
combination of such methods of sale. This Prospectus also may be used, with the
Company's consent, by donees of the Selling Shareholders, or by other persons
acquiring the Shares and who wish to offer and sell such Shares under
circumstances requiring or making desirable its use. The Shares will be sold at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling the Shares to or though broker-dealers, who
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Shareholders or purchasers of the Shares, or both,
for whom they may act as agent (which compensation may be in excess of customary
commissions). The Selling Shareholders and any participating broker-dealers may
be deemed to be "underwriters" as defined in the Securities Act. Neither the
Company nor the Selling Shareholders can presently estimate the amount of
commissions or discounts, if any, that will be paid by the Selling Shareholders
in connection with their sale of the Shares from time to time.
The Company has agreed to indemnify the Selling Shareholders who are
parties to any of the Registration Rights Agreements against certain
liabilities, including liabilities under the Securities Act. See "Plan of
Distribution."
The Common Stock is quoted on the Nasdaq Small-Cap Market under the
symbol "HIRI." On May 26, 1998, the last reported bid price of the Common
Stock on the Nasdaq Small-Cap Market was $2.9375 per share. As of May 26, 1998,
there were 9,043,731 shares of Common Stock issued and outstanding.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN
EVALUATING AN INVESTMENT IN THE SHARES, SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June 9, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the following regional offices of the Commission: Seven World Trade Center,
Suite 1300, New York, New York 10048; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 3475 Lenox Road, N.E., Suite 1000, Atlanta, Georgia
30326. Copies of each document may also be obtained through the Commission's
internet address at http://www.sec.gov. Quotations relating to the Company's
Common Stock appear on the Nasdaq Small-Cap Market and such reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act with respect to
the Shares offered hereby. This Prospectus, which is a part of the Registration
Statement, does not contain all the information set forth in, or annexed as
exhibits to, such Registration Statement, certain portions of which have been
omitted pursuant to rules and regulations of the Commission. For further
information with respect to the Company and the Shares, reference is hereby made
to such Registration Statement, including the exhibits thereto. Copies of such
Registration Statement, including exhibits, may be obtained from the
aforementioned public reference facilities of the Commission upon payment of the
prescribed fees, or may be examined without charge at such facilities.
Statements contained herein concerning any document filed as an exhibit are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under
the Exchange Act are incorporated in and made a part of this Prospectus by
reference:
(a) the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997;
(b) the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1998;
(c) the Company's Current Report on Form 8-K for an event occurring
February 20, 1998; and
(d) the Company's Registration Statement on Form 8-A (Registration No.
0-21946).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any other
subsequently filed documents, which also are incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company hereby undertakes to
provide, without charge, to each person, including any beneficial owner, to
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whom a copy of this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the information incorporated herein by
reference. Exhibits to any of such documents, however, will not be provided
unless such exhibits are specifically incorporated by reference into such
documents. The requests should be addressed to the Company's principal executive
office: Attn: Secretary, 8505 N.W. 74th Street, Miami, Florida 33166, telephone
number (305) 597-0243.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
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THE COMPANY
Hi-Rise Recycling Systems, Inc. (the "Company") is primarily engaged in
manufacturing, distributing, marketing and selling solid waste handling
equipment. Until February 1997, the Company was primarily engaged in
distributing, marketing and selling a proprietary automated system known as the
"hi-rise" system designed to collect source-separated recyclables and other
solid waste in multi-story residential buildings. In February 1997, the Company
expanded its product lines to include sheet metal fabrication products,
consisting primarily of rubbish and laundry chutes. During the year ended
December 31, 1997, sales of sheet metal fabrication products accounted for
approximately 39% of the Company's revenues. In February 1998 the Company
acquired Hesco Sales, Inc. ("Hesco"), a Florida corporation engaged in the
business of manufacturing, marketing and selling solid waste handling equipment
products. Hesco's product lines include waste containers and trash compaction
systems. The Company anticipates that in the future Hesco's product lines will
be the Company's single largest source of revenue. In addition, the Company
expects that its other principal sources of revenue will be sales of rubbish
and linen chutes, trash compaction systems and the hi-rise system and sales-type
leases of the hi-rise systems. See "--Recent Events."
The hi-rise system, which is marketed under the Hi-Rise Recycling
System/trademark/ name, is easily adapted to and takes advantage of the
efficiency and convenience of a multi-story building's existing waste disposal
chute or designed into newly constructed buildings, permitting residents to
conveniently dispose of, without commingling, a variety of recyclable waste,
including glass, metal, newspapers and plastic, plus garbage. By providing for
source separation and collection from each floor, the hi-rise system eliminates
the cost, inconvenience and potential health and fire hazards associated with
manually transporting solid waste in elevators and stairwells to a central
storage area on the ground floor or basement. The hi-rise system is intended to
promote recycling and enable multi-story building owners and residents to
efficiently source-separate and divert recyclable waste from landfills, while
reducing the time, labor and hauling expenses normally associated with solid
waste disposal. The Company designed the hi-rise system in response to perceived
market opportunities arising out of increasing state and local environmental
regulation mandating or encouraging recycling.
As of March 31, 1998, the Company had installed 153 hi-rise systems, of
which 63 were sold and 90 were leased or rented. In connection with sales-type
leases of the hi-rise system, the Company has entered into shared savings
agreements with building owners, pursuant to which the Company manages a
building's solid waste disposal and receives a percentage of the building
owner's shared savings realized as a result of reduced waste disposal costs. In
1996, the Company focused its sales efforts with respect to the hi-rise system
on the new construction market.
The Company's backlog has grown from approximately $1.6 million at
December 31, 1995 and approximately $3.5 million at December 31, 1996 and $5.1
million at December 31, 1997.
As part of its plan to expand its operations into new geographic
markets, in February 1995, the Company acquired all of the outstanding capital
stock of IDC Systems, Inc., a then privately held New York corporation ("IDC
Systems"). Through IDC Systems the Company is engaged in the business of
assembling, selling, installing and servicing trash compaction systems in New
York, New Jersey and Connecticut. As of December 31, 1997, IDC Systems serviced
on a yearly basis approximately 1,700 compaction customers, many of which are
multi-story residential buildings that are potential customers for the hi-rise
system. The Company is attempting to capitalize on IDC System's customer base
and industry contacts.
The Company was incorporated in Florida in May 1990 as Recycling
Systems, Inc. and, in March 1992, changed its name to Hi-Rise Recycling Systems,
Inc. The Company's executive offices are located at 8505 N.W. 74th Street,
Miami, Florida 33166, and its telephone number is (305) 597-0243. Unless
otherwise indicated, all references in this Prospectus to the Company include
its wholly-owned subsidiaries, IDC
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Systems, Inc., Wilkinson Company, Inc., Hesco Sales, Inc., Atlantic Maintenance
of Florida, Inc., Dade County Recycling, Inc., and NuReTec of Florida, Inc.
RECENT EVENTS
WILKINSON ACQUISITION. On February 3, 1997, the Company acquired (the
"Wilkinson Acquisition") substantially all of the assets other than real
property (the "Wilkinson Assets") and assumed certain of the liabilities of
Wilkinson Company, Inc., an Ohio corporation (the "Wilkinson Seller"). The
Company consummated the Wilkinson Acquisition as part of its strategy to (i)
expand its network of independent distributors, (ii) offer a fully integrated
waste disposal system for multi-story buildings and (iii) commence manufacturing
the components of the Company's systems. The aggregate purchase price paid for
the Wilkinson Assets was $2,486,827 in cash, subject to adjustment under certain
circumstances, and 76,272 shares of the Company's Common Stock valued at
$300,000. Such shares are included in the Shares offered hereby. The Wilkinson
Seller was engaged in the sale, manufacture, distribution and installation of
sheet metal fabrication products, consisting primarily of laundry and rubbish
chutes, as well as corner guards, kick and push plates, handrails and bumper
rail systems. The Company, through its subsidiary Wilkinson Company, Inc.
("Wilkinson"), is continuing the business previously conducted by the Wilkinson
Seller. Wilkinson has a network of approximately 65 domestic independent
distributors. The Company has commenced utilizing Wilkinson's distributor
network to market the hi-rise system as well as Wilkinson's products. In
addition, as a result of the Wilkinson Acquisition, the Company is able to offer
multi-story buildings a fully integrated waste disposal system consisting of the
hi-rise system, waste disposal chute and trash compaction system. In connection
with the Wilkinson Acquisition, Wilkinson entered into a lease with the
Wilkinson Seller for its facility in Stow, Ohio. The Company has commenced
consolidating the manufacturing and engineering of certain of the Company's
products at Wilkinson's facility in Ohio, which the Company believes will enable
it to realize cost efficiencies.
1997 PRIVATE PLACEMENT. In late June and early July 1997, the Company
sold an aggregate of 200 shares of newly created Series B Convertible Preferred
Stock, $.01 par value per share (the "Series B Preferred Stock"), and warrants
(the " Series B Warrants") to purchase an aggregate of 888,887 shares of Common
Stock, in a private placement to accredited investors for an aggregate purchase
price of $2,000,000. The Series B Preferred Stock is convertible, at the option
of the holder thereof, into Common Stock at a conversion price of $2.25. The
conversion price is subject to adjustment for various events such as stock
dividends and recapitalizations. In addition, if the average closing bid price
(the "Trading Price") of the Common Stock, as reported on the Nasdaq Small-Cap
Market, during the three-month period commencing on the 270th day after the date
of the initial issuance of shares of the Series B Preferred Stock and ending on
the 360th day after such date is less than 135% of the then applicable
conversion price, the conversion price shall be reduced to such price as shall
equal the Trading Price divided by 1.35. Upon conversion, the holder will be
entitled to dividends at the rate of 8% per annum, accrued from the date of
issuance through the date of conversion payable in Common Stock. The Series B
Preferred Stock has no voting rights.
The Series B Warrants are exercisable to purchase from the Company
shares of Common Stock at an exercise price of $2.25 per share. The exercise
price is subject to adjustment for various events such as stock dividends and
recapitalizations. In addition, if the Trading Price of the Common Stock, as
reported on the Nasdaq Small-Cap Market, during the three-month period
commencing on the 270th day after June 23, 1997 and ending on the 360th day
after June 23, 1997 is less than 135% of the then applicable exercise price, the
exercise price shall be reduced to such price as shall equal the Trading Price
divided by 1.35.
In connection with the sale of the Series B Preferred Stock and the
Series B Warrants, the Company granted the purchasers certain registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock and exercise of the Warrants. Such shares are
included in the Shares offered hereby.
In connection with the 1997 Private Placement, the Company issued to
LBC Capital Resources, the placement agent for the 1997 Private Placement, a
placement fee of $50,000 and five year warrants (the "LBC Warrants") to purchase
93,000 shares of Common Stock at an exercise price of $3.00 per share. The
shares of Common Stock issuable upon exercise of the LBC Warrants are included
in the Shares offered hereby.
NURETEC ACQUISITION. In July 1997, the Company acquired all of the
issued and outstanding capital stock of NuReTec of Florida, Inc. ("NRT"),
through the merger of NRT into NRT Acquisition Sub, Inc., a wholly-owned
subsidiary of the Company. In consideration for its acquisition of the capital
stock of NRT, the Company issued an aggregate 150,000 shares of its Common
Stock, valued at $487,500, to the former shareholder of NRT. Such shares are
included in the Shares offered hereby.
HESCO AND ATLANTIC MAINTENANCE ACQUISITION. On February 20, 1998, HS
Acquisition Corp., a newly-formed wholly-owned subsidiary of the Company, merged
with and into Hesco Sales, Inc., a Florida corporation ("Hesco") owned by Evelio
Acosta ("Acosta"), with Hesco as the surviving corporation (the "Hesco Merger").
As a result of the Hesco Merger, Hesco became a wholly-owned subsidiary of the
Company. The consideration for the Hesco Merger paid by the Company was
$8,300,000 in cash (including $2,236,281 in repayment of shareholder loans). The
consideration for the Hesco Merger was partially funded by the net proceeds of
the 1998 Private Placement described below. Approximately $500,000 of the Hesco
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Merger consideration was funded from the proceeds of a $500,000 five-year term
loan from Donald Engel, Chairman of the Board of Directors and Chief Executive
Officer of the Company. The remaining portion of the Hesco Merger consideration
was funded through the proceeds of a line of credit and a term loan from Ocean
Bank, N.A.
On February 20, 1998, AM Acquisition Corp., a newly-formed wholly-owned
subsidiary of Company, merged with and into Atlantic Maintenance of Miami, Inc.,
a Florida corporation ("Atlantic Maintenance") owned by Acosta, with Atlantic
Maintenance as the surviving corporation (the "Atlantic Maintenance Merger"). As
a result of the Atlantic Maintenance Merger, Atlantic Maintenance became a
wholly-owned subsidiary of the Company. The consideration for the Atlantic
Maintenance Merger consisted of 1,276,094 shares of Common Stock.
Hesco has been engaged primarily in manufacturing, marketing and
selling solid waste handling equipment products for the past 35 years. Hesco's
product lines include waste containers, trash compaction systems, roll-off
hoists, tarp systems, bailers and hoppers. In addition, Hesco recently commenced
the sale of rebuilt garbage trucks. Hesco markets its products to waste haulers
and various municipalities primarily in the State of Florida. The Company
believes that the acquisition of Hesco will enable the Company to offer a full
line of solid waste handling and disposal equipment products and expand
horizontally into the waste hauler and municipal waste equipment markets.
1998 PRIVATE PLACEMENT. On February 19, 1998, the Company sold an
aggregate of 1,299,098 shares of its Common Stock for $2.70 per share in a
private placement to accredited investors (the "1998 Private Placement") in
which it received aggregate gross proceeds of approximately $3,507,560. After
payment of fees, expenses and commissions, the net proceeds to the Company from
the 1998 Private Placement were approximately $3,200,000. The purchasers were
granted certain registration rights with respect to the shares purchased in the
1998 Private Placement. Such shares are included in the Shares offered hereby.
In connection with the 1998 Private Placement, the Company issued to
Gilford Securities Incorporated, the placement agent for the 1998 Private
Placement ("Gilford"), five year warrants to purchase 129,910 shares of Common
Stock (the "Gilford Warrants"), which warrants are exercisable at $2.70, the
sales price per share of Common Stock in the 1998 Private Placement. The Company
granted to Gilford certain registration rights with respect to the shares of
Common Stock issuable upon exercise of the Gilford Warrants. The shares of
Common Stock issuable upon exercise of the Gilford Warrants are included in the
Shares offered hereby.
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RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK, INCLUDING THE RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN THE
SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS VARIOUS
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, WHICH REPRESENT THE COMPANY'S EXPECTATIONS AND BELIEFS CONCERNING
FUTURE EVENTS. THE COMPANY CAUTIONS THAT THESE STATEMENTS ARE FURTHER QUALIFIED
BY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN THE FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION, THE
FOLLOWING: DECLINE IN DEMAND FOR THE COMPANY'S PRODUCTS; THE EFFECT OF GENERAL
ECONOMIC CONDITIONS GENERALLY AND FACTORS AFFECTING THE WASTE HAULING AND
CONSTRUCTION INDUSTRIES. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES AND ACTUAL EVENTS OR RESULTS MAY DIFFER AS A RESULT OF
THESE AND OTHER FACTORS.
SIGNIFICANT LOSSES. Since its inception, the Company has incurred
significant losses, including a loss of $2,639,151 for the year ended December
31, 1996, and has only recently generated meaningful revenues. At December 31,
1997, the Company had an accumulated deficit of $5,938,058. Inasmuch as the
Company's operating expenses have increased and may be expected to continue to
increase significantly in connection with the Company's continued expansion
(including in connection with strategic acquisitions and with the establishment
of sales offices, the hiring of additional sales and marketing personnel and the
purchase of system components held for lease), there can be no assurance that
the Company will not sustain additional losses in the future, the amounts of
which may be material.
RISKS ASSOCIATED WITH ACQUISITIONS AND RAPID EXPANSION. The Company has
limited experience in effectuating rapid expansion or in managing operations
which are geographically dispersed. Expansion of the Company's operations will
be dependent on, among other things, the Company's ability to achieve
significant market acceptance for the hi-rise system, successfully site,
establish and operate sales offices, hire and retain skilled management,
marketing, technical and other personnel, secure adequate sources of supply on a
timely basis and on commercially reasonable terms and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
quality controls). The Company's growth prospects will be partially dependent
upon the hi-rise system achieving greater penetration in the markets in which it
is currently being sold as well as significant penetration in new geographic
markets. The Company's growth prospects are also dependent in part upon its
success in integrating Hesco into its operations and penetrating new markets for
Hesco's solid waste handling products. The Company's future growth will also be
dependent upon the Company's ability to achieve a sufficient installed base of
leased systems and on its ability to successfully enhance or adapt the hi-rise
system to satisfy evolving industry standards and government requirements. The
Company will continue to seek to expand its operations through the acquisition
of existing companies in businesses which the Company believes are compatible
with its business. There can be no assurance that the Company will be able to
successfully integrate into its operations any business which it has acquired or
may acquire in the future or otherwise successfully continue to expand its
operations.
RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATION. As of December 31,
1997, approximately 74% of the Company's sales of hi-rise systems had been to
customers located in Florida. In addition, Hesco's customer base consists of
waste haulers and municipalities primarily in Florida. The Company's prospects,
therefore, could be adversely affected by declines in Florida's real estate
industry or its economy generally, particularly in municipalities with high
concentrations of multi-story residential buildings, which could result in
reduction or deferral of capital expenditures by prospective customers. The
percentage of hi-rise system sales derived from new construction during the
years ended December 31, 1997, 1996 and 1995 were approximately 47%, 91% and
87%, respectively. A significant decline in the rate at which multi-story
residential buildings are built, particularly in the state of Florida, could
have a material adverse effect on the Company.
DEPENDENCE ON THIRD-PARTY SALES AND MARKETING ARRANGEMENTS. The Company
is dependent upon third-party marketing arrangements with independent sales
representatives and distributors for the sale and marketing of certain of its
products. The Company has a network of distributors who market its products
primarily to architects and building contractors. The Company generally has
contractual arrangements with its distributors pursuant to which the distributor
is granted the exclusive right to market the Company's products in the specified
territory. The distributor typically is not required to meet sales quotas to
maintain its relationship with the Company. The Company's arrangements with its
independent sales
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representatives and distributors typically do not preclude them from selling
competitive products. The Company's success is dependent upon the expertise and
relationships of its independent sales representatives and distributors with
customers. The failure by the Company to attract and retain independent sales
representatives and distributors would have a material adverse effect on the
Company.
FAILURE TO QUALIFY AS A MINORITY VENDOR FOLLOWING THE CONSUMMATION OF
THE HESCO ACQUISITION. Hesco solicits a significant portion of its sales through
participation in municipal bids and is listed on the Florida Statewide Vendor
List. Hesco's marketing efforts include monitoring trade journals and other
industry sources for bid solicitations by various entities including government
authorities and related instrumentalities, and responding to such bid
solicitations. Typically, a bidder submits a proposal detailing its
qualifications, including its qualification as a minority vendor, the products
to be provided and the cost of the products to the soliciting entity which then,
based upon its evaluation of the proposals submitted, awards the order to the
successful bidder. In awarding municipal orders, material consideration is often
given to a bidder's qualification as a minority vendor. Since its formation
until its acquisition by the Company, Hesco qualified as a minority vendor.
Historically, approximately 10% to 12% of Hesco's revenues related to orders
resulting from awards granted based on Hesco's qualification as a minority
vendor. As a result of the Company's acquisition of Hesco, the Company
believes that Hesco no longer qualifies as a minority vendor and, accordingly,
may not be eligible to bid on such orders in the future, adversely affecting its
operations and financial condition. No assurance can be given that Hesco will be
able to continue to bid on or be awarded such orders.
LITIGATION; POTENTIAL LIABILITY. The Company's business involves
substantial risks of liability, including exposure to claims made by users of
its waste handling equipment products for personal injuries. IDC Systems is
currently a defendant in a lawsuit involving a personal injury matter arising
prior to its acquisition by the Company in which the adverse party is seeking
damages which are substantially in excess of the Company's and IDC Systems'
assets and applicable insurance coverage. While IDC Systems' insurance carrier,
IDC Systems and other defendants in such lawsuit are defending such action and
the Company believes that IDC Systems' liability insurance in the amount of
$2,000,000 in the aggregate and $1,000,000 per occurrence will cover such
claims, there can be no assurance that such insurance will be adequate to cover
such claims or future claims, that the action will be resolved favorably or that
the outcome of the action or settlement will not have a material adverse effect
on IDC Systems, including possibly requiring IDC Systems to pay substantial
monetary damages and/or significantly curtail or cease operations. Although the
Company believes, based upon the advice of counsel, that any liability arising
out of such claims will be limited to the assets of IDC Systems, there can be no
assurance that the Company will not become liable for such claims, which would
have a material adverse effect on the Company. In addition, no assurance can be
given that the Company will not be subject to additional claims resulting in
substantial liability for which it is not fully insured or that it will be able
to maintain adequate levels of insurance on acceptable terms. A partially or
completely uninsured successful claim against the Company of sufficient
magnitude could have a material adverse effect on the Company.
POTENTIAL PRODUCT LIABILITY AND WARRANTY EXPENSE. The Company may be
exposed to potential product liability claims by its customers and users of its
products. The Company maintains product liability insurance coverage of
$5,000,000 in the aggregate and $1,000,000 per occurrence. The Company believes
such insurance provides adequate coverage for the types of products currently
marketed and proposed to be marketed by the Company. There can be no assurance,
however, that such insurance will be sufficient to cover potential claims or
that an adequate level of coverage will be available in the future at a
reasonable cost. A partially insured or completely uninsured successful claim
against the Company could have a material adverse effect on the Company. The
Company warrants the hi-rise system to be free from defects in manufacturing and
materials for up to one year from the date of shipment. In addition, IDC Systems
warrants its trash compaction units, Wilkinson warrants its sheet metal
fabrication products and Hesco warrants its waste handling products to be free
from defects in workmanship and materials for one year from the date of
installation. There can be no assurance that future warranty expenses will not
have a material adverse effect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, the hi-rise system has
achieved only limited market acceptance. The Company is attempting to market a
product which relies on fundamentally changing the way residents in multi-story
buildings dispose of their waste, an activity pattern which has been relatively
consistent in the past. As is typically the case with an emerging business
concept, demand and market acceptance for newly introduced products and services
is subject to a high level of uncertainty. The Company's success is partially
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dependent on the Company's ability to position the hi-rise system as a preferred
method for collection of source-separated recyclables. Potential customers may
elect to utilize other methods of waste collection and separation which they
believe to be more efficient or have other advantages over the hi-rise system,
including manual methods of waste collection and separation or methods which do
not involve significant capital expenditures, or otherwise choose to refrain
from participating in recycling or source separation programs. Because the use
of the hi-rise system may result in decreased labor costs for building
maintenance workers or haulers, the hi-rise system may be opposed by labor
unions. There can be no assurance that the Company's efforts will result in
significant market acceptance for the hi-rise system or that the Company will
succeed in positioning the hi-rise system as a preferred method for collection
of source-separated recyclables.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's capital
requirements have been and will continue to be significant. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations (including the anticipated costs associated with, and timetable for,
its proposed expansion), that cash flow from operations and funds available
under the Company's existing credit facilities will be sufficient to satisfy the
Company's contemplated cash requirements for at least 12 months. In the event
that the Company's plans change, its assumptions change or prove to be
inaccurate or if its existing capital and cash flow otherwise prove to be
insufficient (due to unanticipated expenses, delays, problems, difficulties or
otherwise), the Company could be required to seek additional financing or may be
required to curtail its expansion or other activities. The Company also may seek
to raise capital in connection with its acquisition of complementary businesses.
Although the Company is not presently party to any definitive acquisition
agreements, the Company's capital requirements with respect to acquisitions may
be substantial. In the event that the Company requires additional financing, the
Company may seek to raise capital through the sale of its equity securities,
including at prices which represent significant discounts from the market price
of the Common Stock. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all.
OUTSTANDING INDEBTEDNESS; INCURRENCE OF ADDITIONAL INDEBTEDNESS;
SECURITY INTERESTS. The Company had outstanding indebtedness of $1,884,814 and
$7,592,205 at December 31, 1996 and 1997, respectively. Of such indebtedness,
approximately $1,584,814 and $3,707,185 was outstanding at December 31, 1996 and
1997, respectively, under lines of credit with Ocean Bank, Miami, Florida
("Ocean Bank"), which are secured by lease accounts receivable and accounts
receivable and inventory, respectively, are repayable on demand. In addition, in
February 1998, the Company incurred approximately $6.0 million of additional
indebtedness to Ocean Bank, consisting of a $3.0 line of credit and $3.0 million
term loan, the proceeds of which were used for the Hesco Acquisition and for
working capital. The line of credit bears interest at the prime rate plus 1-1/2%
per annum and is repayable in February 1999. The term loan bears interest at the
prime rate plus 1-1/2% per annum and is repayable in 100 equal monthly
installments of principal of $30,000 each plus accrued interest. The loan is
secured by substantially all of the assets of the Company. Furthermore, the
Company has entered into a lease financing arrangement with Western Finance &
Lease, Inc., formerly known as First Sierra, Inc. ("Western Finance"), pursuant
to which Western Finance has agreed to purchase, from time to time, eligible
leases of hi-rise systems from the Company for a purchase price equal to the
discounted present value of the leases purchased. In the event that a lessee
defaults under a lease purchased by Western Finance, Western Finance has the
right to require the Company to repurchase 25% of the lease obligations. At
December 31, 1997, the Company's contingent repurchase obligations under this
arrangement equaled $185,015. To the extent that the Company is required to
repay such indebtedness or to repurchase lease obligations from Western Finance,
the Company will have less resources available to it for other purposes.
DEPENDENCE ON RECYCLING LEGISLATION. In response to increasing public
concern relating to the environmental impact of traditional solid waste disposal
methods, such as landfilling and incineration, government authorities have
adopted regulations designed to alleviate various environmental and waste
disposal problems resulting from such disposal methods. State and local
legislation targeting solid waste reduction and landfill diversion generally
includes recycling goals and/or tax incentives to encourage recycling. During
the past decade, according to the Environmental Protection Agency, 45 states and
the District of Columbia have established goals to recycle various percentages,
ranging from 25% to 50%, of solid waste by specified dates, and 33 states and
the District of Columbia offer recycling tax incentives. Various state and local
legislation has been enacted requiring or encouraging separation of solid waste
materials prior to final disposal as an integral part of recycling programs. In
1988, the State of Florida adopted legislation requiring each county in the
state to initiate recycling and solid waste separation programs designed to
reduce the volume of municipal solid waste by at least 30% by the end of 1994.
Many large Florida municipalities, including those in Dade, Broward and Collier
(West Coast Florida) Counties, mandate that residents separate and recycle
newspaper, aluminum cans, glass and plastic bottles. The State of New York
enacted legislation in 1988 requiring municipalities to adopt ordinances by 1992
mandating source separation
9
<PAGE>
programs. Additionally, many large cities, including New York City, Chicago and
Toronto, Canada, have enacted legislation mandating source separation programs
for multi-story buildings. The Company believes that continuing initiatives of
state and local government authorities and increasing hauling costs and landfill
use fees have created incentives for multi-story building owners to encourage
recycling and significant demand for innovative waste management solutions such
as the hi-rise system. Nevertheless, failure by government authorities to
continue to implement mandatory recycling legislation or significant relaxation
of such requirements or enforcement thereof could have a material adverse effect
on the Company's business and prospects.
DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. Although the
Company has commenced the manufacturing of the hi-rise tri-sorter system and a
majority of its trash compaction systems at Wilkinson's facility, the Company
continues to be dependent on third-party arrangements for the manufacture of
certain of its component parts, including the carousel, roll-away waste
collection bins and most of the components of the electronic control panel
incorporated into the hi-rise system, and to a lesser extent components for
trash compaction systems. For the years ended December 31, 1996 and 1997, the
Company purchased substantially all of its carousel requirements from one
manufacturer, Accudyne Corporation. Although the Company currently has several
alternative sources for these components and believes that additional
alternative sources are readily available, failure by such manufacturers to
continue to supply the Company with components on commercially reasonable terms,
or at all, in the absence of readily available alternative sources, would have a
material adverse effect on the Company. The Company has been substantially
dependent on the ability of its manufacturers, among other things, to satisfy
performance and quality specifications and dedicate sufficient production
capacity for components within scheduled delivery times. The Company does not
maintain supply contracts with any of its manufacturers and purchases components
pursuant to purchase orders placed from time to time in the ordinary course of
business. Failure or delay by the Company's suppliers in supplying necessary
components to the Company would adversely affect the Company's ability to obtain
and deliver products on a timely and competitive basis.
DEPENDENCE ON SUPPLIERS. The Company's ability to manufacture its
products is dependent upon receiving supplies of components and raw materials,
including the steel necessary to produce waste containers, chutes and certain
other products, from a limited number of sources. To date, the Company has
experienced no material difficulties in procuring supplies, components or
materials. However, if deliveries of such items are delayed, the Company's
production ability may be decreased, which could have a material adverse effect
on the Company.
INDUSTRY COMPETITION. The waste management industry is characterized by
intense competition. The Company is aware of at least three companies that offer
or are attempting to offer solid waste collection alternatives for multi-story
residential buildings. There can be no assurance that other companies do not
have or are not currently developing functionally equivalent products, or that
functionally equivalent products will not become available in the near future.
In addition, there are numerous companies involved in the waste management
industry, including waste hauling companies and companies engaged in waste
separation, recovery and recycling, which may have the expertise and resources
that would encourage them to attempt to develop and market products which would
compete with the hi-rise system or render the system obsolete or less
marketable. The Company's system currently competes with other methods for
separating and collecting recyclables and waste disposal. The Company also
competes with numerous companies that offer trash compaction systems
substantially similar to those sold by IDC and companies that offer sheet metal
fabrication products substantially similar to those sold by Wilkinson. In
addition, Hesco competes with a number of national and regional manufacturers
and distributors of solid waste handling equipment. Many of the companies
marketing such waste disposal systems, sheet metal fabrication products and
other solid waste handling equipment or with the potential to do so are well
established, have substantially greater financial and other resources than the
Company, and have established reputations relating to product design,
development, marketing and support. There can be no assurance that the Company
will be able to compete successfully.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's manufacturing
activities involve the use of potentially hazardous materials. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. The risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result, and any such liability could
exceed the Company's resources. The Company's operations, business or assets may
be materially adversely affected by current or future environmental laws or
regulations. The Company is required to obtain permits from local, state and
federal agencies in connection with emissions from its manufacturing process.
The failure to obtain any such approval could have a material adverse effect on
the Company. The Company may be required to incur significant costs in order to
comply with applicable regulations or to obtain future permits.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's operating
results could vary from period to period as a result of the Company's sales
cycle, as well as from variations between sales and leasing arrangements,
non-recurring system sales to a limited customer base and increased competition.
The Company's sales cycle, which commences at the time a prospective customer
demonstrates to the Company an interest in purchasing or leasing a hi-rise
system and ends upon execution of a purchase order or lease agreement with that
customer, typically ranges from two to six months. The period from the execution
of a purchase order and/or lease agreement until delivery of system components
to the Company, assembly, shipment and completion of installation of such
10
<PAGE>
system, at which time the Company recognizes revenues, typically ranges from one
to two months in the case of existing buildings and from six to eighteen months
in the case of new building construction. In addition, IDC Systems' and Hesco's
sales cycles generally range from one to eight weeks, while Wilkinson's sales
cycle ranges from two to six months. There can be no assurance that such factors
will not cause significant fluctuations in operating results in the future.
PATENTS AND PROPRIETARY INFORMATION. The Company holds three United
States, one Canadian and one European Community patents which cover a system of
separating waste in multi-story buildings with a chute system. Functionally
equivalent waste collection and source-separation systems which may not be
covered by the Company's patents may be currently in commercial distribution by
the Company's competitors. In addition, Hesco holds two United States patents,
one covering an apparatus for covering waste containers transported on trucks
and the other a compaction assembly for use with recycling bins. The Company has
applied for patents in Japan and Korea similar or identical to its United
States, Canadian and European Community patents. The Company will apply for
additional patents as deemed appropriate. The Company believes that patent
protection is important to its business and the Company could be required to
expend significant funds in connection with enforcing or defending its patent
rights. There can be no assurance as to the breadth or degree of protection
which existing or future patents, if any, may afford the Company, that any
unissued patent applications will result in issued patents or that patents will
not be circumvented or invalidated. Although the Company believes that its
patents, the hi-rise system and its other products do not and will not infringe
patents or violate proprietary rights of others, it is possible that its
existing patent rights may not be valid or that infringement of existing or
future patents or proprietary rights may occur. In the event the Company's
products infringe patents or proprietary rights of others, the Company may be
required to modify the design of its products or obtain a license. There can be
no assurance that the Company will be able to do so in a timely manner, upon
acceptable terms and conditions or at all. Failure to do any of the foregoing
could have a material adverse effect upon the Company. In addition, there can be
no assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement, proprietary rights
violation action or alleged infringement or violation action. Moreover, if one
of the Company's products infringes patents or propriety rights of others, the
Company could, under certain circumstances, become liable for damages, which
could have a material adverse effect on the Company.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees and appropriate vendors, there can
be no assurance that such arrangements will adequately protect the Company's
trade secrets. Since the Company believes that its proprietary information is
important to its business, failure to protect such information could have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Donald Engel, Chairman of the Board and
Chief Executive Officer, Gary McAlpin, its Chief Operating Officer, Seymour
Oestreicher, its Vice President-Distribution Development, Brad Hacker, its Chief
Financial Officer and other key personnel. Although the Company has entered into
employment agreements with Messrs. Engel, McAlpin and Hacker, the Company does
not maintain key-man insurance and the loss of the services of any of such
individuals or certain other key employees, could have a material adverse effect
on the Company's business and prospects. The success of the Company is also
dependent upon its ability to hire and retain additional qualified marketing,
technical and other personnel. There can be no assurance that the Company will
be able to hire or retain such necessary personnel.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation authorize the issuance of 1,000,000 shares of "blank check"
preferred stock with such designation, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the
11
<PAGE>
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. In June and July 1997, the Company designated and issued
200 shares of the Series B Preferred Stock. Although the Company has no present
intention to issue any additional shares of its preferred stock, there can be no
assurance that the Company will not do so in the future.
SHARES ELIGIBLE FOR FUTURE SALE; RISK OF SALES BELOW CURRENT MARKET
PRICE. As of the date hereof, 9,043,731 shares of Common Stock are issued and
outstanding. Of such shares, 5,771,270 shares are freely tradeable without
restriction or further registration under the Securities Act unless held by an
"affiliate" of the Company. The remaining 3,272,461 shares of Common Stock,
including 1,280,579 of the Shares registered hereunder, are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144"), and may only be sold if such shares are registered
under the Securities Act or sold in accordance with Rule 144 or another
exemption from registration under the Securities Act. Of such shares, 547,269
shares are currently eligible for sale under Rule 144 and 150,000 will become
eligible for sale under Rule 144 in December 1998 and 1,280,597 will be eligible
for sale under Rule 144 in February 1999.
No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares of Common Stock for
sale will have on the market prices of the Common Stock prevailing from time to
time. Nevertheless, the possibility that substantial amounts of Common Stock may
be sold in the public market, particularly at prices below prevailing market
prices for the Common Stock, may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
DIVIDEND POLICY. The Company has not paid any cash dividends on its
Common Stock and does not expect to declare or pay any cash dividends in the
foreseeable future.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; DISCLOSURE
RELATING TO LOW-PRICED STOCKS. In order to continue to be included in NASDAQ, a
company must maintain $2,000,000 in total assets, a $1,000,000 market value of
the public float and either (a) net tangible assets of at least $2,000,000, (b)
market capitalization of $35,000,000 or (c) net income of at least $500,000 in
the most recent fiscal year or two of the three most recent fiscal years. In
addition, continued inclusion requires two market-makers and a minimum bid price
of $1.00 per share. The failure to meet these maintenance criteria in the future
may result in the discontinuance of the inclusion of Common Stock in NASDAQ. In
such event, trading, if any, in the Common Stock may then continue to be
conducted in the non-NASDAQ over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to obtain
quotations as to the market value of, the Common Stock. In addition, if the
Common Stock were delisted from trading on NASDAQ and the trading price of the
Common Stock were less than $5.00 per share, trading in the Company's securities
would also be subject to the requirements of certain rules promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require
additional disclosure by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-NASDAQ equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers may discourage
broker-dealers from effecting transactions in penny stocks, which could reduce
the liquidity of the Company's securities and have a material adverse effect on
the trading market for the Company's securities.
12
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all of
the Shares of Common Stock being offered by the Selling Shareholders hereunder;
however, the maximum gross proceeds payable to the Company from the exercise of
all of the Warrants, if exercised in full, would be $3,679,752.75. The Company
will, however, pay all of the expenses, estimated to be approximately $35,340,
in connection with this offering, other than underwriting commissions and
discounts.
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<PAGE>
SELLING SHAREHOLDERS
The Company has been advised by the Selling Shareholders that none of
them have ever held a position or office, or had any material relationship with,
the Company, except that Gilford Securities Incorporated acted as the placement
agent in the 1998 Private Placement for which it received a placement fee equal
to 5% of the gross proceeds of the 1998 Private Placement, and a management fee
of 1% of the gross proceeds of such Private Placement. Gilford also received the
Gilford Warrants. In addition, LBC Capital Resources acted as the placement
agent in connection with the 1997 Private Placement for which it received a
placement fee of $50,000 and the LBC Warrants. The following table sets forth
certain information with respect to the ownership of the Common Stock by the
Selling Shareholders as of June 1, 1998.
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES OWNERSHIP OF SHARES
OF COMMON STOCK NUMBER OF COMMON STOCK
PRIOR TO OFFERING OF AFTER OFFERING(1)
NAME AND ADDRESS ------------------------ SHARES -----------------------
OF SELLING SHAREHOLDER SHARES PERCENTAGE OFFERED HEREBY SHARES PERCENTAGE
---------------------- ------ ---------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C>
John S. Smith and Ann K. Smith,
JTWROS........................ 365,457(2) 4.0 365,457(2) 0 *
Walton Graphic Media, Inc........ 548,186(3) 6.1 548,186(3) 0 *
Keystone Venture IV, L.P......... 915,111(4) 10.1 915,111(4) 0 *
LBC Capital Resources............ 93,000(5) 1.0 93,000(5) 0 *
Winslow Environmental Growth
Fund........................... 3,600 * 3,600 0 *
Winslow Environmental Balanced
Fund........................... 7,300 * 7,300 0 *
Green Century Balanced Fund...... 122,000 1.3 122,000 0 *
Jessie Smith Noyes Foundation.... 122,000 1.3 122,000 0 *
Fairfax Audoban Society.......... 7,300 * 7,300 0 *
Adirondack Council............... 11,000 * 11,000 0 *
Environmental Support Center..... 5,500 * 5,500 0 *
Vermont Land Trust -
Stewardship.................... 5,500 * 5,500 0 *
Vermont Land Trust/VHCB-
Stewardship.................... 5,500 * 5,500 0 *
Farrell Pension.................. 75,000 * 75,000 0 *
Farrell Profit................... 5,500 * 5,500 0 *
Privatinvest Bank AG............. 92,600 1.0 92,600 0 *
Hilliard Limited Partnership..... 92,593 1.0 92,593 0 *
Daniel Hilliard.................. 18,519 * 18,519 0 *
Fernando J. Davila............... 37,037 * 37,037 0 *
Mary Louise Pappas............... 18,519 * 18,519 0 *
Hare & Company, c/o the Bank of
New York...................... 40,000 * 40,000 0 *
Daniel J. Hilliard, Trustee,
Wallace J. Hilliard FLINT
Trust UAD 12/20/97............ 444,444 4.9 444,444 0 *
RHI Holdings, Inc................ 166,667 1.8 166,667 0 *
William Stone.................... 150,000 1.7 150,000 0 *
Gilford Securities Incorporated.. 129,910(6) * 129,910(6) 0 *
James Taylor..................... 28,519 * 18,519 10,000 *
Thomas Payne..................... 300,000(7) 3.3 300,000(7) 0 *
XYZ, Inc......................... 76,272 * 76,272 0 *
Alpine Capital Partners.......... 50,000(8) * 50,000(8) 0 *
Arthur D'Onofrio................. 36,625 * 36,625 0 *
RAV Enviro Consulting, Inc....... 36,625 * 36,625 0 *
</TABLE>
* Less than 1%.
(1) Assumes all Shares registered hereunder have been sold. Because the Selling
Shareholders may sell all, some or none of their Shares, no actual estimate
can be made of the aggregate number of Shares that are to be offered hereby
or the number or percentage of Shares that the Selling Shareholders will own
upon completion of the offering to which this Prospectus relates.
(2) Consists of 187,680 shares of Common Stock issuable upon conversion of
Series B Convertible Preferred Stock and 177,777 shares of Common Stock
issuable upon exercise of currently exercisable Series B Warrants.
(3) Consists of 281,520 shares of Common Stock issuable upon conversion of
Series B Convertible Preferred Stock and 266,666 shares of Common Stock
issuable upon exercise of currently exercisable Series B Warrants.
(4) Consists of 470,667 shares of Common Stock issuable upon conversion of
Series B Preferred Stock and 444,444 shares of Common Stock issuable upon
exercise of currently exercisable Series B Warrants.
(5) Consists of 93,000 shares of Common Stock issuable upon exercise of
currently exercisable LBC Warrants.
(6) Consists of 129,910 shares of Common Stock issuable upon exercise of
currently exercisable Gilford Warrants.
(7) Consists of 300,000 shares of Common Stock issuable upon exercise of
currently exersiable warrants (the "Payne Warrants") to purchase Common
Stock at a price of $3.00 per share.
(8) Consists of 50,000 shares of Common Stock issuable upon exercise of
currently exercisable warrants (the "Alpine Warrants" and together with the
Series B Warrants, the LBC Warrants, the Gilford Warrants and the Payne
Warrants, the "Warrants") to purchase Common Stock at a price of $3.00
per share.
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<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided for in such statute.
The Company's Amended and Restated Articles of Incorporation provide that, to
the extent permitted by Florida law, the Company shall indemnify and shall
advance expenses on behalf of its officers and directors. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or persons controlling the Company, pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
PLAN OF DISTRIBUTION
The Company has registered 3,500,672 of the Shares under the Securities
Act for sale by the Selling Shareholders pursuant to the Registration Rights
Agreements. The Selling Shareholders have advised the Company that they may from
time to time sell all or part of the Shares in one or more transactions in the
over-the-counter market, on the Nasdaq Small-Cap Market (or any exchange on
which the Common Stock may then be listed), in negotiated transactions or
otherwise, or pursuant to a combination of such methods of sale. This Prospectus
also may be used, with the Company's consent, by donees of the Selling
Shareholders, or by other persons acquiring the Shares and who wish to offer and
sell such Shares under circumstances requiring or making desirable its use. Such
Shares will be sold at the market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Shareholders
or purchasers of the Shares, or both, for whom they may act as agent (which
compensation may be in excess of customary commissions). In connection with such
sales, the Selling Shareholders and any broker-dealers or agents participating
in such sales may be deemed to be underwriters as that term is defined under the
Securities Act. Neither the Company nor the Selling Shareholders can presently
estimate the amount of commissions or discounts, if any, that will be paid by
the Selling Shareholders in connection with their sale of the Shares from time
to time.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available.
The Company will pay all of the expenses, estimated to be approximately
$20,000, in connection with this offering, other than underwriting commissions
and discounts. The Company has agreed to indemnify the Selling Shareholders, and
any underwriters, against certain liabilities, including liabilities under the
Securities Act. The Selling Shareholders have also agreed to indemnify the
Company, its directors, officers, agents and representatives against certain
liabilities, including liabilities under the Securities Act. The Company will
not receive any of the proceeds from the sale of any of the Shares by the
Selling Shareholders; however, the maximum gross proceeds payable to the Company
from the exercise of all of the Warrants, if exercised in full, would be
$3,679,752.75.
Under Rule 101 of Regulation M as promulgated by the Commission
("Regulation M") any person engaged in a distribution of any of the Shares may
not simultaneously engage in market activities with respect to the Common Stock
for the applicable period thereunder prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Shareholders will be subject to applicable rules of Regulation M, including
without limitation Rule 102, which rules may limit the timing of purchases and
sales of any of the Shares by the Selling Shareholders. All of the foregoing may
affect the marketability of the Common Stock
If the Shares are sold in an underwritten offering, the Shares may be acquired
by the underwriters for their own account and may be further resold from time to
time in one or more transactions, including negotiated transactions, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices. The names of the
underwriters with respect to any such offering and the terms of the
transactions, including any underwriting discounts, concessions or commissions
and any other items constituting compensation of the underwriters and brokers or
dealers, if any, will be set forth in a supplement to this Prospectus relating
to such offering. Any public offering price and any discounts, concessions or
commissions allowed or reallowed or paid to brokers or dealers may be changed
from time to time. Unless otherwise set forth in a supplement to this
Prospectus, the obligations of the underwriters to purchase the Shares will be
subject to certain conditions precedent and the underwriters will be obligated
to purchase all of the Shares specified in such supplement if any such Shares
are purchased.
If the Shares are sold in an underwritten offering, the underwriters
and selling group members (if any) may engage in passive market making
transactions in the Common Stock on Nasdaq immediately prior to the commencement
of the sale of Shares in such offering, in accordance with Rule 103 of
Regulation M. Passive market making presently consists of displaying bids on
Nasdaq limited by the bid prices of market makers not connected with such
offering and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each are limited in amount to
30% of the passive market maker's average daily trading volume in the Common
Stock during the period of the two full consecutive calendar months prior to the
filing with the Commission of the Registration Statement of which this
Prospectus forms a part, or 200 shares, whichever is greater, and must be
discontinued when such limit is reached. A passive market maker must identify
passive market making bids as such on the Nasdaq electronic inter-dealer
reporting system. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
In addition, any Shares covered by this Prospectus which qualify for
sale pursuant to Rule 144 or any other available exemption from registration
under the Securities Act may be sold under Rule 144 or such other available
exemption rather than pursuant to this Prospectus.
15
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock,
par value $.01 per share, and 1,000,000 shares of Preferred Stock, par value
$.01 per share. As of May 26, 1998, 9,043,731 shares of Common Stock and 200
shares of Series B Preferred Stock were outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors with the result that
the holders of more than 50% of the shares voted for the election of directors
can elect all of the directors. The holders of Common Stock are entitled to
receive dividends, when, as and if declared by the Board of Directors, in its
discretion, out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in the assets of the Company, if any,
legally available for distribution to shareholders after the payment of all
debts and liabilities of the Company and after provision for each class of
stock, if any, having preference over the Common Stock. Holders of shares of
Common Stock have no conversion, preemptive or other subscription rights, and
there are no sinking fund or redemption provisions applicable to the Common
Stock.
PREFERRED STOCK
The Company is authorized to issue preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock and,
in certain instances, could adversely affect the market price of such stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. In November 1995, the Company's Board of Directors
created a class of Series A Preferred Stock and authorized the Company's
issuance, from time to time, of up to 850 shares of such preferred stock. On
November 13, 1995, the Company issued and sold 720 shares of the newly created
Series A Preferred Stock in an offshore private placement transaction. All 720
issued and outstanding shares of Series A Preferred Stock have been converted
into an aggregate of 2,705,979 shares of Common Stock at an average per share
conversion price of $2.78. In June 1997, the Company's Board of Directors
created a class of Series B Preferred Stock and authorized the Company's
issuance, from time to time, of up to 200 shares of Series B Preferred Stock. In
June and July 1997 the Company issued and sold all 200 shares of the newly
created Series B Preferred Stock in a private placement transaction. The Series
B Preferred Stock does not carry voting rights. The Series B Preferred Stock is
convertible, at the option of the holder, into Common Stock at a conversion
price of $2.25, subject to adjustment under certain circumstances. See "The
Company - Recent Events."
FLORIDA ANTI-TAKEOVER LAW
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a corporation and holders
of more than 10% of the outstanding voting shares of the corporation (or their
affiliates).
16
<PAGE>
LEGAL MATTERS
The validity of the Shares being offered hereby is being passed upon
for the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., 1221
Brickell Avenue, Miami, Florida 33131.
EXPERTS
The balance sheets as of December 31, 1997 and 1996, and the statements
of operations, changes in shareholders' equity and cash flows for the years then
ended, incorporated by reference in this prospectus from the Company's 1997
Annual Report on Form 10-KSB, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing. The audited
combined financial statements of Hesco Sales, Inc. and Subsidiaries and Atlantic
Maintenance, Inc. for the years ended October 31, 1997 and 1996 have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
17
<PAGE>
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No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the registered
securities to which it relates, or an offer to sell or solicitation of an offer
to buy such securities in any jurisdiction where, or to any person to whom, it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to the date of this Prospectus.
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TABLE OF CONTENTS
PAGE
----
Available Information..............................2
Incorporation of Certain Documents by Reference....2
The Company........................................4
Risk Factors.......................................7
Use of Proceeds...................................13
Selling Shareholders..............................14
Indemnification of Directors and Officers.........15
Plan of Distribution..............................15
Description of Capital Stock......................16
Legal Matters.....................................17
Experts...........................................17
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4,010,284 SHARES
HI-RISE RECYCLING
SYSTEMS, INC.
COMMON STOCK
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PROSPECTUS
----------------------------
June 9, 1998
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