================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-KSB/A
[ ] FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------
Commission file number: 0-21946
HI-RISE RECYCLING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0222933
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8505 N.W. 74TH STREET
MIAMI, FLORIDA 33166
(Address of principal executive offices)
Registrant's telephone number: (305) 597-0243
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 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 that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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 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.
As of April 28, 1999, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the Registrant was $30,070,988, based on a
closing price of $3.9375 for the Common Stock, par value $.01 per share (the
"Common Stock"), as reported on NASDAQ on such date.
As of April 28, 1999, the number of outstanding shares of Common Stock of
the registrant was 12,876,752.
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<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald Engel..................................... 65 Chairman of the Board and Chief Executive Officer
J. Gary McAlpin.................................. 46 President and Chief Operating Officer
Bradley Hacker................................... 39 Chief Financial Officer and Corporate Secretary
Michael F. Bracken............................... 40 Executive Vice President - New Construction Sales
Ronald J. McCracken.............................. 48 Executive Vice President - Business Development
and Sales
Seymour Oestreicher.............................. 73 Vice President - Distribution Development
William J. Stone................................. 52 Vice President - Sales
Ira S. Merritt................................... 61 Director
Joel M. Pashcow.................................. 54 Director
Warren Adelson................................... 56 Director
Leonard Toboroff.................................. 66 Director
</TABLE>
DONALD ENGEL has been the Company's Chief Executive Officer since March
1996 and Chairman of the Board since May 1997. From March 1996 to May 1997, Mr.
Engel served as Co-Chairman of the Board. Prior to joining the Company, Mr.
Engel was a private investor. From June 1991 to June 1993, Mr. Engel served as a
consultant to Bear Stearns & Co., Inc. From March 1985 to June 1991, Mr. Engel
served as a consultant to Drexel Burnham Lambert where he had been managing
director since 1978. Mr. Engel has served as a director of multi-national
companies such as Revlon Group, Inc., Triangle Industries, Inc., and Uniroyal
Chemical, Inc.
J. GARY MCALPIN has been the Company's President since January 12,
1998 and its Chief Operating Officer since March 1997. Mr. McAlpin joined the
Company in October 1996 initially serving as Vice President. From January 1996
to October 1996, Mr. McAlpin served as a construction/project manager of
Birwelco-Montenay, a power generator. For the eight years prior to joining
Birwelco-Montenay, Mr. McAlpin served as the Vice President and General Manager
of IDAB Incorporated, a materials handling company.
BRADLEY HACKER has been the Company's Chief Financial Officer since
July 1997. Mr. Hacker joined the Company in July 1993 as its controller. For the
seven years prior to joining the Company, Mr. Hacker was employed by various
divisions of Campbell Taggert, a subsidiary of Anheuser-Busch.
2
<PAGE>
MICHAEL F. BRACKEN has been the Company's Executive Vice President -
New Construction Sales since July 1996. Mr. Bracken joined the Company in
September 1993 as a salesman of the hi-rise system. From August 1992 to August
1993, Mr. Bracken was the General Manager and Construction Project Manager of
Brickell Biscayne Condominium in Miami, Florida. Prior to 1992, Mr. Bracken
served as a field manager of Schlumberger Overseas Ltd., a petroleum engineering
company in South East Asia.
RONALD J. MCCRACKEN has been the Company's Executive Vice President -
Business Development and Sales since October 1998. Prior to joining the Company,
from February 1986 to October 1998, Mr. McCracken served as the President and
Chief Executive Officer of Bes-Pac, Inc., a South Carolina corporation wholly
owned by Mr. McCracken ("Bes-Pac"), a company engaged in the business of
manufacturing and distributing solid waste handling equipment. The Company
acquired Bes-Pac in October 1998.
SEYMOUR OESTREICHER has been the Company's Vice President -
Distribution Development since March 1995. Mr. Oestreicher was a founder and
from 1987 until 1995 served as the Chairman of IDC Systems, a subsidiary of the
Company engaged in selling, installing and servicing trash compaction systems.
Mr. Oestreicher was a founder and served as Chairman and President of
International Synetics Corp., a company engaged in the design, manufacture and
installation of trash compaction systems from 1969 until 1986.
WILLIAM J. STONE has been the Company's Executive Vice President -
Sales since May 1997. Since 1990, Mr. Stone has founded a number of companies
engaged in various aspects of waste handling in high-rise buildings in South
Florida. Prior to 1990, Mr. Stone was engaged in real estate development in the
states of Texas and Florida and in Toronto, Canada.
IRA S. MERRITT has been a director of the Company since March 1996.
Since his semi-retirement in 1990, Mr. Merritt, a licensed certified public
accountant, has been engaged in selling residential real estate in Boca Raton,
Florida. From 1988 to 1990, Mr. Merritt was employed by the Sidney Kohl Company,
a Florida real estate company, where he established the firm's property
management division. From 1982 to 1988, Mr. Merritt was the Executive Vice
President and Chief Financial Officer of Hanover Companies, Inc. From 1975 to
1982, Mr. Merritt was the senior partner of Merritt, Levy and Cohen, an
accounting firm specializing in the real estate industry.
JOEL M. PASHCOW has been a director of the Company since March 1996.
Mr. Pashcow is now the Chairman of the Executive Committee of the Board of
Trustees of Ramco-Gershenson Property Trust (NYSE) and Chairman and President of
Atlantic Realty Trust. Mr. Pashcow served as the Chairman of the Board of
Directors of RPS Realty Trust, a New York Stock Exchange commercial property
REIT, from February 1988 to April 1996. Mr. Pashcow has served as a member of
the Board of Governors of the Real Estate Securities and Syndication Institute
and as a director and member of the executive committee of the National Realty
Committee.
WARREN ADELSON has been a director of the Company since May 1993. Mr.
Adelson has been President of Adelson Galleries, a New York art gallery, since
January 1990. From 1974 to January 1990, Mr. Adelson was Vice President of Coe
Kerr Gallery, a New York City art gallery
LEONARD TOBOROFF has been a director of the Company since January 1999.
Mr. Toboroff has served as a Vice President of Riddell Sports, Inc. since April
1998. Since May 1989, Mr. Toboroff has been a Vice Chairman of the Board of
Allis-Chalmers Corp. Additionally, Mr. Toboroff has served as a director of
Ameriscribe Corp. since August 1987 and served as its Chairman and Chief
Executive Officer from December 1987 to May 1988. From May through July 1982,
Mr. Toboroff served as Chairman and Chief Executive Officer of American Bakeries
Company. Mr. Toboroff has served as a director of Banner Aerospace, Inc., a
supplier of aircraft parts since September 1992. He has also been a director of
Engex, Inc. and Saratoga Springs Beverage Corp. since 1993. Mr. Toboroff has
been a practicing attorney since 1961.
3
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During 1998, the Board of Directors held four meetings and took action
___ additional times by unanimous written consent. No Director attended fewer
than 75% of the meetings of the Board of Directors held during 1998 during the
period of such Director's service.
The only committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Board does not have a nominating or similar
committee. The Company's Board of Directors performs the functions of a
nominating or similar committee.
Messrs. Merritt and Adelson are the current members of the Company's
Audit Committee. The Audit Committee held two meetings during 1998. The duties
and responsibilities of the Audit Committee include (a) recommending to the
Board the appointment of the Company's auditors and any termination of
engagement, (b) reviewing the plan and scope of audits, (c) reviewing the
Company's significant accounting policies and internal controls and (d) having
general responsibility for all related auditing matters.
Messrs. Pashcow and Merritt are the current members of the Company's
Compensation Committee, which committee held four meetings during 1998. The
Compensation Committee reviews and approves the compensation of the Company's
executive officers and administers the Company's stock option plans.
ADDITIONAL INFORMATION CONCERNING DIRECTORS
COMPENSATION. Each non-employee director of the Company receives an
annual fee of $15,000 and is reimbursed for expenses incurred in connection with
activities as a director of the Company. Directors who are also employees do not
receive additional compensation for their services as directors. Non-employee
directors serving on the Company's Compensation Committee and/or Audit Committee
also receive $1,000 per meeting.
OPTIONS. Each non-employee director receives an automatic grant of
options to purchase 20,000 shares of common stock, par value $.01 per share (the
"Common Stock"), under the Company's 1996 Directors' Stock Option Plan on his or
her initial election to the Board of Directors. Thereafter, each director
receives an automatic grant of options to purchase 1,000 shares of Common Stock
upon such directors reelection as a member of the Board. For 1998, each of
Messrs. Merritt, Pashcow and Adelson received grants under this plan. Each
option grant, vesting in equal installments over five years and having a ten
year term, permits the holder to purchase shares at their fair market value on
the date of grant, which was $2.50 in the case of options granted in 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of the Company's outstanding Common Stock, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock. Such persons are required
by SEC regulation to furnish the Company with copies of all such reports they
file.
To the Company's knowledge, based solely on a review of the copies of
filings furnished to the Company and written or oral representations that no
other reports were required, the Company believes that all of its directors and
executive officers complied during 1998 with the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934, with the exception of (i)
the grant of options to purchase an aggregate of 107,500 shares of common stock
to J. Gary McAlpin, our President and Chief Operating Officer, during the period
May through December 1997, and (ii) the grant of options to purchase an
aggregate of 95,000 shares of common stock to Bradley Hacker, our Chief
Financial Officer and Secretary, during the period July 1993 through December
1997, which transactions were reported in February 1999. Each of these late
filings resulted from administrative oversights.
4
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1998, 1997 and 1996, the aggregate compensation awarded to, earned by or paid to
Donald Engel, the Company's Chairman and Chief Executive Officer, J. Gary
McAlpin, the Company's President and Chief Operating Officer, Bradley Hacker,
the Company's Chief Financial Officer and Secretary, and Michael F. Bracken, the
Company's Executive Vice President - New Construction Sales (collectively, the
"Named Executive Officers"). No other executive officers of the Company earned
compensation in excess of $100,000 during 1998. The Company did not grant any
restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts during such fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION NUMBER OF
------------------------------- STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED
--------------------------- ---- ------ ----- -------------
<S> <C> <C> <C> <C>
Donald Engel......................................... 1998 $ 180,000 -- 200,000
Chairman of the Board and Chief 1997 $ 180,000 -- 200,000(2)
Executive Officer(1) 1996 $ 138,750 -- 500,000(2)
J. Gary McAlpin...................................... 1998 $ 118,008 $ 100,000 200,000(3)
President and Chief Operating Officer 1997 $ 96,875 -- 107,500(2)
1996 $ 16,912 -- 17,500(2)
Bradley Hacker....................................... 1998 $ 82,840 $ 50,000 20,000(3)
Chief Financial Officer and Secretary 1997 $ 75,355 $ 20,000 35,000(2)
1996 $ 65,404 -- 5,000(2)
Michael F. Bracken................................... 1998 $ 117,580 -- 5,000(3)
Vice President - New Construction Sales 1997 $ 114,908 -- 22,000(2)
1996 $ 95,041 -- 34,000(2)
</TABLE>
- -------------------------
(1) Mr. Engel has served as the Chief Executive Officer since March 1996,
served as Co-Chairman of the Board from March 1996 to May 1997 and has
served Chairman of the Board since May 1997.
(2) Represents options granted under the Company's 1996 Stock Option Plan.
(3) Represents options granted under the Company's 1998 Executive Incentive
Compensation Plan.
(4) Represents options granted under the Company's 1993 Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Donald Engel,
effective as of March 25, 1996, which provides for the employment of Mr. Engel
as the Company's Chairman of the Board and Chief Executive Officer. This
employment agreement provides for an annual base salary of $180,000, subject to
annual increases in accordance with the Consumer Price Index. The employment
agreement requires Mr. Engel to devote his full time, energies and efforts to
the Company's affairs. Mr. Engel has agreed that during the term of his
employment agreement and for a period of five years thereafter, he will not
compete or engage in a business competitive with any recycling or solid-waste
disposal business in which the Company or any of its affiliates then engages and
which operates within any state in which the Company conducts business. The
employment agreement provides that it may be terminated either by Mr. Engel or
the Company upon ten days notice. Upon the termination of the employment
agreement, Mr. Engel will be entitled to receive any unpaid salary and accrued
bonus through the date of termination.
5
<PAGE>
The Company also entered into five-year employment agreements with each
of J. Gary McAlpin and Bradley Hacker, effective as of March 10, 1998, which
provide for the employment of Mr. McAlpin as the Company's President and Chief
Operating Officer and Mr. Hacker as the Company's Chief Financial Officer. The
initial term of each of these agreements will be automatically extended for a
five-year term upon a change of control of the Company, and for successive
one-year terms unless either party gives notice of its intent not to extend the
term at least six months prior to its expiration date (three months in the case
of any extension period after the initial term). Mr. McAlpin's employment
agreement provides for an annual base salary of $120,000 subject to annual
increases in accordance with the Consumer Price Index and an annual incentive
bonus of not less than $50,000. Mr. Hacker's employment agreement provides for
an annual base salary of $85,000 subject to annual increases in accordance with
the Consumer Price Index and an annual incentive bonus of not less than $25,000.
Pursuant to their respective employment agreements, Mr. McAlpin and Mr. Hacker
have each agreed that during the term of his employment agreement and for a
period of one year thereafter, he will not consult with or engage in or own in
excess of 5% of any entity which engages in the business of providing mechanical
multi-story recycling and which operates within any state in which we conduct
business. Upon the termination of Mr. McAlpin's or Mr. Hacker's employment due
to our non-renewal of the employment agreement, the terminated executive will be
entitled to receive any unpaid salary and bonus accrued through the date of
termination plus one-year's base salary. Upon the termination of Mr. McAlpin's
or Mr. Hacker's employment by the Company for cause or by the executive without
cause, the terminated executive will be entitled to receive any unpaid salary
and bonus accrued through the date of termination. Upon the termination of Mr.
McAlpin's or Mr. Hacker's employment by the Company without cause, the
terminated executive will be entitled to receive any unpaid salary accrued
through the date of termination, any bonus that would have been payable to the
executive for the fiscal year, a lump sum severance payment in the amount of the
base salary, and benefits that would have been paid by the Company to such
executive through the scheduled end of the employment agreement.
In connection with the Company's acquisition of Bes-Pac, the Company
entered into a five-year employment agreement with Ronald J. McCracken,
effective as of October 29, 1998, which provides for the employment of Mr.
McCracken as the Company's Executive Vice President - Business Development and
Sales. The initial term of this agreement will be automatically extended for
successive one-year terms unless either party gives notice of its intent not to
extend the term. Mr. McCracken's employment agreement provides for an annual
base salary of $120,000 subject to annual increases in accordance with the
Consumer Price Index. Pursuant to this employment agreement, Mr. McCracken has
agreed that during the term of his employment agreement and for a period of two
years thereafter, he will not, directly or indirectly, engage in or have any
interest in any business (whether as an employee, officer, director, partner,
agent, creditor, consultant or otherwise) which engages in the business of
providing manufacturing, marketing, distributing and selling non-mobile solid
waste handling equipment; provided, however, that such restriction shall not
apply to the ownership or acquisition by Mr. McCracken of securities of any
issuer that is registered under the Securities Exchange Act of 1934, as amended,
and that are listed for trading on any national securities exchange or are
quoted on Nasdaq. Upon the termination of Mr. McCracken's employment with the
Company for cause or by the executive without cause, Mr. McCracken will be
entitled to receive any unpaid salary through the date of termination. Upon the
termination of Mr. McCracken's employment by the Company without cause, Mr.
McCracken will be entitled to receive (i) any unpaid salary accrued through the
date of termination, (ii) base salary through the expiration date of the
agreement and (iii) benefits that would have been paid by the Company through
the expiration date of the employment agreement.
STOCK OPTION PLANS
In July 1993, the Company adopted the 1993 Stock Option Plan pursuant
to which 350,000 shares of Common Stock were reserved for issuance to officers
and other key employees and to certain other persons who are employed or engaged
by the Company. In 1995, the number of shares of Common Stock reserved for
issuance under this plan was increased by 150,000 shares to 500,000 shares.
Under the 1993 Stock Option Plan, options have been designated as "incentive
stock options" or "non-qualified options" within the meaning of the Internal
Revenue Code of 1986, as amended. As of December 31, 1998, options to purchase
an aggregate of 353,350 shares of Common Stock had been granted and were
outstanding under the 1993 Stock Option Plan at an average exercise price of
$2.55 per share. No additional options are being granted under this option plan.
6
<PAGE>
In July 1993, the Company also adopted a directors stock option plan
pursuant to which 50,000 shares of Common Stock had been reserved for issuance
for grants of options to non-employee directors. As of December 31, 1998,
options to purchase an aggregate of 10,000 shares of Common Stock had been
granted and were outstanding under this directors stock option plan. The Board
of Directors terminated this directors stock option plan in 1996.
In March 1996, the Company adopted the 1996 Stock Option Plan pursuant
to which 1,000,000 shares of Common Stock have been reserved for issuance to
officers and other key employees and to certain other persons who are employed
or engaged by us. In connection with the adoption of the 1996 Stock Option Plan,
the Company's Compensation Committee granted Donald Engel, the Company's
Chairman of the Board and Chief Executive Officer, options to purchase an
aggregate of 500,000 shares of Common Stock. Such options were to vest over a
five-year period with vesting to accelerate in the event that the price of the
common stock increased to $6.00 per share, which acceleration occurred in July
1996. As of December 31, 1998, options to purchase an aggregate of 934,500
shares of Common Stock had been granted and were outstanding under the 1996
Stock Option Plan at an average exercise price of $2.50 per share. No additional
options are being granted by us under the 1996 Stock Option Plan.
In March 1996, the Company adopted a new directors stock option plan
pursuant to which 150,000 shares of Common Stock have been reserved for
issuance. Only non-employee directors of the Company are eligible to receive
options under this plan. The plan provides for an automatic grant of an option
to purchase 20,000 shares of Common Stock upon a person's election as a director
and an automatic grant of an option to purchase 1,000 shares of Common Stock
upon such person's re-election as a director. As of December 31, 1998, options
to purchase an aggregate of 49,000 shares of Common Stock had been granted under
the new directors stock option plan at an average exercise price of $2.50 per
share.
In March 1998, the Company adopted the 1998 Executive Incentive
Compensation Plan (the "1998 Plan"). The 1998 Plan provides for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock,
other stock-related awards and performance or annual incentive awards that may
be settled in cash, stock or other property. The 1998 Plan was approved by
shareholders in June 1998 as part of the Company's 1998 Annual Meeting of
Shareholders. The 1998 Plan is intended to supplement the Company's existing
stock option plans. Pursuant to the 1998 Plan, an aggregate of 1,000,000 shares
have been reserved for issuance to our officers, directors, employees and
independent contractors. As of December 31, 1998, options to purchase an
aggregate of 450,000 shares of Common Stock were issued and outstanding under
the 1998 Plan at an average exercise price of $2.4375 per share.
OPTION/SAR GRANT TABLE
The following table sets forth information concerning grants of stock
options made during the year ended December 31, 1998 to the Named Executive
Officers. No stock appreciation rights were granted in 1998.
<TABLE>
<CAPTION>
OPTION GRANTS FOR FISCAL 1998
(INDIVIDUAL GRANTS)
PERCENT OF TOTAL
OPTIONS GRANTED
NUMBER OF OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
---- ------------------ ----------------- --------------- ----------
<S> <C> <C> <C> <C>
Donald Engel................. 200,000 44.5% $2.4375 12/31/08
J. Gary McAlpin.............. 200,000 44.5% $2.4375 12/31/08
Bradley Hacker............... 10,000 2.2% $2.4375 12/31/08
Michael F. Bracken........... 5,000 1.1% $2.4375 12/31/08
</TABLE>
7
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers at December 31,
1998. No stock options were exercised by the Named Executive Officers during the
year ended December 31, 1998. No stock appreciation rights were granted or are
outstanding.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES DURING 1998
AND
OPTION VALUES ON DECEMBER 31, 1998
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/31/98 AT 12/31/98(1)
UPON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald Engel............ - - 950,000 - (2) (2)
J. Gary McAlpin......... - - 314,500 10,000 (2) (2)
Bradley Hacker.......... - - 86,000 9,000 (2) (2)
Michael F. Bracken...... - - 76,000 39,000
</TABLE>
- -------------------------
(1) Values are calculated by subtracting the exercise price from the fair
market value of the underlying common stock. For purposes of this table,
fair market value is deemed to be $2.406, the average of the high and low
common stock price reported for Nasdaq transactions on December 31, 1998.
(2) The option exercise price exceeded the fair market value of the Common
Stock on such date, and accordingly, such options were "underwater."
REPORT ON OPTION REPRICING
On November 12, 1998, the Compensation Committee of the Board of
Directors repriced substantially all outstanding options granted under our
various stock option plans and held by our then existing employees and directors
at a price of $2.50 per share, an amount slightly greater than the fair market
value of the common stock as of the date of repricing. All of the options
repriced by the Compensation Committee were exercisable at prices which were
greater than the market price of the common stock for an extended period of
time.
The Compensation Committee believes that stock options are a
significant factor in our ability to retain and provide incentives for employees
and executives and that, at their original exercise prices, the disparity
between the exercise price of these options and the market price for the common
stock at the time of repricing did not provide meaningful incentives to the
persons holding the options. The Compensation Committee also believes that the
repricing will benefit our shareholders by strengthening the Company's ability
to retain qualified persons upon whose efforts and judgment the Company's
success is largely dependent.
The Company completed this repricing through a one-for-one stock option
exchange of "underwater" stock options for all optionees under the Company's
various stock option plans other than optionees who were no longer our
employees, directors or consultants as of such date. Other than the change in
the exercise price, the affected options remain the same.
8
<PAGE>
The following table sets forth information relating to options held by
the Company's executive officers which were repriced by the Compensation
Committee during 1998. No option repricings occurred prior to 1998.
<TABLE>
<CAPTION>
OPTION REPRICINGS
NUMBER OF MARKET LENGTH OF
SECURITIES PRICE OF EXERCISE ORIGINAL
UNDERLYING STOCK AT PRICE AT NEW OPTION TERM
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- ---- ---------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald Engel................. 11/12/98 750,000 $2.40 $3.00-$4.00 $2.50 10 years
Chairman & Chief Executive
Officer
J. Gary McAlpin.............. 11/12/98 125,000 $2.40 $2.55-$4.13 $2.50 10 years
President & Chief Operating
Officer
Bradley Hacker............... 11/12/98 85,000 $2.40 $2.55-$7.13 $2.50 10 years
Chief Financial Officer &
Secretary
Michael Bracken.............. 11/12/98 78,000 $2.40 $2.73-$5.50 $2.50 10 years
Executive Vice President
- - - - - -
Ronald J. McCracken..........
Executive Vice
President-Business
Development and Sales
William J. Stone............. - - - - - -
Vice President-Sales
Seymour Oestreicher.......... 11/12/98 60,000 $2.40 $2.55-$4.13 $2.50 10 years
Vice President-Distribution
Development
</TABLE>
COMPENSATION COMMITTEE
JOEL PASHCOW IRA S. MERRITT
9
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1999, the number of
shares of Common Stock that were owned beneficially by (i) each person who is
known by the Company to beneficially own more than 5% of the Common Stock, (ii)
each director, (iii) the Named Executive Officers (as defined in "Executive
Compensation") and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
AGGREGATE NUMBER ACQUIRABLE TOTAL NUMBER
OF SHARES WITHIN OF SHARES PERCENTAGE
BENEFICIALLY OWNED 60 DAYS(1) BENEFICIALLY OWNED OF SHARES
NAME (A) (B) (COLUMNS (A)+(B)) OUTSTANDING
---- ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Donald Engel................ 50,000 1,150,000 1,200,000 8.6%
J. Gary McAlpin............. -- 314,500 314,500 *
Bradley Hacker.............. -- 86,000 86,000 *
Ronald J. McCracken......... 1,890,500(2) -- 1,890,500 14.7%
Michael F. Bracken.......... -- 76,000 76,000 *
Evelio Acosta............... 1,276,094 -- 1,276,094 9.9%
Warren Adelson.............. 704,496 293,000 997,496 7.6%
Ira S. Merritt.............. 1,000 34,500 35,500 *
Joel M. Pashcow............. -- 49,500 49,500 *
Leonard Toberoff............ -- 20,000 20,000 *
All directors and executive
officers as a group (11
persons)................... 2,645,996 2,631,204 5,277,200 34.0%
</TABLE>
- -------------------------
* Represents less than 1% of the outstanding common stock.
(1) Reflects the number of shares that could be purchased by the holder by
exercise of options granted under our stock option plans or warrants at
April 30, 1999 or within 60 days thereafter.
(2) Does not include an aggregate of 609,500 shares of common stock issuable
upon the conversion of a Subordinated Convertible Promissory Note Due 2003
of the Company. The convertible note was issued to Mr. McCracken in
connection with our acquisition of Bes-Pac and automatically converts into
common stock at such time as shareholders approve and ratify the
acquisition.
10
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMMON STOCK OWNERSHIP
In February 1995, the Company acquired all of the outstanding capital
stock of IDC Systems, Inc., a New York corporation organized in November 1987.
Harriet Oestreicher, the wife of Seymour Oestreicher, the Company's Vice
President - Distribution Development, owned 47.5% of the outstanding capital
stock of IDC Systems. In connection with this acquisition, the Company paid
$500,000 in cash and issued 26,667 shares of Common Stock to the former
shareholders of IDC Systems and agreed to issue additional shares of Common
Stock in three equal amounts annually, commencing in February 1996. In April
1996, 1997 and 1998, the Company issued an aggregate of 25,083 additional shares
of Common Stock to the former shareholders of IDC Systems, of which Harriet
Oestreicher received 15,885 shares.
In February 1997, the Company acquired all of the issued and
outstanding capital stock of Hesco Sales, Inc. ("Hesco Sales") and Atlantic
Maintenance of Miami, Inc. ("Atlantic Maintenance") from Evelio Acosta. In
connection with these transactions, Hesco Sales entered into a lease with Acosta
Family Limited Partnership, an affiliate of Evelio Acosta, for Hesco Sales'
corporate headquarters and manufacturing facilities in an approximately 110,000
square foot building situated in Miami, Florida at a monthly rental of
approximately $27,000 per month, plus applicable sales tax. The Company entered
into an agreement with the partnership unconditionally guaranteeing Hesco Sales'
obligations under this lease. Also in connection with the acquisition of Hesco
Sales and Atlantic Maintenance, Hesco Sales entered into a lease with Evelio
Acosta and his spouse, Gladys Acosta, for an approximately 3,000 square foot
shop in Hialeah, Miami, Florida, at a monthly rent of approximately $1,000 per
month. The Company also guaranteed the obligations of Hesco Sales under this
lease. During 1998, an aggregate of approximately $297,500 was paid to Evelio
Acosta under these leases.
In connection with the Company's acquisition of Hesco Sales and
Atlantic Maintenance of Miami, Donald Engel, the Company's Chairman of the Board
and Chief Executive Officer, loaned the Company $500,000, which loan accrued
interest at an annual rate of 10% per annum. The Company repaid the principal
amount of the loan, together with $33,333 of accrued interest, in October 1998
with amounts available under the Company's financing arrangements with General
Electric Capital Corporation and participating lenders. In connection with this
loan, the Company granted Mr. Engel warrants to purchase an aggregate of 250,000
shares of Common Stock at a price of $2.75 per share, which purchase price was
slightly greater than the market price of the Common Stock on the date of grant
of such warrants.
In connection with the Company's acquisition of Bes-Pac, the Company
entered into a five year employment agreement with Ronald McCracken, the former
sole shareholder of Bes-Pac, pursuant to which Mr. McCracken is serving as the
Company's Executive Vice President of Business Development and Sales.
Additionally, in connection with this acquisition, amendments to certain real
property leases respecting three facilities owned by Mr. McCracken at which
Bes-Pac conducts business operations were executed, which, among other things,
shorted the term of two of such leases to a period of seven years. The Company
agreed to guaranty Bes-Pac's obligations under all of these leases. During 1998,
an aggregate of approximately $52,000 was paid to Mr. McCracken under these
leases.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HI-RISE RECYCLING SYSTEMS, INC.
Date: April 30, 1998 BY: /s/ DONALD ENGEL
--------------------
Donald Engel, Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: April 30, 1999 BY: /s/ DONALD ENGEL
--------------------
Donald Engel, Chairman of the Board and Chief
Executive Officer (principal executive officer)
Date: April 30, 1999 /s/ BRADLEY HACKER
------------------
Bradley Hacker, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: April 30, 1999 /s/ WARREN ADELSON
------------------
Warren Adelson, Director
Date: April 30, 1999 /s/ IRA S. MERRITT
------------------
Ira S. Merritt, Director
Date: April 30, 1999 /s/ JOEL M. PASHCOW
-------------------
Joel M. Pashcow, Director
12
