Proxy Statement - Notice of Shareholders Meeting (preliminary) (pre 14a)

Date : 09/27/2019 @ 8:38PM
Source : Edgar (US Regulatory)
Stock : Industrial Services of America Inc (IDSA)
Quote : 1.11  -0.01 (-0.89%) @ 10:29PM

Proxy Statement - Notice of Shareholders Meeting (preliminary) (pre 14a)

SCHEDULE 14A INFORMATION
 
 
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ______)
 
Filed by the Registrant [X]
Filed by a Party other than the Registrant [   ]
Check the appropriate box:
[XPreliminary Proxy Statement
[   ] Confidential, for use of the Commission only (as permitted by Rule 14a-6(e) (2))
[   ] Definitive Proxy Statement
[   ] Definitive Additional Materials
[   ] Soliciting Material Pursuant to Section 240.14a-12
 
INDUSTRIAL SERVICES OF AMERICA, INC.
_______________________________________
(Name of Registrant as Specified in Its Charter)
 
_______________________________________
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
[   ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1)     Title of each class of securities to which transaction applies:
________________________________________________
(2)     Aggregate number of securities to which transaction applies:
________________________________________________
(3)     Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

Pursuant to the Asset Purchase Agreement, dated August 16, 2019, by and among River Metals Recycling LLC, Industrial Services of America, Inc., ISA Indiana, Inc., ISA Logistics LLC, ISA Real Estate, LLC, ISA Indiana Real Estate LLC, 7021 Grade Lane LLC, 7124 Grade Lane LLC and 7200 Grade Lane LLC, the purchase price is approximately $23,300,000, consisting of cash consideration, subject to a working capital adjustment, up or down, escrow amounts and certain payoff amounts. Solely for purposes of calculating the filing fee, the registrant estimates a purchase price of $23,300,000. In accordance with Exchange Act Rule 0-11(c), the filing fee was determined by multiplying 0.0001212 by the proposed maximum aggregate value of the transaction.
________________________________________________
(4)     Proposed maximum aggregate value of transaction:

$23,300,000
________________________________________________
(5)     Total fee paid:

$2,823.96
________________________________________________
 
[   ] Fee paid previously with preliminary materials.
[   ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)     Amount Previously Paid:
________________________________________________
(2)     Form, Schedule or Registration Statement No.:
________________________________________________
(3)     Filing Party:
________________________________________________
(4)     Date Filed:
________________________________________________




INDUSTRIAL SERVICES OF AMERICA, INC.
______________________________

Notice of Annual Meeting of Shareholders
To Be Held on [●]
______________________________

NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (“Shareholders”) of INDUSTRIAL SERVICES OF AMERICA, INC. (the "Company") will be held at Building No. 1, 7100 Grade Lane, Louisville, Kentucky 40213, on [●] at 9:00 A.M. (Local Time), to consider and vote on the following proposals:

(1) A proposal to approve the election of Orson Oliver, Albert Cozzi, Vince Tyra, William Yarmuth and Todd L. Phillips as directors of the Company;


(2) A proposal to approve the sale of substantially all of the assets of the Company and its subsidiaries (the “Asset Sale”) to River Metals Recycling LLC (“Buyer”) pursuant to the Asset Purchase Agreement attached as Annex A to this proxy statement (the “Asset Purchase Agreement”)


(3) A proposal to approve the dissolution of the Company and the winding up of its affairs (the “Dissolution”) pursuant to the Plan of Dissolution attached as Annex B to this proxy statement (the “Plan of Dissolution”) ;


(4) A proposal to approve the change of the Company’s name to Recycling Asset Holdings, Inc. (the “Name Change);


(5) A proposal to approve certain compensation that may be paid or become payable to our Named Executive Officers that is based on or otherwise relates to the Asset Sale and the Plan of Dissolution, as disclosed in the section titled “Severance Payments Triggered by the Asset Sale” in this proxy statement, (on a non-binding advisory basis);


(6)
A proposal to approve the ratification of MCM CPAs & Advisors LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2019;
 
 
(7)
A proposal to approve the compensation of the Company’s Named Executive Officers (on a non-binding advisory basis);


(8)
A proposal to approve the frequency of the vote on compensation of the Company’s Named Executive Officers (on a non-binding advisory basis)


(9)
A proposal to approve the authority of the Board of Directors, in its sole discretion, to adjourn the meeting, even with the presence of a quorum, to solicit additional proxies in the event that the number of shares present in person or by proxy voting in favor of the Asset Sale, the Plan of Dissolution or the Name Change are insufficient, or for any other reason as the Board of Directors deems appropriate; and


(10)
Such other business as may properly come before the meeting or any adjournment thereof.

By signing the enclosed proxy, you are appointing Orson Oliver and Vince Tyra as proxies, with full power of substitution, to vote all shares of Industrial Services of America, Inc. common stock held by you as of October [●], 2019 at the annual meeting on [●], or at any adjournment or postponement of such meeting.

Only Shareholders of record at close of business on October [●], 2019 are entitled to notice of and to vote at the annual meeting. The transfer books will not be closed.

This proxy statement, notice of annual meeting and form of proxy are first being mailed or made available to Shareholders on or about [●].

By Order of the Board of Directors

                        
/s/ Todd L. Phillips
Todd L. Phillips
Chief Executive Officer, President and Chief Financial Officer

7100 Grade Lane
Louisville, Kentucky 40213
[●]



WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES, OR VOTE OVER THE INTERNET OR BY TELEPHONE. IF YOU ARE ABLE TO ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2019
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON [●]

Our proxy statement related to our 2019 Annual Meeting of Shareholders and our Annual Report on Form 10-K for the fiscal year ended on December 31, 2018 are available at http://www.proxyvote.com. Our ticker symbol is IDSA.





INDUSTRIAL SERVICES OF AMERICA, INC.

7100 GRADE LANE

LOUISVILLE, KENTUCKY 40213

PROXY STATEMENT

 

We are furnishing this proxy statement in connection with the solicitation of proxies by our Board of Directors for use at the 2019 Annual Meeting of shareholders (“Shareholders”) of Industrial Services of America, Inc. (“ISA” or the “Company”), which we are holding at Building No. 1, 7100 Grade Lane, Louisville, KY 40213 at 9:00 A.M. (Local Time) on [●], and at any and all adjournments thereof, for the purposes set forth in the accompanying notice of the meeting.

We will vote shares represented by duly executed proxies in the accompanying form received before the meeting and not revoked at the meeting or at any adjournments thereof in accordance with the choices specified on the ballot. If you do not specify a choice, it is the intention of the persons named as proxies in the accompanying form of proxy to vote for (i) the election of Orson Oliver, Albert Cozzi, Vince Tyra, William Yarmuth and Todd L. Phillips as directors of the Company; (ii) the sale of substantially all of the assets of the Company and its subsidiaries (the “Asset Sale”) to River Metals Recycling LLC (“Buyer”) pursuant to the Asset Purchase Agreement attached as Annex A to this proxy statement (the “Asset Purchase Agreement”); (iii) the dissolution of the Company and the winding up of its affairs (the “Dissolution”) pursuant to the Plan of Dissolution attached as Annex B to this proxy statement (the “Plan of Dissolution”); (iv) the change of the Company’s name to Recycling Asset Holdings, Inc. (the "Name Change"); (v) certain compensation (the “Severance Payments”) that may be paid or become payable to our Named Executive Officers, as defined herein, that is based on or otherwise relates to the Asset Sale and the Plan of Dissolution, as disclosed in the section titled “Severance Payments Triggered by the Asset Sale” in this proxy statement (on a non-binding advisory basis); (vi) the ratification of MCM CPAs & Advisors LLP as the independent registered public accountants of our accounts for the fiscal year ending December 31, 2019; (vii) the compensation of the Company’s Named Executive Officers (on a non-binding advisory basis); (viii) the frequency of the vote on compensation of the Company’s Named Executive Officers (on a non-binding advisory basis); and (ix) the authority of the Board, in its sole discretion, to adjourn the meeting, even with the presence of a quorum, to solicit additional proxies in the event that the number of shares present in person or by proxy voting in favor of the Asset Sale, the Dissolution or the Name Change are insufficient, or for any other reason as the Board deems appropriate. The person executing the proxy may revoke it at any time before the proxy holder exercises the authority thereby granted by giving timely written notice to our Secretary, by delivery of a duly executed proxy bearing a later date or by voting in person at the meeting. Attendance at the meeting will not have the effect of revoking a proxy unless the Shareholder notifies the Secretary of the meeting in writing before voting of the proxy. 

We will bear the expenses of soliciting proxies for the annual meeting, including the cost of preparing, assembling and mailing this proxy statement and the accompanying form of proxy. Such expenses, however, do not include any salaries and wages of our officers and employees who participated in the preparation, assembling and mailing of the proxy statement. In addition to the solicitation of proxies by mail, certain of our officers and regular employees, without additional compensation, may use their personal efforts, by telephone or otherwise, to obtain proxies. We will also request persons, firms and corporations holding shares in their names, or in the names of their nominees, which shares are beneficially owned by others, to send this proxy material to and obtain proxies from such beneficial owners, and will reimburse such holders for their reasonable expenses in so doing. In addition, the Company may retain an outside proxy solicitation firm to assist the Company in the distribution of proxy materials and solicitation of votes, at an anticipated cost to the Company of approximately $10,000 plus reasonable out-of-pocket expenses incurred by the proxy solicitor in connection with the proxy solicitation services.

The presence in person or by proxy of Shareholders holding a majority of the issued and outstanding shares of our common stock entitled to vote will constitute a quorum for the transaction of all business at the annual meeting.

This proxy statement, notice of annual meeting and form of proxy are first being mailed or made available to Shareholders on or about [●].

 

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INDUSTRIAL SERVICES OF AMERICA, INC.

PROXY STATEMENT

For the Annual Meeting on [●]

 

 

TABLE OF CONTENTS

​​​​​​

Table of Contents

Page Number

Proxy Statement 1
Summary Term Sheet 3
Cautionary Statement Regarding Forward-Looking Statements 7
Questions and Answers About the Annual Meeting 9
Risk Factors 16
Proposal No. 1 - Director Election  19
Proposal No. 2 - Asset Sale 24
Proposal No. 3 - Dissolution 47
Proposal No. 4 - Name Change 50
Proposal No. 5 - Severance Payments proposal 51
Proposal No. 6 - Ratification of Independent Registered Public Accounting Firm 53
Proposal No. 7 - Say-on-Pay 54
Proposal No. 8 - Say-on-Frequency 55
Proposal No. 9 - Adjournment 56
Voting Securities 57
Interests of Certain Persons in Matters to be Acted Upon 60
Executive Compensation Discussion and Analysis 61
Certain Relationships and Related Transactions 67
Report of the Audit Committee 71
Independent Registered Public Accountants Fees 72
Shareholder Proposals and Nominations of Board Members for the 2020 Annual Meeting 73
Financial Statements 74
Where You Can Find Additional Information 75
Other Matters 76
Annex A - Asset Purchase Agreement 79
Annex B - Plan of Dissolution 141
Annex C - VRC 143

        

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SUMMARY TERM SHEET


The following is a summary of certain information contained elsewhere in this proxy statement and its annexes. This information is not, and is not intended to be, complete. This is a summary only and is qualified in its entirety by the more detailed information appearing elsewhere in this proxy statement and its annexes. Shareholders are urged to review carefully the entirety of this proxy statement and its annexes.

Annual Meeting (page 1)

Purposes of Meeting  


The Annual Meeting of the Shareholders of the Company will be held at 9:00 A.M. (Local Time) on [●], at Building 1, 7100 Grade Lane, Louisville, Kentucky 40213 to consider and vote on the following proposals:


(1) A proposal to approve the election of Orson Oliver, Albert Cozzi, Vince Tyra, William Yarmuth and Todd L. Phillips as directors of the Company;




(2) A proposal to approve the sale of substantially all of the assets of the Company and its subsidiaries (the “Asset Sale”) to River Metals Recycling LLC (“Buyer”) pursuant to the Asset Purchase Agreement attached as Annex A to this proxy statement (the “Asset Purchase Agreement”);




(3) A proposal to approve the dissolution of the Company and the winding up of its affairs (the “Dissolution”) pursuant to the Plan of Dissolution attached as Annex B to this proxy statement (the “Plan of Dissolution”);




(4) A proposal to approve the change of the Company’s name to Recycling Asset Holdings, Inc. (the "Name Change");




(5) A proposal to approve certain compensation that may be paid or become payable to our Named Executive Officers that is based on or otherwise relates to the Asset Sale and the Plan of Dissolution, as disclosed in the section titled “Severance Payments Triggered by the Asset Sale” in this proxy statement, (on a non-binding advisory basis);




(6) A proposal to approve the ratification of MCM CPAs & Advisors LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2019;




(7) A proposal to approve the compensation of the Company’s executive officers (on a non-binding advisory basis);




(8) A proposal to approve the frequency of the vote on compensation of the Company’s executive officers (on a non-binding advisory basis);




(9) A proposal to approve the authority of the Board, in its sole discretion, to adjourn the meeting, even with the presence of a quorum, to solicit additional proxies in the event that the number of shares present in person or by proxy voting in favor of the Asset Sale, the Plan of Dissolution or the Name Change are insufficient, or for any other reason the Board deems appropriate; and




(10) Such other business as may properly come before the meeting or any adjournment thereof.
  
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Record Date, Quorum, and Voting

The record date for determining the Shareholders entitled to receive notice of and vote at the meeting is the close of business on October [●], 2019. If you own shares of Company common stock as of the close of business on such record date, you are entitled to notice of, and to vote at, the annual meeting. As of the record date, there were 8,160,777 shares of Company common stock issued and outstanding.

The presence in person or by proxy of Shareholders holding a majority of the issued and outstanding shares of our common stock entitled to vote will constitute a quorum for the transaction of all business at the annual meeting. A Shareholder voting for the election of directors may withhold authority to vote for all nominees for director or may withhold authority to vote for certain nominees for director. A Shareholder may vote for, vote against or abstain from voting on the Ratification proposal, the Asset Sale proposal, the Dissolution proposal, the Name Change proposal, the Severance Payments proposal, the Say-on-Pay proposal and the Adjournment Proposal. Regarding the Say-on-Frequency proposal, a Shareholder may vote to conduct an advisory vote every one year, two years or three years, or abstain from voting on the proposal. We will treat votes withheld from the election of any nominee for director and abstentions from any other proposal as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but we will not count in the number of votes cast on any matter any withheld votes or abstentions. If a broker does not receive voting instructions from the beneficial owner of shares on a particular matter and indicates on the proxy that it does not have discretionary authority to vote on that matter, we will not consider those shares as present and entitled to vote with respect to that matter. 


Approval of the Asset Sale proposal and the Dissolution proposal requires the affirmative vote of the holders of a majority of the shares of the Company’s common stock entitled to vote at the annual meeting. Failure to vote, by proxy or in person, or failure to instruct your broker, bank or nominee how to vote shares of common stock held in street name, will have the same effect as a vote “AGAINST” the Asset Sale and the Dissolution. Under the Director Election proposal, the five nominees for director receiving the highest number of affirmative votes shall be elected as directors. The Name Change proposal, the Ratification proposal and the Adjournment proposal will be approved if a majority of the shares of Company common stock, present in person or represented by proxy and entitled to vote on the subject matter, vote in favor of the proposal. The Severance Payments proposal and the Say-on-Pay proposal will be approved on a non-binding, advisory basis, if a majority of the shares of Company common stock, present in person or represented by proxy and entitled to vote on the subject matter, vote in favor of the proposal. Regarding the Say-on-Frequency proposal, among the options of conducting an advisory vote every one year, two years or three years, the option to receive the greatest number of votes will be considered to be the time period approved by Shareholders, on an advisory basis.

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Asset Sale (page 24)

Asset Purchase Agreement (page 79)

On August 16, 2019, the Company and its subsidiaries (collectively the “Sellers”) entered into the Asset Purchase Agreement with Buyer and Buyer's parent company. Pursuant to the Asset Purchase Agreement, Buyer would purchase substantially all of the assets of the Sellers on the satisfaction or waiver of certain closing conditions set forth in the Asset Purchase Agreement.

The purchase price to be paid by Buyer at the closing of the Asset Sale would be $23,300,000, less certain payoff amounts. The purchase price is subject to an adjustment up or down based upon the Sellers’ net working capital, as defined in the Asset Purchase Agreement, as of the closing of the Asset Sale. The amount of $600,000 of the purchase price would be held in escrow to satisfy the potential net working capital purchase price adjustment obligations of the Sellers, and the amount of $100,000 of the purchase price would be held in escrow to satisfy any liabilities of the Sellers relating to the Chemetco Superfund site in Hartford, Illinois. 

The Asset Purchase Agreement is attached as Annex A to this proxy statement.

Fairness Opinion and Board Approval (page 143)

At the request of the Company, Valuation Research Corporation (“VRC”) evaluated the Asset Sale and rendered its written opinion (the “Fairness Opinion) to the Company’s board of directors (the “Board”) that, as of August 16, 2019, and based upon and subject to the factors, qualifications and assumptions set forth therein, the purchase price to be received in the Asset Sale is fair from a financial point of view to the Company. 

VRC’s opinion is attached as Annex C to this proxy statement.

After considering the purchase price and the other terms of the Asset Sale, VRC’s opinion, the recommendation of its special committee, and various other factors, the Board approved the Asset Sale subject to the approval of the Company’s Shareholders. The Board recommends that the Shareholders vote to approve the Asset Sale. 

Plan of Dissolution (page 47)

If the Shareholders approve the Asset Sale and the Asset Sale closes, substantially all of the assets of the Company would be sold to Buyer. After considering such fact and various other factors, the Board determined that it is in the best interest of the Company and its Shareholders to dissolve the Company and wind up its affairs pursuant to the Plan of Dissolution, conditioned upon the closing of the Asset Sale. The Board recommends that the Shareholders vote to approve the Plan of Dissolution.

The Plan of Dissolution is attached as Annex B to this proxy statement.

Name Change (page 50)

The Asset Purchase Agreement would require Sellers to change their names following the closing of the Asset Sale to names that are not confusingly similar with those names included in the purchased assets. Such names include “Industrial Services of America” and “ISA.” As such, the Board recommends that the Shareholders vote to approve an amendment to the Company’s Amended and Restated Articles of Incorporation changing the name of the Company to “Recycling Asset Holdings, Inc.”, conditioned upon the closing of the Asset Sale.

Severance Payments (page 51)

Pursuant to his employment agreement with the Company, Todd L. Phillips, Chief Executive Officer, President and Chief Financial Officer, would be entitled to certain severance payments if terminated following the consummation of the Asset Sale. These potential severance payments and accelerated vesting are described in more detail below, in the section entitled “Severance Payments Triggered by the Asset Sale” beginning on page 51 of this proxy statement. The Board recommends that the Shareholders vote to approve the severance payments.

Election of Directors (page 19)

The Shareholders will be asked to elect Orson Oliver, Albert Cozzi, Vince Tyra, William Yarmuth and Todd L. Phillips as directors of the Company. All such persons are currently directors of the Company. The Board recommends that the Shareholders vote to elect all of the director nominees as directors of the Company.

Ratification of Independent Registered Public Accounting Firm (page 53)

The Shareholders will be asked to ratify MCM CPAs & Advisors LLP as the independent registered public accountants of the Company’s accounts for the fiscal year ending December 31, 2019. The Board recommends that the Shareholders vote to ratify such firm as the Company’s independent registered public accounting firm.

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Say-on-Pay and Say-on-Frequency (page 54 and 55)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Securities Exchange Act of 1934 require the Company to give its Shareholders the opportunity to vote on an advisory (i.e., non-binding) basis regarding the compensation of its Named Executive Officers. This “say-on-pay” proposal gives Shareholders the opportunity to express their views on the compensation of the Company’s Named Executive Officers. The Board recommends that the Shareholders vote to approve the compensation of the Company’s Named Executive Officers as set forth on page 61 of this proxy statement.
Section 14A of the Securities Exchange Act requires Shareholders to vote regarding how often the Company should conduct such a “say-on-pay” vote. The Board recommends that the Shareholders vote to conduct a “say-on-pay” vote every year.
Adjournment Proposal (page 56)
If at the Annual Meeting of Shareholders, the Board determines it is necessary or appropriate to adjourn the annual meeting, we intend to move to vote on the Adjournment proposal. For example, the Board may make such a determination if the number of shares of Company’s common stock represented and voting in favor of the Asset Sale proposal at the annual meeting is insufficient to adopt the Asset Sale proposal, or if the number of shares of Company’s common stock represented and voting in favor of the Dissolution proposal at the annual meeting is insufficient to adopt the Dissolution proposal. The Board recommends that the Shareholders vote to approve the Adjournment proposal. See “Proposal No. 9 - Adjournment” beginning on page 56 of this proxy statement.
Risk Factors (page 16)
A summary of certain risks relating to the Asset Sale and the Plan of Dissolution begins on page 16 of this proxy statement.
Interests of Certain Persons in Matters to be Acted Upon (page 60)
Orson Oliver is the beneficial owner of 20,025 shares held in trusts for Mr. Oliver's daughter and minor grandchildren for which Mr. Oliver is the trustee, 517,788 shares held by the Kletter Family Trust (the Trust) of which Mr. Oliver is trustee, 750,000 shares owned by The Harry Kletter Family Limited Partnership (the Partnership) of which Mr. Oliver is general partner, and 549,168 shares owned by K&R, LLC (K&R) which is controlled by Mr. Oliver, of which all shares are pledged as security for commercial bank loans. K&R and 7100 Grade Lane, LLC, (7100 LLC) an entity related to the Trust, the Partnership and K&R, will receive an early payoff of amounts due from the Company under certain notes as a result of the Asset Sale, as more fully described in “Certain Relationships and Related Transactions.
Under the All Net Lease (the "Lease") dated as of October 1, 2017, the Company leases a portion of its Louisville, Kentucky facility from 7100 LLC, an entity controlled by Kletter Holding LLC, of which Mr. Oliver is the sole manager. The Company is aware of ongoing negotiations between Buyer and 7100 LLC regarding the possible sale of property leased by the Company; the Company is not a party to the negotiations. These negotiations began following the public announcement of the execution of the Asset Purchase Agreement. The Company has a right of first refusal under the Lease for any real estate sale transaction. Assuming the Company does not exercise its right of first refusal and the real estate is sold to Buyer, the Company would not receive any proceeds from such sale or otherwise have an interest in the transaction.
Todd L. Phillips will receive certain severance payments and accelerated vesting of certain equity grants as a result of the Asset Sale, as more fully described in “Severance Payments Triggered by the Asset Sale beginning on page 51 of this proxy statement.
Anticipated Shareholder Distributions (page 45)
If the Shareholders approve the Asset Sale, subject to the escrows, the satisfaction of the liabilities of the Company and certain assumptions, the Company intends, although there can be no assurance, to provide for an initial distribution of between $8.3 million and $8.8 million in the aggregate, or approximately $1.00 to $1.06 per share of common stock based on an estimated 8,328,163 fully diluted shares of common stock outstanding. These per-share amounts assume that all Restricted Stock Units have vested as of the initial distribution date. No distribution will be made if there is no closing, and the amount and timing of any future distribution following any initial distribution will be determined by the Board.
Tax Considerations (page 46)
The proposed Asset Sale will be a taxable transaction to the Company for U.S. federal income tax purposes. In general, the Company will recognize taxable gain in an amount equal to the difference, if any, between (i) the total amount realized by the Company on the Asset Sale and (ii) the Company’s aggregate adjusted tax basis in the assets sold. The total amount realized by the Company on the Asset Sale will equal the cash the Company receives in exchange for the assets sold, plus the amount of related liabilities assumed by the Buyer or cancelled in the transaction. The Company expects that a portion of the taxable gain recognized on the Asset Sale will be offset by current year losses from operations and available net operating loss carry forwards, as currently reflected on our consolidated U.S. federal income tax returns. However, the Company believes that a significant portion of its net operating loss carry forwards will never be fully utilized and expire unused.
Shareholders will not be subject to U.S. federal income tax on the Asset Sale. However, as discussed below, Shareholders will be subject to U.S. federal income tax upon the receipt of any distribution of Asset Sale proceeds made by the Company to the Shareholders. See “Asset Sale - Certain U.S. Federal Income Tax Considerations.
Appraisal Rights (page 46)
Shareholders are not entitled to appraisal rights in connection with the Asset Sale or the Plan of Dissolution.
Further Questions (page 15)
Questions about this proxy statement or the proposals contained herein may be addressed to Todd L. Phillips, 7100 Grade Lane, Louisville, Kentucky 40213 or (502) 367-7100.
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This proxy statement, the documents to which we refer you in this proxy statement and information included in oral statements or other written statements made or to be made by us or on our behalf may include predictions, estimates and other information that may be considered “forward-looking statements” that do not directly or exclusively relate to historical facts, including, without limitation, statements relating to the completion of the Asset Sale. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “should,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other words of similar import. Shareholders are cautioned that any forward-looking statements are not guarantees of future performance. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors including, but are not limited to, factors and matters described under the section entitled “Risk Factors” elsewhere in this proxy statement or incorporated by reference in this proxy statement, and include, but are not limited to, the following risks:
The Asset Sale, even if approved by the Shareholders, may fail to close;
   
We may be unable to satisfy the closing conditions set forth in the Asset Purchase Agreement, including among others, (i) the receipt of the required Shareholder approval, receipt of the Kentucky Pollutant Discharge Elimination System (KPDES) permit and stormwater compliance agreed order (collectively, the Permit and Agreed Order) issued by the Kentucky Energy and Environment Cabinet (the Cabinet) on terms not materially different from those being discussed with the Cabinet as of the date of the Asset Purchase Agreement in connection with the Company's efforts to ensure future compliance with the stormwater permit at one of its facilities, and (ii) the absence of any change, circumstance, condition, state of facts, events or effect that constitutes a material adverse effect;


The occurrence of any event, change or other circumstance that could give rise to the termination of the Asset Purchase Agreement;


The Shareholders’ refusal to approve the Name Change could result in our inability to close the Asset Sale;


Management’s attention may be diverted from ongoing business concerns during the pendency of the Asset Sale;


The costs, fees and expenses related to the Asset Sale, including the risk that the Asset Purchase Agreement may be terminated in circumstances that would require us to pay Buyer termination costs and fees of up to $850,000;


That operating results of the Company are less favorable than currently estimated by management, which would negatively impact the amounts distributable to the Shareholders;


The possible effect of the announcement of the Asset Sale on our customer and employee relationships, operating plans and results and our business generally, including the risk that we may experience a decline in sales and difficulties retaining employees;


Business uncertainty and contractual restrictions on the operation of our business during the pendency of the Asset Sale;


The failure of our Shareholders to approve the Plan of Dissolution;


The impact of the Asset Sale, the Dissolution and any distributions on our stock price and the market for the Company’s common stock;


Our directors and executive officers may have interests that are different from, or in addition to, those of the Shareholders generally;


The uncertainty as to the timing and amount of any distribution to Shareholders;

7




The uncertainty as to the amount of our future liabilities, including the costs and reserves associated with the Plan of Dissolution;


We will continue to incur the expenses of complying with public company reporting requirements;


The possible tax treatment of any distributions to Shareholders;


Competitive pressures and general economic conditions; and


The other risks set forth in the discussion of risk factors herein (see “Risk Factors” below).
Additional factors that may affect our future results are set forth in the filings we make with the SEC from time to time, including our Annual Report on Form 10-K for the year ended December 31, 2018, which is available on the SEC’s website at www.sec.gov.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. Except as required by applicable law, we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING, THE ASSET SALE AND THE PLAN OF DISSOLUTION

The following questions and answers are intended to address briefly some commonly asked questions regarding the annual meeting, the Asset Sale and the Plan of Dissolution. These questions and answers may not address all questions that may be important to you as a Company Shareholder. Please refer to the additional information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement.

WHEN AND WHERE WILL THE ANNUAL MEETING OF SHAREHOLDERS BE HELD?

The Annual Meeting of Shareholders will be held at 9:00 A.M. (Local Time), on [●] at Building 1, 7100 Grade Lane, Louisville, Kentucky 40213. You should read the section entitled “The Annual Meeting” beginning on page 1.

WHAT ARE THE PROPOSALS THAT WILL BE VOTED ON AT THE ANNUAL MEETING?

You will be asked to consider and vote upon (1) the election of five directors to our Board of Directors each for a term expiring at the 2020 annual meeting of Shareholders (if any) and until his successor has been duly elected and qualified (the “Director Election proposal”); (2) a proposal to approve the Asset Sale, and to approve and adopt the Asset Purchase Agreement and the transactions contemplated under that agreement (the “Asset Sale proposal”); (3) a proposal to approve the Dissolution in accordance with the Plan of Dissolution, which, if approved, will give the Board of Directors discretion to determine when and whether to proceed with the Plan of Dissolution (the “Dissolution proposal”); (4) a proposal to amend the Company’s Amended and Restated Articles of Incorporation to change its corporate name to “Recycling Asset Holdings, Inc.”, contingent on and effective upon the consummation of the Asset Sale (the “Name Change proposal”); (5) a proposal to approve certain compensation (the “Severance Payments”) that may be paid or become payable to our Named Executive Officers that is based on or otherwise relate to the Asset Sale and the Plan of Dissolution, as disclosed in the section titled “Severance Payments Triggered by the Asset Sale” in this proxy statement (the “Severance Payments proposal”) (on a non-binding advisory basis); (6) the ratification of the appointment of MCM CPAs & Advisors LLP as our independent registered public accounting firm for the year ending December 31, 2019 (the “Ratification proposal”); (7) a proposal to approve the compensation of our Named Executive Officers as disclosed in the “Summary Compensation Table” and accompanying disclosure in this proxy statement (the “Say-on-Pay proposal”) (on a non-binding advisory basis); (8) a proposal to approve the compensation of our Named Executive Officers on an annual basis (the “Say-on-Frequency proposal”) (on a non-binding advisory basis); and (9) a proposal to adjourn the annual meeting in order to solicit additional proxies in the event there are insufficient votes to approve one or more of the foregoing proposals or for any other reason the Board of Directors deems appropriate (the “Adjournment proposal”).

HOW DOES THE COMPANY BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?

The Company Board of Directors recommends that you vote as follows:


“FOR” each of the nominees for the Board under the Director Election proposal;




“FOR” the Asset Sale proposal;





“FOR” the Dissolution proposal;




“FOR” the Name Change proposal;





“FOR” the Severance Payments proposal;




“FOR” the Ratification proposal;




“FOR” the Say-on-Pay proposal;




“FOR” voting every one year on the Say-on-Frequency proposal; and




“FOR” the Adjournment proposal;


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WHO IS ENTITLED TO ATTEND AND VOTE AT THE ANNUAL MEETING?

The record date for the annual meeting is October [●], 2019. If you own shares of Company common stock as of the close of business on the record date, you are entitled to notice of, and to vote at, the annual meeting or any adjournment or postponement of the annual meeting. As of the record date, there were 8,160,777 shares of Company common stock issued and outstanding.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ADOPT THE ASSET SALE?
Under Section 607.1202 of the Florida Business Corporation Act (the FBCA), the adoption of the Asset Purchase Agreement and approval of the Asset Sale and other transactions contemplated by the Asset Purchase Agreement by Company Shareholders requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote on the matter.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ADOPT THE PLAN OF DISSOLUTION?
Under Section 607.1402 of the FBCA, the adoption of the Plan of Dissolution and approval of the Dissolution by Company Shareholders requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote on the matter.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ADOPT THE NAME CHANGE?
Under Section 607.1003 of the FBCA, the adoption of the Name Change proposal by Company Shareholders requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ELECT THE NOMINEES TO THE BOARD OF DIRECTORS?
The nominees for director receiving the highest number of affirmative votes shall be elected as directors.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED FOR RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM?
The ratification of the appointment of MCM CPAs & Advisors LLP as our independent registered public accounting firm for the year ending December 31, 2019 requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ADOPT THE PROPOSAL TO ADJOURN OR POSTPONE THE ANNUAL MEETING TO A LATER TIME, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES?
The adoption of the proposal to adjourn or postpone the annual meeting to a later time, if necessary or appropriate, to solicit additional proxies requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.
WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO APPROVE ON AN ADVISORY (NON-BINDING) BASIS, THE COMPENSATION TO BE PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS THAT IS BASED ON OR OTHERWISE RELATES TO THE ASSET SALE OR THE DISSOLUTION?
The approval, on a non-binding, advisory basis, of the compensation that will or may become payable to the Company’s Named Executive Officers that is based on or otherwise relates to the Asset Sale or the Dissolution, as disclosed in the section titled “Severance Payments Triggered by the Asset Sale” requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.
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WHAT WILL HAPPEN IF OUR SHAREHOLDERS DO NOT APPROVE, ON AN ADVISORY (NON-BINDING) BASIS, THE COMPENSATION TO BE PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS THAT IS BASED ON OR OTHERWISE RELATES TO THE ASSET SALE OR THE DISSOLUTION?

The advisory vote on the compensation that will or may become payable to the Company’s Named Executive Officers that is based on or otherwise relates to the Asset Sale or the Dissolution is a vote separate and apart from the vote to approve the Asset Sale or the Plan of Dissolution. Accordingly, you may vote to approve the executive compensation and vote not to approve either or both of the Asset Sale and the Plan of Dissolution, and vice versa. Because the vote on executive compensation that will or may become payable in connection with the Asset Sale or the Dissolution is advisory in nature only, it will not be binding on the Company. Accordingly, because the Company is contractually obligated to pay the compensation, if the Asset Sale or a sale of all or substantially all assets under the Dissolution is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the advisory vote.

WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO APPROVE ON AN ADVISORY (NON-BINDING) BASIS, THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT?

The approval, on a non-binding, advisory basis, of the compensation of our Named Executive Officers as disclosed in the “Summary Compensation Table” and accompanying disclosure in this proxy statement requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.

WHY IS THE SAY-ON-FREQUENCY PROPOSAL BEING INCLUDED AMONG THE ITEMS TO BE CONSIDERED AT THE ANNUAL MEETING?

We have included the Say-on-Frequency proposal among the items to be considered at the Annual Meeting in order to satisfy the requirements of Section 14A of the Securities Exchange Act of 1934. If the Asset Sale proposal and the Dissolution proposal are not approved, and the Company remains a going concern, the Company must remain in compliance with those requirements so long as its shares of common stock remain subject to the reporting requirements of the SEC.

WHY IS THE SAY-ON-PAY PROPOSAL BEING INCLUDED AMONG THE ITEMS TO BE CONSIDERED AT THE ANNUAL MEETING?

We have included the Say-on-Pay proposal among the items to be considered at the Annual Meeting in order to satisfy the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Securities Exchange Act of 1934. If the Asset Sale proposal and the Dissolution proposal are not approved, and the Company remains a going concern, the Company must remain in compliance with those requirements so long as its shares of common stock remain subject to the reporting requirements of the SEC.

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WHAT ARE THE EFFECTS OF ABSTENTIONS AND BROKER NON-VOTES?

Pursuant to Florida law, abstentions are counted as present for purposes of determining the presence of a quorum. Abstentions will not be counted as votes cast “FOR” or “AGAINST” any proposal; however, because the proposal to approve the Asset Sale, the proposal to approve the Name Change and the proposal to approve the Plan of Dissolution each requires the affirmative vote of a majority of our outstanding shares of common stock entitled to vote on the matter, an abstention will have the same effect as a vote “AGAINST” such proposal. Abstentions will have no effect on the voting results for any other proposal described in this proxy statement.
Under applicable exchange rules, if a broker, bank or other institution that holds shares in “street name” for a customer does not receive voting instructions from that customer, the broker may vote only on certain “routine” matters. For “non-routine” matters, which include all proposals contained in this proxy statement except for the Ratification proposal, a broker may not vote on such matters unless it receives voting instructions from the customer for whom it holds shares of common stock. A broker “non-vote” occurs when a broker does not receive such voting instructions from its customer on “non-routine” matters. Broker non-votes are counted for purposes of determining the presence of a quorum; however, they will not be counted as votes cast “FOR” or “AGAINST” any proposal and will have no effect on the voting results for any proposal, other than the proposals to approve the Asset Sale and the Plan of Dissolution, for which a broker non-vote will have the effect of a vote “AGAINST” approval of such proposals.
Because several proposals in this proxy statement are considered “non-routine” matters under applicable exchange rules, we urge you to give voting instructions to your broker.
With respect to the proposal to ratification of the appointment of the Company’s independent registered public accounting firm and any other “routine” matters properly brought before the annual meeting, brokers holding shares in street name may vote those shares in their discretion.
WHAT DO I NEED TO DO NOW? 
After carefully reading and considering the information contained in this proxy statement, including the annexes and the other documents referred to in this proxy statement, please vote your shares in one of the ways described below. You have one vote for each share of Company common stock you own as of the record date.
HOW DO I VOTE IF I AM A SHAREHOLDER OF RECORD?
You may vote by:

submitting your proxy by completing, signing and dating each proxy card you receive and returning it in the enclosed prepaid envelope; or




appearing in person at the annual meeting.
   
You are encouraged to submit your proxy. Submitting your proxy by mailing your proxy card will not prevent you from voting in person at the annual meeting. You are encouraged to submit a proxy even if you plan to attend the annual meeting in person to ensure that your shares of Company common stock are represented at the annual meeting.
If you properly sign your proxy card but do not mark the boxes showing how your shares of common stock should be voted on a matter, the shares of common stock represented by your properly signed proxy will be voted “FOR” the election of each of the five nominees for the Board of Directors, “FOR” the approval of the Asset Sale, “FOR” the approval of the Plan of Dissolution, “FOR” the approval of the Name Change, “FOR” the proposal to approve, by a non-binding, advisory vote, the compensation that will or may become payable to the Company's Name Executive Officers that is based on or otherwise relates to the Asset Sale or the Dissolution, as disclosed in the section titles “Severance Payments Triggered by the Asset Sale,” “FOR” the ratification of the appointment of MCM CPAs & Advisors LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2019, “FOR” the proposal to approve, by non-binding, advisory vote, the compensation of our Named Executive Officers as disclosed in the “Summary Compensation Table” and accompanying disclosure included in this proxy statement, “FOR” the proposal to approve, by non-binding, advisory vote, the choice of every year on the frequency with which we include in our Proxy Statement an advisory vote to approve or not approve the compensation of our Named Executive Officers and “FOR” the proposal to adjourn the annual meeting, if necessary or appropriate, to solicit additional proxies.

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HOW DO I VOTE IF MY SHARES OF COMPANY COMMON STOCK ARE HELD BY MY BROKERAGE FIRM, BANK, TRUST OR OTHER NOMINEE?

If your shares of Company common stock are held in a brokerage account or by another nominee, such as a bank or trust, then the brokerage firm, bank, trust or other nominee is considered to be the Shareholder of record with respect to those shares. However, you still are considered to be the beneficial owner of those shares of Company common stock, with your shares being held in “street name.” “Street name” holders generally cannot vote their shares directly and must instead instruct the brokerage firm, bank, trust or other nominee how to vote their shares. Your brokerage firm, bank, trust or other nominee will only be permitted to vote your shares of Company common stock for you at the annual meeting if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your brokerage firm, bank, trust or other nominee regarding how to instruct them to vote your shares. If you wish to vote in person at the annual meeting, you must bring a proxy from your brokerage firm, bank, trust or other nominee authorizing you to vote at the annual meeting.

In addition, because any shares of Company common stock you may hold in “street name” will be deemed to be held by a different Shareholder than any shares you hold of record, shares held in “street name” will not be combined for voting purposes with shares you hold of record. To be sure your shares of Company common stock held in “street name” are voted, you should instruct your brokerage firm, bank, trust or other nominee to vote your shares. Shares of Company common stock held by a corporation or business entity must be voted by an authorized officer of the entity.

WHAT CONSTITUTES A QUORUM FOR THE ANNUAL MEETING?

The presence, in person or by proxy, of Shareholders representing a majority in interest of the shares of Company common stock issued and outstanding will constitute a quorum for the annual meeting. If you are a Shareholder of record and you submit a properly executed proxy card by mail or vote in person at the annual meeting, then your shares of Company common stock will be counted as part of the quorum. If you are a “street name” holder of shares and you provide your brokerage firm, bank, trust or other nominee with instructions as to how to vote your shares or obtain a legal proxy from such broker or nominee to vote your shares in person at the annual meeting and you attend the meeting, then your shares will be counted as part of the quorum. All shares of Company common stock held by Shareholders that are present in person or represented by proxy and entitled to vote at the annual meeting, regardless of how such shares are voted or whether such Shareholders abstain from voting, will be counted in determining the presence of a quorum.

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WH
AT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY?

If you receive more than one proxy, it means that you hold shares of Company common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares are voted, you will need to sign and return each proxy card you receive by mail.

MAY I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?

Yes. If you are the Shareholder of record of Company common stock, you have the right to change or revoke your proxy at any time before it being voted at the annual meeting:


by delivering to the Company’s Secretary, a signed written notice of revocation bearing a date later than the date of proxy, stating that the proxy is revoked;




by submitting a later-dated proxy card relating to the same shares of Company common stock; or





by attending the annual meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting).

Written notices of revocation and other communications with respect to the revocation of any proxies should be addressed to:

INDUSTRIAL SERVICES OF AMERICA, INC.
Attn: Caprice Price

7100 Grade Lane

Louisville, KY 40213

Telephone: (502) 367-7100


If you are a “street name” holder of Company common stock, you should contact your brokerage firm, bank, trust or other nominee to obtain instructions as to how to change or revoke your proxy.

AM I ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE ASSET SALE OR THE DISSOLUTION?

No. The Company’s Shareholders are not entitled to appraisal rights with respect to the Asset Sale or the Dissolution under Florida law.

WHAT HAPPENS IF I SELL MY SHARES OF THE COMPANY’S COMMON STOCK AFTER THE RECORD DATE BUT BEFORE THE ANNUAL MEETING?

The record date for Shareholders entitled to vote at the annual meeting is earlier than both the date of the annual meeting and the consummation of the Asset Sale. If you transfer your shares of the Company’s common stock after the record date but before the annual meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies the Company in writing of such special arrangements, you will retain your right to vote such shares at the annual meeting but will transfer the right to receive any distributions that are anticipated after the closing of the Asset Sale. Only Shareholders of record as of the record date for a distribution as determined by the Board will be entitled to receive such distribution.

ARE THERE RISKS RELATED TO THE ASSET SALE OR THE PLAN OF DISSOLUTION?

Yes. You should carefully review the section entitled “Risk Factors” beginning on page 16 of this proxy statement.

WHEN DO YOU EXPECT THE ASSET SALE TO BE COMPLETED?

The Company and Buyer have agreed in the Asset Purchase Agreement to complete the Asset Sale as soon as possible. If the Asset Purchase Agreement and the Asset Sale are approved at the annual meeting then, assuming timely satisfaction or, to the extent permitted by the Asset Purchase Agreement and applicable law, waiver of the other necessary closing conditions, we anticipate that the Asset Sale will be completed promptly thereafter.

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WHY IS THE BOARD RECOMMENDING THAT I VOTE “FOR” THE ASSET SALE PROPOSAL?

After careful consideration, the Board unanimously determined that the Asset Sale, on the terms and subject to the conditions set forth in the Asset Purchase Agreement, is fair to, and in the best interests of, the Company and its Shareholders and unanimously approved and declared advisable the Asset Sale and the transactions contemplated by the Asset Purchase Agreement. The Board’s determination reflects a thorough exploration of strategic alternatives. As a result of its analysis, the Board concluded that the Company and its Shareholders will be best served by the Asset Sale, in particular because the Board expects that this course will yield higher proceeds to its Shareholders than if it continued to operate the business. The Board also considered each of the items set forth under “Proposal 2 - The Asset Sale Proposal - Reasons for the Asset Sale beginning on page 28 of this proxy statement.

DO ANY OF THE COMPANY’S DIRECTORS OR EXECUTIVE OFFICERS HAVE INTERESTS IN THE ASSET SALE AND THE DISSOLUTION THAT MAY DIFFER FROM THOSE OF THE SHAREHOLDERS?

Yes. Orson Oliver is the beneficial owner of 20,025 shares held in trusts for Mr. Oliver's daughter and minor grandchildren for which Mr. Oliver is the trustee, 517,788 shares held by the Kletter Family Trust (the Trust) of which Mr. Oliver is trustee, 750,000 shares owned by The Harry Kletter Family Limited Partnership (the Partnership) of which Mr. Oliver is general partner, and 549,168 shares owned by K&R, LLC (K&R) which is controlled by Mr. Oliver, of which all shares are pledged as security for commercial bank loans. K&R and 7100 Grade Lane, LLC, (7100 LLC”) an entity related to the Trust, the Partnership and K&R will receive an early payoff of amounts due from the Company under certain notes as a result of the Asset Sale, as more fully described in “Certain Relationships and Related Transactions.

Under the All Net Lease (the "Lease") dated as of October 1, 2017, the Company leases a portion of its Louisville, Kentucky facility from 7100 LLC, an entity controlled by Kletter Holding LLC, of which Mr. Oliver is the sole manager. The Company is aware of ongoing negotiations between Buyer and 7100 LLC regarding the possible sale of property leased by the Company; the Company is not a party to the negotiations. These negotiations began following the public announcement of the execution of the Asset Purchase Agreement. The Company has a right of first refusal under the Lease for any real estate sale transaction. Assuming the Company does not exercise its right of first refusal and the real estate is sold to Buyer, the Company would not receive any proceeds from such sale or otherwise have an interest in the transaction.

Todd L. Phillips will receive severance payments and accelerated vesting of certain equity grants as a result of the Asset Sale as more fully described under “Proposal No. 5 - Severance Payments Triggered by the Asset Sale” beginning on page 51 of this proxy statement.

WHAT WILL HAPPEN UNDER THE PLAN OF DISSOLUTION?

Under the Plan of Dissolution, upon obtaining Shareholder approval of the Dissolution, at a time determined by the Board in its sole discretion we expect to file Articles of Dissolution with the Secretary of State of the State of Florida, our jurisdiction of incorporation, to commence the process of liquidation and dissolution. The Company will then cease its business activities (except as necessary, appropriate or desirable to effect a sale of any remaining assets and properties, pay, or make adequate provision for the payment of, all obligations and claims against the Company including a provision for payment of contingent or unknown claims), wind up its affairs, and distribute its remaining assets, if any, to its Shareholders.

WHAT WILL HAPPEN IF SHAREHOLDERS APPROVE THE ASSET SALE BUT DO NOT APPROVE THE PLAN OF DISSOLUTION? 

If Shareholders do not approve the Plan of Dissolution, the Company will be unable to proceed with the Dissolution. The Company will seek to complete the Asset Sale, assuming the other conditions to closing set forth in the Asset Purchase Agreement are satisfied or waived. In that event, the Company will have transferred substantially all of its operating assets to Buyer and will have limited operations with which to generate revenue. The Board would be required to evaluate the alternatives available to the Company, including, among other things, remaining a publicly-traded company or undertaking a going-private transaction. In the event we make a distribution outside of the Plan of Dissolution, our Shareholders could, depending on their particular circumstances, incur an increased Shareholder-level U.S. Federal income tax liability in the event that property (including cash from the Asset Sale) distributed to Shareholders is characterized as a dividend for U.S. federal income tax purposes. See the section entitled “Certain U.S. Federal Income Tax Considerations” beginning on page 46 of this proxy statement.

WHAT WILL HAPPEN IF SHAREHOLDERS APPROVE THE PLAN OF DISSOLUTION BUT DO NOT APPROVE THE ASSET SALE? 

Shareholder approval of the Plan of Dissolution constitutes approval by the Shareholders of the sale, exchange, or other disposition in liquidation of all property and assets of the Company. This sale, exchange, or other disposition may occur in one transaction or a series of transactions. If the Plan of Dissolution is approved by the Shareholders, the Board would be legally permitted to proceed with the Dissolution, as part of which it would be authorized to sell the assets constituting the business. However, if Shareholders approve the Plan of Dissolution but do not approve the Asset Sale, the Company is unlikely to move forward with the Dissolution.

WHO CAN ANSWER FURTHER QUESTIONS?

For additional questions about the proxy statement and the proposals contained in the proxy statement, assistance in submitting proxies or voting shares of Company common stock or additional copies of the proxy statement or the enclosed proxy card, please contact the Company’s Chief Executive Officer, Todd L. Phillips at (502) 367-7100.

If your brokerage firm, bank, trust or other nominee holds your shares in “street name,” you should also call your brokerage firm, bank, trust or other nominee for additional information.
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The following risk factors relating to the Asset Sale should be carefully considered, in addition to other information contained in this proxy statement, in deciding how to vote on the Asset Sale proposal and the Dissolution proposal. The risks described below are not the only risks the Company faces. There may be additional risks not presently known to us or that we currently believe are immaterial that may also adversely impact our business operations.

 

Risks Related to the Asset Sale

The Asset Sale is subject to numerous conditions beyond our control and, even if approved by the Shareholders, may not be completed.

The completion of the Asset Sale is subject to a number of conditions to closing, some of which are outside the control of the Company and its subsidiaries, including receipt of Shareholder approval of the Asset Sale and the Asset Sale closing by the required deadline, obtaining the Permit and Agreed Order (each on terms not materially different in a manner adverse to Sellers with respect to the certain contemplated fines and penalties relating to noncompliance from those being discussed with the Cabinet as of the date of the Asset Purchase Agreement), obtaining any applicable third-party consents to the assignment of applicable contracts, the Asset Purchase Agreement remaining in force and the Buyer having performed its obligations under the Asset Purchase Agreement. The Company provides no guarantee as to when and if these conditions will be satisfied, even if the Shareholders approve the Asset Sale.

We cannot determine at this time the timing, amount or nature of any distributions to our Shareholders because there are many factors, some of which are outside of our control, that could affect our ability to make such distributions.

If the Asset Sale is approved by the Shareholders and closes, then as soon as practicable after the closing of the Asset Sale, the Company plans to distribute, in an initial distribution (with potential subsequent distributions thereafter), a portion of the net proceeds from the Asset Sale, potentially subject to a contingency reserve for remaining costs and liabilities. However, the amount and timing of distributions to Shareholders will be determined by the Board in its discretion, subject to the provisions of the Plan of Dissolution.

Although the Company has estimated the distributions that can be expected by the Shareholders as described beginning on page 45 of this proxy statement under “Shareholder Distributions,” there are no assurances that such estimates will prove to be accurate. Shareholders will not know at the time of voting the amount of consideration they will receive or when they will receive it. Those determinations depend on a variety of factors, including, but not limited to, whether we are able to close the Asset Sale; any amendment to the Asset Purchase Agreement resulting from the failure to satisfy any condition to closing; if operating results of the Company are less favorable than currently estimated by management; the amount we will be required to pay to satisfy unknown or contingent liabilities in the future; the cost of operating our business through the date of our final liquidation; general business and economic conditions; and other matters.

For the foregoing reasons, there can be no assurance as to the timing and amount of distributions to Shareholders.

Our directors and executive officers may have interests that are different from, or in addition to, those of Shareholders generally.

You should be aware of interests of, and the benefits available to, our directors and executive officers when considering the recommendation of our Board of the Asset Sale. Our directors and executive officers may have interests in the Asset Sale that may be in addition to, or different from, their interests as Shareholders.

Orson Oliver is the beneficial owner of 20,025 shares held in trusts for Mr. Oliver's daughter and minor grandchildren for which Mr. Oliver is the trustee, 517,788 shares held by the Kletter Family Trust (the Trust) of which Mr. Oliver is trustee, 750,000 shares owned by The Harry Kletter Family Limited Partnership (the Partnership) of which Mr. Oliver is general partner, and 549,168 shares owned by K&R, LLC (K&R) which is controlled by Mr. Oliver, of which all shares are pledged as security for commercial bank loans. K&R and 7100 Grade Lane, LLC, (the 7100 LLC) an entity related to the Trust, the Partnership and K&R, will receive an early payoff of amounts due from the Company under certain notes as a result of the Asset Sale, as more fully described in “Certain Relationships and Related Transactions.”

Under the All Net Lease (the "Lease") dated as of October 1, 2017, the Company leases a portion of its Louisville, Kentucky facility from 7100 LLC, an entity controlled by Kletter Holding LLC, of which Mr. Oliver is the sole manager. The Company is aware of ongoing negotiations between Buyer and 7100 LLC regarding the possible sale of property leased by the Company; the Company is not a party to the negotiations. These negotiations began following the public announcement of the execution of the Asset Purchase Agreement. The Company has a right of first refusal under the Lease for any real estate sale transaction. Assuming the Company does not exercise its right of first refusal and the real estate is sold to Buyer, the Company would not receive any proceeds from such sale or otherwise have an interest in the transaction.

Todd L. Phillips will receive certain severance payments and accelerated vesting of certain equity grants as a result of the Asset Sale, as more fully described in Severance Payments Triggered by the Asset Sale. 


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Failure to complete the Asset Sale may materially and adversely affect our business, financial condition and results of operations.

The Buyer’s obligation to close the Asset Sale is subject to a number of conditions, including our Shareholders’ approval of the Asset Sale Proposal, and receipt of the Permit and Agreed Order. We cannot control some of these conditions and we cannot assure you that they will be satisfied or that the Buyer will waive any that are not satisfied. If the Asset Sale is not consummated, we may be subject to a number of risks, including the following:


· we may not be able to identify an alternate transaction, or if an alternate transaction is identified, such alternate transaction may not result in an equivalent price to what is proposed in the Asset Sale;




· the trading price of our common stock may decline to the extent that the current market price reflects a market assumption that the Asset Sale will be consummated; and




·
our relationships with our customers, suppliers and employees may be damaged beyond repair and our business may be harmed.

The occurrence of any of these events individually or in combination could materially and adversely affect our business, financial condition and results of operations, which could cause the market value of our common stock to decline.

We will incur significant expenses in connection with the Asset Sale and could be required to make significant payments if the Asset Purchase Agreement is terminated under certain conditions.

If we are unable to close the Asset Sale due to our uncured breach of our representations, warranties, covenants or obligations under the Asset Purchase Agreement, we may owe contractual damages to the Buyer. In addition, we expect to pay legal fees, accounting fees and proxy costs whether the Asset Sale closes or not. Any significant expenses or payment obligations incurred by us in connection with the Asset Sale could adversely affect our financial condition and cash position.

We will continue to incur the expenses of complying with public company reporting requirements.

We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act even though compliance with such reporting requirements is economically burdensome. Until the Company is able to deregister its shares and suspend its periodic reporting obligations under the Securities Exchange Act, the Company will remain a reporting issuer and will incur attendant costs relating to filing such reports with the Securities and Exchange Commission.

Risks Related to the Plan of Dissolution

If Shareholders do not approve the Plan of Dissolution, our business could be harmed, and Shareholders could face adverse tax consequences.

If we close the Asset Sale but do not obtain Shareholder approval of the Plan of Dissolution, we would have to continue business operations despite the sale of assets that generate substantially all of our revenue. We would have limited assets with which to generate operating revenue and likely will have retained only those employees required to wind up our remaining business. Further, our Shareholders could, depending on their particular circumstances, incur an increased Shareholder-level U.S. federal income tax liability if cash or property distributed to Shareholders is characterized as a dividend for U.S. federal income tax purposes.


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If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each of our Shareholders who receives liquidating distributions could be held liable for payment to our creditors of his or her pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such Shareholder in the Distribution.

If the Plan of Dissolution is approved by the Shareholders, we intend to file Articles of Dissolution with the Secretary of State of the State of Florida and then complete the wind up. Pursuant to Florida law, the Company will continue to exist for a minimum of four years after its dissolution becomes effective for the purpose of prosecuting and defending suits against the Company and enabling the Company and its subsidiaries to close their business, to dispose of their property, to discharge their liabilities and to distribute to Shareholders any remaining assets. If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, creditors could assert claims against each Shareholder receiving a distribution for the payment of any shortfall, up to the amounts previously received by the Shareholder in distributions from us. Moreover, if a Shareholder has paid taxes on amounts previously received by the Shareholder, a repayment of all or a portion of such amount could result in a Shareholder incurring a net tax cost if the Shareholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. We cannot assure you that the contingency reserve established by us will be adequate to cover all expenses and liabilities.

Even if our Shareholders approve the Asset Sale and the Plan of Dissolution, the Internal Revenue Service may not treat the distributions to our Shareholders as distributions in complete liquidation. The tax treatment of any liquidating distributions may vary from Shareholder to Shareholder, and the discussions in this proxy statement regarding such tax treatment are general in nature. You should consult your own tax advisor instead of relying on the discussions of tax treatment in this proxy statement for tax advice.

The Company intends that the Plan of Dissolution constitute a plan of “complete liquidation,” and that distributions made pursuant to the Plan of Dissolution constitute distributions made in “complete liquidation” of the Company. The approval of the Plan of Dissolution, however, does not ensure any distributions we make will be treated as distributions in “complete liquidation” by the Internal Revenue Service (“IRS”).

We have not requested a ruling from the IRS with respect to the anticipated tax consequences of the Dissolution.  If any of the anticipated tax consequences described in this proxy statement proves to be incorrect, the result could be increased taxation at the corporate and/or Shareholder level, thus reducing the benefit to Shareholders and us from the Dissolution and distributions. Tax considerations applicable to particular Shareholders may vary with and be contingent upon the Shareholder’s individual circumstances.

Shareholders may not be able to recognize a loss for federal income tax purposes until they receive a final distribution from us, which is not expected to occur until 2020 at the earliest and could be years from now.

As a result of the Dissolution, for U.S. federal income tax purposes, Shareholders will recognize gain or loss equal to the difference between (a) the sum of the amount of cash distributed to them and the aggregate fair market value of any property (other than cash) distributed to them, and (b) their tax basis for their shares of Company common stock. A Shareholder’s tax basis in shares of Company common stock will depend upon various factors, including the Shareholder’s cost and the amount and nature of any distributions received with respect thereto. Any loss generally will be recognized only when the final distribution from us has been received, which may be years after our dissolution, and if the Shareholder is still the owner of the shares of Company common stock.

Our stock transfer books will close on a date to be selected by our Board, after which it will not be possible for Shareholders to trade our stock.

If the Plan of Dissolution is approved by our Shareholders and if the Board determines to proceeds with the Dissolution, we will close our transfer books on a date to be determined by our Board (the “Final Record Date”). After the Final Record Date, we will not record any further transfers of our common stock, except pursuant to the provisions of a deceased Shareholder’s will, intestate succession or operation of law and we will not issue any new stock certificates, other than replacement certificates. It is anticipated that no further trading of our common stock will occur after the Final Record Date.

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The nominees for election as directors are Orson Oliver, Albert Cozzi, Vince Tyra, William Yarmuth and Todd L. Phillips. 

Shareholders voting at the annual meeting may not vote for more than the number of nominees listed in this proxy statement. A plurality of the total votes cast at the annual meeting will elect the directors. That is, the five nominees receiving the greatest number of votes for directors will be deemed elected directors. Votes “withheld” with respect to the election of directors will have no effect on the outcome of the vote. It is the intention of the persons named as proxies in the accompanying form of proxy (unless authority to vote therefore is specifically withheld) to vote for the election of the five nominees for directors. If any of the nominees becomes unavailable (which we do not now anticipate), the persons named as proxies have discretionary authority to vote for a substitute nominee designated by the present Board. The Board has no reason to believe that any nominee will be unwilling or unable to serve if elected.

The following table contains certain information regarding each nominee for election as director at this year's annual meeting. The Board of Directors has determined that all current directors have met the independence standards of Rule 5605(a)(2) of the NASDAQ listing standards with the exception of Mr. Oliver due to his former position as interim CEO and Mr. Phillips due to his executive positions with the Company. Each individual has furnished the respective information shown.

 

 

 

 

 

 

 

 

Name and Principal Position with Company

 

Age

 

Year First Became Director

 

 

 

 

 

 

 

 

 

Orson Oliver

 

76

 

 

2005

 

   Director

 

 

 

 

 

 

 

 

 

 

 

Albert Cozzi

 

74

 

 

2006

 

   Director

 

 

 

 

 

 

 

 

 

 

 

Vince Tyra

 

53

 

 

2014

 

   Chairman of the Board

 

 

 

 

 

 

 

 

 

 

 

William Yarmuth

 

67

 

 

2014

 

   Director

 

 

 

 

 

 

 

 

 

 

 

Todd L. Phillips 

 

44

 

 2018

 

   Chief Executive Officer, President, Chief Financial Officer and Director 

 

 

 

 

 

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Nominees for Directors

ORSON OLIVER has been our director since 2005, the Chairman of the Board from 2012 to March 26, 2018, and our interim Chief Executive Officer from 2013 to March 26, 2018. He currently holds an officer position as General Counsel with the Al J. Schneider Company. He has over thirty-five years of experience in banking and financial consulting. Mr. Oliver began his career in 1968 as an attorney with the U.S. Treasury Department in Washington, D.C. In 1975, he joined the Bank of Louisville as general counsel. In 1985, he became president of the Bank of Louisville. When Branch Banking and Trust Company acquired the Bank of Louisville in 2003, the Bank of Louisville had assets of $1.6 billion and was the largest, locally managed bank in Louisville, Kentucky. Since his retirement from banking in February 2004, Mr. Oliver has worked as an independent general business consultant for the Al J. Schneider Company, a corporation with a number of large hotels and real estate holdings in the Louisville, Kentucky area. From May 2004 through December 2011, Mr. Oliver also worked as an independent general business consultant for PNC Bank, which is headquartered in Pittsburgh, Pennsylvania. Mr. Oliver was a member of the Board of Directors of the Al J. Schneider Company from February 2004 through June 2016. Beginning in 2013, Mr. Oliver also serves as a director of the Bankers' Bank of Kentucky.

ALBERT A. COZZI has been our director since 2006. Since February 2006, Mr. Cozzi has been a partner with Cozzi Consulting Group, a start-up consulting business, marking the re-entry of Mr. Cozzi into the scrap industry following a two-year non-compete agreement he had with his former employers at Metal Management, Inc. From July 1999 to January 2004, Mr. Cozzi served as the Chief Executive Officer of Metal Management, Inc. headquartered in Chicago, Illinois, and one of the largest full-service metals recyclers in the United States. From December 1997 to June 1999, Mr. Cozzi served as the President and Chief Operating Officer of Metal Management, Inc. From 1963 to 1997, Mr. Cozzi held various positions with Cozzi Iron & Metal, originally located in Chicago, Illinois, before its merger with Metal Management, Inc., including President from 1990 to 1997. Mr. Cozzi received an M.B.A. from the University of Chicago.

VINCE TYRA has been our director since 2014 and appointed Chairman of the Board in March 2018. In March 2018, Mr. Tyra was appointed vice president for intercollegiate athletics and athletics director at the University of Louisville; Mr. Tyra had been appointed interim athletics director in October 2017. Mr. Tyra served as President of ISCO Industries, Inc., a global, customized piping solutions provider based in Louisville, Kentucky, from 2013 through 2016. Before his position at ISCO, Mr. Tyra was a Managing Partner at Southfield Capital, a private investment firm based in Greenwich, Connecticut, where he joined in 2007. Mr. Tyra continues to be an Operating Partner with Southfield Capital, serves on the firm's investment committee and is a board member of various Southfield Capital portfolio companies. Before Southfield Capital, Mr. Tyra was Chief Executive Officer of Broder Bros., Co. ("Broder"), a wholesale distributor of imprintable activewear. Before joining Broder, Mr. Tyra served as President of Retail and Activewear at Fruit of the Loom. Previous to Fruit of the Loom, Mr. Tyra was a principal investor and Executive Vice President of TSM, a Louisville, Kentucky based wholesale distributor of activewear. 

WILLIAM YARMUTH has been our director since 2014. Mr. Yarmuth served as the Chairman and Chief Executive Officer at Almost Family Inc. (NASDAQ: AFAM), a Louisville, Kentucky-based provider of a range of Medicare-certified home health nursing services to patients in need of recuperative and other care, from 1992 until April 2018. Mr. Yarmuth served as a director of Almost Family since 1991, when the company acquired National Health Industries, where Mr. Yarmuth was Chairman, President and Chief Executive Officer. Mr. Yarmuth has served as a consultant to LHC Group, Inc. (NASDAQ: LHCG) since April 2018.

TODD L. PHILLIPS has been our director since 2018. Mr. Phillips was appointed Chief Executive Officer of the Company in March 2018, President of the Company in September 2016 and continues to be Chief Financial Officer, a position he has held since December 31, 2014. Mr. Phillips joined the Company from CRS Reprocessing, LLC ("CRS"), where he held the positions of Chief Operating Officer and Chief Financial Officer from January 2009 to December 2014. CRS is a private-equity backed company with operations in the United States, Europe and Asia. Before CRS, Mr. Phillips was Chief Financial Officer at Genscape, Inc. ("Genscape") from March 2004 to January 2009, a global information provider to energy commodity traders. Genscape was backed by private equity firm Oaktree Capital and was honored twice during Mr. Phillips’ tenure as an Inc. 500 company, recognizing Genscape as one of the 500 fastest growing companies in the United States. Mr. Phillips was the corporate controller for Metal Sales Manufacturing Corporation from March 2002 to March 2004. Mr. Phillips began his career at Arthur Andersen LLP from December 1997 through March 2002 following his graduation from the University of Kentucky. He is a Certified Public Accountant and holds degrees in accounting and business administration, with a focus on finance, from the University of Kentucky. Mr. Phillips is currently our sole executive officer.

Except as disclosed above, none of the directors holds another directorship in a company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or in a company registered as an investment company under the Investment Company Act of 1940, as amended. None of our directors has any family relationship with any of our other directors or executive officers.

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Director Qualifications

When considering whether the nominees have the experience, qualifications and skills to enable the Board to satisfy its oversight responsibilities effectively and provide the Board with experience in a wide variety of areas, the Board's nominating committee focused primarily on the information discussed in each director's individual biographies set forth above. The following are the conclusions previously reached by the nominating committee with regard to each person.

With regard to Mr. Oliver, the nominating committee considered his past experience as an attorney with the U.S. Treasury Department in Washington D.C., his past presidency of the Bank of Louisville and his work as an independent general business consultant for PNC Bank. With regard to Mr. Cozzi, the nominating committee considered his extensive experience in the metallic scrap industry and his direct operational experience in the industry. These experiences bring a unique perspective to our Board. With regard to Mr. Tyra, the nominating committee considered his experience in growth management and his experience in an investment firm. With regard to Mr. Yarmuth, the nominating committee considered his experience as Chairman and Chief Executive Officer at Almost Family, Inc. With regard to Mr. Phillips, the nominating committee considered his intimate knowledge of the Company as well as his prior experience with CRS and Genscape.

Governance

A majority of our directors are independent. We combined the roles of Chairman of the Board and Chief Executive Officer in 2013. These roles became split again in March 2018. The Board appointed Mr. Oliver as Chairman of the Board in May 2012 due to his legal and financial background as well as his previous work on the Board and as Audit Committee Chairman. On June 14, 2013, the Board appointed Mr. Oliver as interim President and interim Chief Executive Officer. Mr. Oliver resigned his positions as Chairman of the Board and interim Chief Executive Officer in March 2018. Mr. Oliver continues to serve as a director on the Board of Directors. Mr. Oliver's legal and financial background as well as his knowledge and experience with the Company made Mr. Oliver capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Mr. Oliver has not received any salary from the Company; he receives fees as a director of the Company. 

In March 2018, the Board appointed Vince Tyra as Chairman of the Board and Todd L. Phillips as Chief Executive Officer. Currently, the Board membership consists of five directors, three of whom are independent. All of the independent directors are able to meet regularly in executive sessions without management to discuss the development and strategy of our Company. These executive sessions allow the independent directors to review key decisions and discuss matters in a manner that is independent of our Chief Executive Officer. We believe our current Board leadership structure is optimal given its current composition. We recognize that different Board leadership structures may be appropriate for companies in different situations and believe that no one structure is suitable for all companies at all times. 

Our executive officer has the primary responsibility for risk management within our Company. Our Board of Directors oversees risk management to ensure the processes designed and implemented by our executives and management are adapted to and integrated with the Company's strategy and are functioning as directed. The primary means by which the Board oversees our risk management structures and policies is through its regular communications with management. We believe that our leadership structure is conducive to comprehensive risk management practices and that the Board's involvement is appropriate to ensure effective oversight.

Board Meetings

During 2018, the Board held eight duly called board meetings. In 2018, all directors attended at least 75% of the aggregate number of meetings of the Board and the committees of which they were members. 

Compensation Committee

The members of the Compensation Committee are Messrs. Cozzi, Tyra and Yarmuth. The Compensation Committee is responsible for making recommendations to the Board regarding salaries and bonuses that we pay to our executive officers. This committee held three duly called meetings in 2018. Mr. Cozzi is the committee chairperson. All functions of the Compensation Committee are performed by the committee as a whole. The Compensation Committee has delegated to our Chief Executive Officer, President and Chief Financial Officer decisions regarding non-executive employee compensation. None of our executive officers served as a member of the Compensation Committee of another entity. Our Compensation Committee has a written charter, which is available on our website at www.isa-inc.com under Investors.

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 Audit Committee

The Board of Directors has established from among its members the Audit Committee for the purpose of overseeing the accounting and financial reporting process of the Company and audit of the Company's financial statements. The Audit Committee confers with our independent registered public accounting firm regarding the scope and adequacy of annual audits; reviews reports from the independent accountants; and meets with the independent accountants to review the adequacy of our accounting principles, financial controls and policies. The Audit Committee held six duly called meetings in 2018. The members of the Audit Committee are Messrs. Tyra, Cozzi and Yarmuth. Mr. Tyra is the chairperson of this committee. All current members of the Audit Committee are independent as defined in Rule 5605(a)(2) of the NASDAQ listing standards and the Audit Committee Qualifications of Rule 5605(c)(2). The Board of Directors has determined that Mr. Tyra is qualified as an "audit committee financial expert" based on a review of his financial experience. Our Audit Committee has a written charter, which is available on our website at www.isa-inc.com under Investors.

Nominating Committee

The Nominating Committee has the power to recommend to the Board nominees for election as directors and persons to fill directors' vacancies and newly created directorships; recruit potential director candidates; recommend changes to the Board concerning the responsibilities and composition of the Board and committees; and review written proxy comments and Shareholder proposals (including director nominees) received from Shareholders at our principal executive offices for inclusion in the proxy statement for the following year's annual Shareholder meeting. The Nominating Committee's charter directs the Nominating Committee to investigate and assess the background and skills of potential candidates and to maintain an active file of suitable candidates for directors. The Nominating Committee has the authority to engage a third-party search firm to assist in identification of candidates, but did not do so with respect to the current nominees.

Upon identifying a candidate for initial consideration, one or more members of the Nominating Committee would interview the candidate. If a candidate merited further consideration, the candidate would subsequently interview with all other Nominating Committee members (individually or as a group), meet our Chief Executive Officer and ultimately meet many of the other directors. The Nominating Committee would elicit feedback from all persons who met the candidate and then determine whether or not to nominate the candidate.

The Nominating Committee utilizes a subjective analysis to identify and analyze candidates that it proposes for nomination as directors, including but not limited to, highest personal and professional ethics and integrity, general business knowledge, interest in our business, and willingness to serve. However, there are currently no minimum qualifications or standards that we require. While there is no formal policy with regard to consideration of diversity in identifying director nominees, the Nominating Committee considers diversity in business experience, professional expertise, gender and ethnic background, along with various other factors when evaluating director nominees.

The Nominating Committee considers recommendations for Board of Directors candidates submitted by Shareholders, provided that the recommendations are made in accordance with the procedure for director candidates nominated by Shareholders required under our by-laws and described in this proxy statement under the heading “Shareholder Proposals and Nominations of Board Members for the 2020 Annual Meeting.” The Nominating Committee will use the same criteria it applies to recommendations from its committee, directors or members of management. Shareholders may submit recommendations by writing to the Nominating Committee as follows: Nominating Committee, c/o Secretary, Industrial Services of America, Inc., 7100 Grade Lane, Louisville, Kentucky 40213.

The members of the Nominating Committee are Messrs. Cozzi and Tyra. Messrs. Cozzi and Tyra are independent as defined in Rule 5605(a)(2) of the NASDAQ listing standards. This committee does not have a chairperson. The Nominating Committee met two times in 2018. Our Nominating Committee has a written charter, which is available on our website at www.isa-inc.com under Investors. In connection with Mr. Phillips' appointment as Chief Executive Officer in March 2018, the Board of Directors determined to also appoint him to the Board of Directors.

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Neither the Board nor the Nominating Committee has implemented a formal policy regarding director attendance at the annual meeting of Shareholders. Typically, the Board holds its annual organizational meeting immediately following the annual meeting of Shareholders, which results in most directors being able to attend the annual meeting of Shareholders. In 2018, all of the Company's directors attended the annual meeting of Shareholders.

Executive Committee 

In accordance with the Company's bylaws, the Board of Directors may direct or delegate all or part of the duties and powers of the Board of Directors to an executive committee, subject to any restrictions under the laws of the State of Florida. When so designated, the Executive Committee would have the authority to act in the place and stead of the Board of Directors. The Board did not appoint an executive committee in 2018.

Special Committee

In September 2018, the Board of Directors formed a special committee of independent directors to evaluate and make a recommendation to the Board of Directors with respect to various growth and strategic options. The members of the special committee are Messrs. Yarmuth, Cozzi and Tyra. Mr. Yarmuth serves as the chairman of the special committee.

Code of Ethics

The Board of Directors has adopted our Code of Ethics for the Chief Executive Officer and Financial Executives, which is available on our website at www.isa-inc.com under Investors. The Company will post any waivers to the Code of Ethics to our website. Shareholders may communicate directly with the Board of Directors in writing by sending a letter to the Board at: Industrial Services of America, Inc., 7100 Grade Lane, Louisville, KY 40213.


Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors, certain officers and persons who own more than ten percent (10%) of our outstanding common stock to file with the Securities and Exchange Commission reports of changes in ownership of our common stock held by such persons. Officers, directors and greater than 10% Shareholders must furnish us with copies of all forms they file under this regulation. To our knowledge, based solely on a review of the copies of such reports furnished to us and representations from reporting persons that no other reports including Forms 5 were required, all Section 16(a) filing requirements applicable to all of our officers, directors and greater than 10% Shareholders were timely complied with during 2018 with the following exceptions: Todd L. Phillips did not file a timely Form 4 for the June 15, 2018 vesting of 11,250 restricted stock units and William Yarmuth did not file a timely Form 4 for the July 9, 2018 grant of 13,228 restricted stock units; each reporting person subsequently filed the required Form 4.

The Board recommends a vote “FOR” the election of all director nominees.

 

23


 

PROPOSAL NO. 2 - ASSET SALE

At the Meeting, Shareholders will be asked to consider and vote upon a proposal to approve the Asset Sale. Under Florida law and the Company’s organizational documents, and pursuant to the terms of the Asset Purchase Agreement, the Asset Sale cannot be consummated without the approval of the holders of a majority of all of the issued and outstanding shares of common stock on the Record Date.

Attached as Annex A to this Proxy Statement is the Asset Purchase Agreement. The material terms of the Asset Purchase Agreement, and other information regarding the Asset Sale, are summarized below. The summary of the Asset Purchase Agreement below is not a complete summary of the Asset Purchase Agreement and is subject in all respects to the provisions of, and is qualified by reference to, the Asset Purchase Agreement. Shareholders are urged to read the Asset Purchase Agreement in its entirety.

Parties to the Asset Purchase Agreement

The Sellers under the Asset Purchase Agreement include the Company and its wholly owned subsidiaries: ISA Indiana, Inc., ISA Logistics LLC, ISA Real Estate, LLC, ISA Indiana Real Estate LLC, 7021 Grade Lane LLC, 7124 Grade Lane LLC and 7200 Grade Lane LLC. The Company is a Louisville, Kentucky-based company that buys, processes and markets ferrous and non-ferrous metals and other recyclable commodities and buys used autos in order to sell used auto parts. The Company’s principal executive office is located at 7100 Grade Lane, Louisville, Kentucky 40213, telephone number (502) 366-3452.

The purchaser under the Asset Purchase Agreement is River Metals Recycling LLC. Buyer is the largest scrap recycler in Kentucky and in the greater Cincinnati area, with 9 locations in Illinois, Indiana, Kentucky and Ohio. Buyer is a wholly owned subsidiary of The David J. Joseph Company (“Parent”), which is party to the Asset Purchase Agreement solely for purposes of guaranteeing the payment of certain amounts due and payable by Buyer pursuant to the Asset Purchase Agreement. Parent is a world leader in scrap metal brokerage, ferrous and nonferrous metal recycling and transportation services, with assets of approximately $2 billion. Buyer’s principal executive office is located at 334 Beechwood Road, Suite 401, Fort Mitchell, Kentucky 41017, telephone number (859) 292-8400.

Before entering into the Asset Purchase Agreement, none of the Sellers had done business of a material nature with or entered into any other material transactions with Buyer or any of its affiliates within the preceding two years.

Background of the Asset Sale Proposal and the Plan of Dissolution Proposal

The Company operates in the volatile metal recycling markets. The metal recycling business is highly competitive and is subject to significant changes in economic and market conditions. In late 2014 and early 2015, the metal commodity market saw increased volatility. Market prices traded down significantly lower, particularly during 2015, with continued volatility during 2016. Our primary sources of liquidity during 2015 and the first half of 2016 were proceeds from asset and equity sales, the idling of our auto-shredder operation and the refinancing of the Company's working capital line of credit. We also managed liquidity by deferring certain rent payments made to related parties, as well as deferring capital expenditures and Board fees. At the meeting of the Board of Directors on August 9, 2016, the Board and management reviewed the Company’s 2016 to 2018 financial outlook and discussed strategic alternatives. Influenced primarily by the length and depth of the metals market downturn and the Company's ongoing operating losses, members of the Board discussed whether the Company could fund future capital needs, including necessary working capital, funds for capital expenditures and debt service, from operating cash flow. The Board discussed whether the Company could obtain third-party financing or conduct asset sales on favorable terms or at all, which could materially and adversely affect the Company’s operating results, cash flow and liquidity.

As a result of the discussion, the Board authorized a special committee of the Board consisting of three independent directors to consider the Company’s strategic alternatives, including a possible business combination or asset sale. The members of the special committee were Albert Cozzi, Vince Tyra and William Yarmuth. The special committee was directed to consider, evaluate, and if it deemed advisable, pursue strategic options available to the Company. The special committee was given the further authority to secure a financial advisor to assist in the consideration, evaluation and pursuit of various alternatives and to negotiate the terms of a transaction or transactions, subject to the final approval of the full Board with respect to any such transaction.

In August 2016, the special committee interviewed three investment banking firms to assess their qualifications for advising the special committee. The special committee took into account each firm's experience with special committee assignments, experience with transactions in and knowledge of the industry sector in which ISA operates, experience with and knowledge of ISA, proposed strategy for advising the special committee, perceived enthusiasm for the assignment, and prior relationships with ISA and its affiliates. After taking into account all of these factors and not giving special weight to any particular factor, the special committee selected Conway MacKenzie Capital Advisors LLC ("CMCA"). By letter dated September 23, 2016, the special committee engaged CMCA to render services in connection with a targeted sale process.


24


CMCA identified and approached 48 potential strategic transaction counterparties, including metal recyclers, integrated mills and financial sponsors. On or about October 21, 2016, CMCA distributed informational materials to 14 potential strategic transaction counterparties who had executed non-disclosure agreements. From the 14 parties who had executed non-disclosure agreements, CMCA received five indications of interest, including one from the Parent. 

In November 2016, CMCA sent the special committee a summary of five indications received for a strategic transaction with the Company. The indications of interest provided a range of enterprise values for the Company and proposed various transaction consideration structures, including all cash, cash and stock, cash and the assumption of liabilities, etc. The special committee subsequently discussed various aspects of the strategic options evaluation process with CMCA and determined that CMCA should indicate to two parties, including Parent, that the Company desired to further evaluate a potential transaction with the Company. In December 2016, CMCA sent the special committee a summary of letters of intent proposed by the two parties.

In January 2017, management presented the Board and the special committee a standalone strategy for 2017 and 2018 in which the Company would seek, among other items, to obtain additional financing, restart the auto shredder, and implement additional operational improvements. Following discussion in which the special committee determined that this standalone strategy could result in additional cash returned to the Company’s shareholders above the amounts set forth in the letters of intent, the special committee recommended, and the Board adopted, the standalone strategy and dissolved the special committee.

On March 31, 2017, the Company amended the terms of its credit facility with its primary lender to extend the maturity date of the Company's line of credit and increase the line of credit from $6.0 million to $8.0 million, subject to the satisfaction of certain borrowing base restrictions. On April 26, 2017, certain borrowing base restrictions were satisfied which resulted in an increase in availability of $1.75 million. In May 2017, the Company restarted the auto shredding operations. In March 2018, the Company reported improvement in its results of operations in 2017 over 2016, with a net loss for 2017 of $1.1 million compared to $3.2 million for 2016.

In the summer of 2018, following the announcement of its improved results of operations, the Company received an unsolicited written indication of interest from Parent, along with an unsolicited oral inquiry from a second unaffiliated prospect concerning a possible business combination. The indication of interest from Parent proposed to acquire certain tangible and intangible assets from the Company; the Company would retain its cash and short-term and long-term liabilities.

The second prospect expressed interest in a reverse merger, in which the prospect would merge its operations into the Company in exchange for 90% of the outstanding equity of the combined entity; the prospect was privately owned, without a public market for its equity. The Company and the second prospect executed a non-disclosure agreement dated August 1, 2018, to provide for a mutual exchange of due diligence information.

At the Board’s meeting on September 5, 2018, the Company’s counsel, Frost Brown Todd LLC, reviewed with the members of the Board its fiduciary duties with respect to the consideration of business combination proposals.  Following discussion, the Board’s consensus was that Parent’s indication of interest was below the level which would merit further consideration and that Mr. Tyra, the Chair of the Board of Directors, would convey this response, along with a willingness to consider an indication of interest at or above the current market value of the common stock. The Board also concluded that the Company should continue discussions with the second entity regarding the possible combination.

At a telephonic meeting of the Board on September 14, 2018, Mr. Tyra reported that following the delivery of the response to Parent that the indication of interest was below the level which would merit further consideration, Parent indicated a desire to enter into a non-disclosure agreement so that it could perhaps learn additional information that would affect its valuation analysis. Mr. Tyra also updated the Board regarding the discussions with the second entity regarding a possible combination. As a result of the discussion, the Board authorized a special committee of the Board consisting of three independent directors to consider the Company’s strategic alternatives, including a possible business combination or asset sale. The members of the special committee were Messrs. Cozzi, Tyra and Yarmuth, with Mr. Yarmuth to serve as the Chair. The special committee was directed to consider, evaluate, and if it deemed advisable, pursue strategic options available to the Company. The special committee was given the further authority to secure a financial advisor to assist in the consideration, evaluation and pursuit of various alternatives and to negotiate the terms of a transaction or transactions, subject to the final approval of the full Board with respect to any such transaction.

At a telephonic meeting of the special committee on September 28, 2018, Mr. Yarmuth reported that Parent had executed a non-disclosure agreement and that the second prospect desired to establish a possible range promptly to determine if a combination would be attractive to both parties. The special committee discussed possible metrics to use in determining the valuation range with the second prospect.

At a telephonic meeting of the special committee on October 24, 2018, the committee discussed the alternatives and that the committee should obtain financial advice concerning the possible deal structures and valuation. The committee discussed that CMCA had demonstrated a solid understanding of the metals industry and has significant knowledge and experience related to the Company and expertise in strategic transactions. The committee authorized Mr. Yarmuth to negotiate with, and engage, CMCA to assist the committee in its analysis of the two possible strategic transactions. By letter dated November 20, 2018, the committee engaged CMCA for this purpose.

25


Throughout the fall and winter of 2018, representatives of the Company and the second prospect discussed issues of relative valuation of the two parties in the reverse merger. The Company and the second prospect could not resolve their differences as to the relative valuation of the parties. In addition, because the parties were focused on the relative valuation issue, they did not negotiate as to material terms of any combination, including corporate governance and the compensation of the management personnel. In mid-March 2019, the second prospect stated that its final offer was for the Company’s Shareholders to own 13.3% of the combined entity, with a pre-closing payment to the Company’s Shareholders of approximately $0.15 per share. In consultation with CMCA, the special committee rejected the offer and the parties mutually terminated the discussions.

On March 21, 2019, representatives of the Company and the Buyer met at the offices of Frost Brown Todd LLC to discuss the possible terms of a transaction and due diligence issues. The Buyer indicated that it would respond within two weeks to the Company’s presentation.

By letter dated April 3, 2019, Parent expressed a preliminary non-binding indication of interest for the Buyer’s purchase of the Company’s business and assets; the Company would retain its cash and long-term liabilities. The transaction would be subject to, among other items, the execution of a definitive agreement and due diligence, including environmental diligence and appraisals.

Following further negotiations between the parties, by a non-binding letter of intent dated May 7, 2019, the parties agreed to a $24.0 million purchase price for the Company’s assets excluding two cranes that the Company had previously ordered, but had not yet been duly delivered to the Company (the Excluded Cranes), subject to a working capital adjustment for variance from net working capital of $8.6 million and a deduction equal to the liabilities outstanding with respect to the Companys outstanding capital leases, excluding the leases related to the Excluded Cranes. The Company agreed to a 60-day period for due diligence, along with a possible 20-day extension to the extent the Buyer required additional time to conclude its environmental due diligence. During the due diligence period, the Company also provided the Buyer with an exclusivity period with respect to the negotiation of a strategic transaction with the Company.

Following execution of the letter of intent, the Buyer commenced its due diligence with management and site visits. The Buyer delivered to the Company the initial draft of the asset purchase agreement on May 24, 2019.

On July 5, 2019, the parties agreed to extend the due diligence period to July 22, 2019.

In mid-July 2019, following due diligence by the Buyer, the Buyer requested a $750,000 reduction in the purchase price related to issues identified in Buyers due diligence.

Following discussion of the Buyer’s requests at a telephonic meeting of the special committee on July 19, 2019, the Company agreed to the $750,000 reduction in the purchase price to $23,250,000.

Following further due diligence and discussions between the parties in late July 2019, the Buyer and the Company agreed to hold $100,000 of the purchase price in escrow to satisfy any liabilities of the Company related to the Chemetco Superfund site in Hartford, Illinois, along with an increase in the purchase price to $23.3 million.

In early August 2019, the parties continued ongoing discussions regarding compliance with stormwater regulations, including issues related to a permit, order and plan being negotiated with the Cabinet. The Buyer and the Company agreed that the Buyer’s obligation to close the Asset Sale would be subject to the Company’s receipt of the Permit and Agreed Order, as discussed herein. The parties also resolved other outstanding issues, including the method in which to calculate inventory values for net working capital calculation purposes, a reduction of the net working capital target from $8.6 million to $8.4 million and the inclusion in the Asset Sale of one of the Excluded Cranes and the underlying lease without a deduction for the associated liability.

By letter dated August 8, 2019, the special committee engaged Valuation Research Corporation (VRC) as its fairness opinion provider because VRC is a recognized financial advisor firm that has substantial experience with transactions similar to the Transaction.

26


During the week of August 12, 2019, each party worked with its respective advisors to finalize the schedules to the Asset Purchase Agreement and resolve the outstanding issues. 

On August 15, 2019, the special committee and the Board held a special joint meeting regarding the potential transaction and dissolution. The Company’s management and representatives of each of Frost Brown Todd, CMCA and VRC also attended the meeting. The directors were provided with, among other things, the current version of the Asset Purchase Agreement and a summary thereof, presentation materials of CMCA and VRC, and a draft of the proposed resolutions approving the transaction. At the outset of the meeting, a representative from Frost Brown Todd provided the directors with an overview of their fiduciary duties in connection with the proposed transaction. At this meeting, CMCA reviewed with the directors CMCA’s financial analysis of the purchase price and amounts potentially available for distribution in connection with a dissolution of the Company following consummation of the Asset Sale. VRC then presented its financial analysis and stated that it was prepared, subject to execution and delivery of the Asset Purchase Agreement on the basis presented, to deliver a written opinion to the Board to the effect that, as of the delivery date and based on and subject to the factors, qualifications and assumptions set forth therein, the purchase price to be received in the Asset Sale is fair from a financial point of view to the Company. Representatives of Frost Brown Todd provided a detailed review of the principal terms of the Asset Purchase Agreement. A discussion ensued regarding the proposed transaction with the Buyer. The directors also discussed the advisability of dissolving the Company following the consummation of the Asset Sale in order to distribute the net cash proceeds to the Shareholders. In the course of its deliberations, the directors considered a number of factors, including those described more fully below under “Reasons for the Asset Sale.” The directors reviewed resolutions furnished to the special committee and the Board recommending and authorizing the Asset Sale, the Asset Purchase Agreement and the transactions contemplated by the Asset Purchase Agreement, along with the Dissolution, the Plan of Dissolution and the transactions contemplated by the Plan of Dissolution. Following further discussions, the special committee and the Board determined that the Company should continue to pursue the proposed transaction on the terms outlined at the joint meetings. The special committee and the Board authorized management and its advisors to continue finalizing negotiations with the Buyer.

On August 16, 2019, the special committee and the Board held a special joint telephonic meeting regarding the potential transaction and dissolution. The Company’s management and representatives of each of Frost Brown Todd, CMCA and VRC also attended the meeting. The directors were provided with, among other things, the final version of the Asset Purchase Agreement, including schedules, and a summary thereof, presentation materials of CMCA and VRC, and a draft of the proposed resolutions approving the transaction. Management discussed with the directors the resolution of the issues which were outstanding as of the conclusion of the previous day’s joint meetings and confirmed that there were no material changes to the terms of the Asset Purchase Agreement. At this meeting, CMCA confirmed with the directors its financial analysis of the purchase price and amounts potentially available for distribution in connection with a dissolution of the Company following consummation of the Asset Sale. VRC then presented its financial analysis and confirmed its delivery of a written opinion to the Board to the effect that, as of August 16, 2019, and based on and subject to the factors, qualifications and assumptions set forth therein, the purchase price to be received in the Asset Sale is fair from a financial point of view to the Company. Representatives of Frost Brown Todd provided a review of the final changes to the Asset Purchase Agreement from the version presented at the previous day’s joint meetings. A discussion ensued regarding the proposed transaction with the Buyer and the Dissolution. In the course of its deliberations, the directors considered a number of factors, including those described more fully below under “Reasons for the Asset Sale.” The directors reviewed resolutions furnished to the special committee and the Board recommending and authorizing the Asset Sale, the Asset Purchase Agreement and the transactions contemplated by the Asset Purchase Agreement, along with the Dissolution, the Plan of Dissolution and the transactions contemplated by the Plan of Dissolution. Following discussion, the special committee unanimously determined that the Asset Purchase Agreement and the transactions contemplated by the Asset Purchase Agreement, along with the Dissolution, the Plan of Dissolution and the transactions contemplated by the Plan of Dissolution, are in the best interests of the Company and its Shareholders, and recommended to the Board their approval and submission to the Shareholders for their approval. The Board then unanimously determined that the Asset Purchase Agreement and the transactions contemplated by the Asset Purchase Agreement, along with the Dissolution, the Plan of Dissolution and the transactions contemplated by the Plan of Dissolution, are in the best interests of the Company and its Shareholders, and authorized the appropriate officers of the Company to execute and deliver the Asset Purchase Agreement, the Plan of Dissolution and related documents, along with direction to submit them to the Shareholders with the recommendation of the Board for their adoption.

On August 16, 2019, the Company and the Buyer executed the Asset Purchase Agreement and on August 19, 2019, the Company issued a press release and filed a Form 8-K announcing the Asset Purchase Agreement.  


27


Reasons for the Asset Sale

At its meeting on August 16, 2019, our Board determined that the Asset Sale was advisable and fair to, and in the best interests of, the Company and its Shareholders and approved the Asset Purchase Agreement and the Asset Sale. Our Board recommends that Shareholders vote FOR” approval of the Asset Sale at the Meeting.

In reaching its decision to approve the Asset Purchase Agreement and to recommend that Shareholders vote to approve the Asset Sale, the Board, in consultation with the Company’s advisors and management, considered a number of factors, including, but not limited to, the other factors described elsewhere in this Proxy Statement as well as the following factors:



· the value of the consideration (including the liabilities to be assumed by the Buyer) to be received by the Company pursuant to the Asset Purchase Agreement;




· the Asset Sale is the result of an active, lengthy and thorough evaluation of strategic alternatives reasonably available to the Company and our Shareholders, including the alternative of retaining our current business based upon:





o  the Board’s knowledge of the nature of our business, and of the current and prospective competitive, economic, regulatory and operational environment in the metal recycling industry;





our history of operating losses and the Board’s understanding of, and discussions with management regarding, historical and projected performance of the Company, including the challenging, and ongoing, metal recycling markets in the first half of 2019;




·
the Board’s understanding of and familiarity with, and discussions with our management regarding, the business, operations, management, financial condition, projections, operating losses and future business prospects for the Company (as well as the risks and costs involved in pursuing those prospects);




· our assessment of what prospective buyers are willing to pay for our assets, the likelihood of closing a transaction with them, and the conditions they have imposed;




· the financial presentation and written opinion of VRC to the Board that, as of August 16, 2019, the purchase price ($23,300,000 in cash) to be received in the Asset Sale is fair from a financial point of view to the Company;




· the review by our Board with our legal counsel of the structure of the Asset Sale;




· the ability of our Board, pursuant to the terms of the Asset Purchase Agreement, to evaluate any alternative acquisition proposals that we may receive before the closing, and our ability to terminate the Asset Purchase Agreement (and pay a termination fee and/or termination costs upon certain circumstances) if the Board determines in good faith that not terminating the Asset Purchase Agreement would reasonably be expected to be inconsistent with the Board’s fiduciary obligations;



28







·
the likelihood that the Asset Sale will be completed, including the reasonableness of the conditions to the Asset Sale and the likelihood that Shareholder approvals necessary to complete the Asset Sale will be obtained; and




· that the Asset Sale was subject to approval of holders of at least a majority of the outstanding shares of our common stock, and that if such Shareholders did not approve of the transaction terms, the Asset Sale would not close.

Our Board also considered potential drawbacks or risks relating to the Asset Sale, including the following risks and potentially negative factors, but determined that these potential risks and factors were outweighed by the expected benefits of the Asset Sale: 


· the fact that there are third-party contract consents that must be obtained as a condition to closing the Asset Sale and the uncertainties associated with obtaining those consents, which could result in the failure of the Asset Sale to be consummated;




· the fact that the Asset Sale must be completed within 150 days of the execution of the Asset Purchase Agreement and that the Shareholder meeting to approve the Asset Sale must occur by such date;




·
the risks and costs to the Company if the Asset Sale does not close, including the diversion of management and employee attention and disruption in our business relationships;




·
the fact that under the terms of the Asset Purchase Agreement we have to pay Buyer termination costs and fees of up to $850,000 in certain circumstances (see “Proposal No. 2 - Asset Sale - Summary of Asset Purchase Agreement - Termination Events and Termination Fee and Expenses” below); and




· that certain of our officers and directors may have interests with respect to the Asset Sale in addition to their interests as Shareholders generally (see “Interests of Certain Persons in Matters to be Acted Upon” below).

 

The foregoing discussion is a summary of the information and factors considered by the Board in its consideration of the Asset Sale. In view of the variety of factors, the amount of information considered and the complexity of these matters, the Board did not find it practicable to, and did not attempt to, rank, quantify, make specific assessments of or otherwise assign relative weights to the specific factors considered in reaching its determination. Individual members of the Board may have given different weights to different factors. The Board considered these factors as a whole, and overall considered them to be favorable to, and to support, its determination to unanimously approve the Asset Sale.

Opinion of Our Independent Advisor

At the request of the Company, Valuation Research Corporation (“VRC”) rendered its written opinion to the Board that, as of August 16, 2019, and based upon and subject to the factors, qualifications and assumptions set forth therein, the purchase price to be received in the Transaction is fair from a financial point of view to the Company.

VRC estimated the Company’s enterprise value using three separate methodologies: (i) the Illustrative Discounted Cash Flow Analysis, (ii) the Selected Companies Analysis, and (iii) the Selected Transactions Analysis, which resulted in the implied enterprise value range of $14.7 million to $23.2 million.


29


The full text of the written fairness opinion of VRC, dated August 16, 2019, which sets forth assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement. VRC provided its opinion for the information and assistance of the Board in connection with its consideration of the transaction contemplated therein (the “Transaction”). 
In rendering the Opinion, VRC conducted such reviews, analyses and inquiries reasonably deemed necessary or appropriate under the circumstances, including the following actions and reviews of the following documents:

·

Industrial Services of America, Inc. audited financial statements for the year ended December 31, 2014 through December 31, 2018 and unaudited financial statements for the six (6) months ended June 30, 2019;





·

ISA’s projected income statement, balance sheet and cash flow statements through December 31, 2023 (the "Forecasts”); 





·

ISA Management's Report to the Special Committee of the Board;





·

ISA’s fixed asset listing as of June 30, 2019;





·

ISA’s listing of owned and leased real property;





·

ISA’s historical unusual, non-recurring items;





·

ISA’s Capitalization Table as of July 26, 2019;





·

ISA’s Loan and Security Agreement with Bank of America, N.A., including subsequent amendments;





·

ISA’s Financial Summary of Proposed Transaction detailing per share distribution to equity holders;





·

Appraisal of Real Property as of June 21, 2018;





·

Machinery & Equipment Appraisal as of September 5, 2018;





·

Inventory Appraisal as of August 31, 2018;





·

Reviewed the industry in which the Company operates, which included a review of (i) certain Company–related industry research, (ii) certain publicly traded companies deemed comparable to the Company and (iii) certain mergers and acquisitions involving businesses deemed comparable to the Company;





·

Had discussions with certain members of management with respect to the past, present and future operating and financial conditions of the Company, among other subjects;





·

Received written representation from a responsible officer of the Company that the financial forecast and statements provided to VRC for the Company reflects management’s good faith estimates and assumptions believed by management to have been reasonable at the time made;





·

Developed indications of the value for the Company using generally accepted valuation methodology; and,





·

Conducted such reviews, analyses and inquiries and considered such other economic, industry, market, financial and other information and data deemed appropriate by VRC.


In rendering the Fairness Opinion, VRC conducted only such reviews, analyses, and inquiries, and considered such information, data and other material as are, in VRC’s judgment, customary for evaluation of transactions similar to the Transaction and otherwise for engagements of this type and necessary and appropriate based on the facts and circumstances of the Transaction and the engagement. In conducting its reviews and analyses, and as a basis for arriving at the opinion expressed herein, VRC utilized methodologies, procedures and considerations it deemed relevant and customary under the circumstances; and took into account its assessment of general economic, industry, market, financial and other conditions, which may or may not prove to be accurate, as well as its experience as a valuation financial advisor in general. Further, in rendering the Fairness Opinion, VRC did not conduct any due diligence whatsoever on the prospective investors or participants in the Transaction or the purchasers of any securities or interests involved in the Transaction. 

30


With the permission of the Company, VRC assumed and relied upon, without independent verification or independent appraisal, the accuracy and completeness of all information provided to VRC by or on behalf of the Company or the Board, and all other information, data and other material (including, without limitation, financial forecasts and projections) furnished or otherwise made available to, or discussed with or reviewed by, VRC in connection with the Fairness Opinion (collectively, “Information”), or which was publicly available. 
In addition, VRC assumed and relied upon the assumption, without independent verification, that any financial forecasts and projections provided to VRC by or on behalf of the Board or the Company in connection with the Fairness Opinion have been reasonably and prudently prepared in good faith and were based upon assumptions that are reasonable and reflect the best then currently available estimates and judgments of the Company’s management as to the matters covered thereby. VRC further assumed that any Information provided by or on behalf of the Board or the Company in connection with the Fairness Opinion did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements were made.
With the permission of the Company, VRC assumed, without independent verification, (i) the accuracy and adequacy of the legal advice given by counsel to the Board or the Company on all legal matters with respect to the Transaction; (ii) that all procedures required by law to be taken in connection with the Transaction have been, or will be, duly, validly and timely taken and that the Transaction will be consummated in a manner that complies with all applicable laws and regulations and that conforms in all material respects to the description thereof set forth in this proxy statement; (iii) that the Transaction is consummated in a timely manner in accordance with the terms and conditions set forth in the related definitive agreements and other documents provided to VRC; (iv) that each of the Board and the Company is in compliance in all material respects (and will remain in compliance in all material respects) with any and all applicable laws, rules or regulations of any and all relevant legal or regulatory authorities; and (v) that the Transaction will be consummated in a manner that complies in all material respects with any and all applicable laws, rules and regulations of any and all legal or regulatory authorities.
The Fairness Opinion does not address (i) the fairness of the Transaction, in whole or in part, or any terms associated therewith, in each case to the Company’s or any other person’s or entity’s creditors or other parties not addressed in the Fairness Opinion and all Supporting Documentation provided to the Board (hereafter collectively referred as the “Opinion Documents” and individually as an “Opinion Document”); (ii) the relative risks or merits of the Transaction, or any other business strategies or transactional alternatives that may be available to the Company or any other person or entity; (iii) the underlying business decisions of the Company or any other person or entity to enter into or consummate the Transaction; (iv) any specific legal, tax, accounting, or financial reporting matters related to or associated with the Transaction; (v) the fair value of the Transaction in each case under any state, federal, or international laws relating to appraisal rights or similar matters; (vi) the book value of the assets and liabilities of, or otherwise associated with or comprising, the Company; (vii) the value or amount of any liabilities that are retained by the Company; (viii) the projections provided by the Company or the Company’s management for periods before or after the consummation of the Transaction; (ix) any employment or other agreements entered into in connection with the Transaction; or (x) any matters relating to fees paid by the Company or any other person or entity in connection with the Transaction.
The Fairness Opinion is necessarily based on economic, industry, market, financial and other conditions and circumstances as they exist and to the extent that they can be evaluated by VRC as of the date of the Fairness Opinion. VRC assumes no responsibility to update or revise the Fairness Opinion based upon any events or circumstances occurring after that date. VRC’s opinion was approved by an internal fairness opinion committee of VRC.
VRC did not make any independent evaluation of the Company’s (or any other party’s) solvency or creditworthiness nor did we make any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (contingent or otherwise) of the Company or any other party. VRC does not express in the Fairness Opinion any opinion regarding the liquidation value of any entity or business. In addition, VRC did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities to which the Company is or may be a party or of which it may be the subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or otherwise may be subject.
The Fairness Opinion is not intended to constitute a recommendation to the Board, the Company or any other party as to how they should vote or act with respect to any matters relating to the Transaction. The Fairness Opinion does not represent an assurance, warranty, or guarantee that the price to be paid in the Transaction is the highest or best amount that can be obtained in connection with the Transaction or any other transaction.
In rendering its opinion, VRC did not initiate any discussions, or solicit any indications of interest, with any third parties with respect to the Company or the Transaction. The Fairness Opinion speaks only as of the date thereof and addresses only the Transaction, and does not speak to or address any period thereafter or any subsequent business transaction, acquisition, dividend, share repurchase, debt or equity financing, recapitalization, restructuring or other actions, transactions or events not specifically referred to in the Fairness Opinion. Furthermore, the Fairness Opinion does not represent an assurance, guarantee, or warranty that the Company will not breach, or default on or under, any of its debt or other obligations or liabilities, nor does VRC make any assurance, guarantee, or warranty that any covenants, financial or otherwise, associated with any financing or existing indebtedness will not be breached in the future.
31


 

The following is a summary of the material financial analyses delivered by VRC to the Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by VRC, nor does the order of analyses described represent the relative importance or weight given to those analyses by VRC. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of VRC’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 16, 2019 and is not necessarily indicative of current market conditions. 
VRC’s Analysis Conclusion
VRC estimated the Company’s enterprise value using three separate methodologies: (i) the Illustrative Discounted Cash Flow Analysis, (ii) the Selected Companies Analysis, and (iii) the Selected Transactions Analysis, which resulted in the implied enterprise value range of $14.7 million to $23.2 million. 

GRAPHICS

Illustrative Discounted Cash Flow Analysis
VRC performed an illustrative discounted cash flow analysis of the Company based on forecasted estimates of unlevered free cash flows of the Company to derive an illustrative range of implied enterprise values for the Company. VRC performed the illustrative discounted cash flow analysis using discount rates ranging from 11.5% to 13.5%, reflecting estimates of the Company’s weighted average cost of capital. VRC discounted to present value, as of August 16, 2019, (i) estimates of unlevered free cash flow for the Company from August 16, 2019 through December 31, 2019, and then annually through December 31, 2023 as reflected in the Forecasts and (ii) a range of illustrative terminal values for the Company, which were calculated by applying perpetuity growth rates ranging from 0.0% to 1.0%, to a terminal year estimate of the free cash flow to be generated by the Company, as reflected in the Forecasts. VRC derived such discount rates by application of the capital asset pricing model, which requires certain company-specific inputs, including the industry’s target capital structure weightings, cost of debt, future applicable marginal tax rate and a beta for the Company, as well as certain financial metrics for the United States financial markets generally. VRC estimated the range of perpetuity growth rates utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. VRC derived ranges of illustrative enterprise values for the Company by adding the ranges of present values it derived as described above. The derived illustrative enterprise values ranged from $14.7 million to $17.9 million.
Selected Companies Analysis
VRC reviewed and compared certain financial information for the Company to corresponding financial information, ratios and public market multiples for publicly traded corporations in the scrap metal and steel industries (collectively referred to as the selected companies).
32



Selected Companies



· Sims Metal Management Limited

·
Commercials Metals Company

· Schnitzer Steel Industries, Inc.

· Nucor Corporation

· Steel Dynamics, Inc.
Although none of the selected companies is directly comparable to the Company, VRC chose the companies included because they are publicly traded companies with business operations that, for purposes of analysis, may be considered similar to the Company’s business operations.
With respect to each of the selected companies, VRC calculated and compared various financial multiples and such company’s Enterprise Value. As used herein, “Enterprise Value” or “EV” means the market capitalization of a selected company which VRC derived based on the closing price of the shares of the selected company’s common stock and the number of its shares of common stock outstanding, plus the book value of debt, less the book value of liquid cash and cash equivalents. The Enterprise Value derived for the selected company is then divided by EBITDA to derive a multiple. As used herein, “EBITDA” means, with respect to a company, earnings before interest, taxes, depreciation and amortization (as adjusted for certain non-recurring charges). EBITDA for the last fiscal year (“LFY”) and EBITDA estimated for calendar years 2019 and 2020, as provided by Capital IQ, a public company information data services company, are utilized. Unless otherwise noted, all Enterprise Value calculations were determined based on publicly available information as of August 16, 2019 (in millions).
GRAPHICS
VRC then applied a selected range of 2020 estimated EBITDA multiples of 5.0x to 6.0x to the Company’s 2020 estimated EBITDA to derive a range of implied EV of $19.3 million to $23.2 million.
Selected Transactions Analysis
VRC analyzed certain information relating to the following selected transactions in the scrap metal and steel industries since 2014. 
While none of the public companies included in the selected transactions is directly comparable to the Company, VRC included the selected public company transactions because the related companies have operations that, for purposes of analysis, may be considered similar to the Company’s in market size, certain results of operations and product profiles. 
For each of the selected transactions, VRC calculated and compared various financial multiples, financial ratios and other financial information. 
33


The applicable information from these transactions is summarized below (EV and EBITDA in millions).

GRAPHICS

VRC then applied a selected range of EBITDA multiples of 7.0x to 8.0x to the Company’s 2018 EBITDA to derive a range of implied enterprise values of $18.6 million to $21.3 million.

Conclusion

VRC calculated the Company’s enterprise value using the Illustrative Discounted Cash Flow Analysis, the Selected Companies Analysis, and the Selected Transactions Analysis, which resulted in the implied enterprise value range of $14.7 million to $23.2 million.

General

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying VRC’s opinion. In arriving at its fairness determination, VRC considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, VRC made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No selected company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated transaction, as the case may be.

VRC prepared these analyses for purposes of delivering its opinion to the Board that, as of August 16, 2019, the purchase price ($23,300,000 in cash) to be received in the Asset Sale is fair from a financial point of view to the Company. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, the Board or VRC or any other person assumes responsibility if future results are materially different from those forecasted.

As described above, VRC’s opinion to the Board was one of many factors taken into consideration by the Board in making its determination to approve the Transaction.

The foregoing summary does not purport to be a complete description of the analyses performed by VRC in connection with its fairness opinion and is qualified in its entirety by reference to the written opinion of VRC attached as Annex C to this proxy statement.

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VRC is actively engaged in performing valuation advisory services with respect to businesses and their securities in connection with mergers and acquisitions and other transactions for corporate and other purposes. Except for VRC’s engagement to deliver its fairness opinion in connection with the Transaction, VRC has not acted as financial advisor to the Company or the Board in connection with the Company’s consideration of the Transaction and has not participated in the negotiations leading to the Transaction. VRC will receive a fee in connection with the delivery of its opinion, and the Company has agreed to reimburse certain of VRC’s expenses and indemnify VRC against certain liabilities arising out of its engagement. No portion of VRC’s fee is contingent upon either the conclusion or opinion expressed in its fairness opinion or whether the Transaction is successfully consummated. VRC may provide valuation advisory services to the Company or the Board in the future, for which VRC may receive compensation.

The Board of Directors selected VRC as its fairness opinion provider because it is a recognized financial advisory firm that has substantial experience with transactions similar to the Transaction. Pursuant to a letter agreement dated August 8, 2019, the Company engaged VRC to provide a fairness opinion in connection with the contemplated Transaction. The engagement letter between the Company and VRC provides for the Company to pay VRC a fee of $70,000, to reimburse VRC for certain of its expenses and disbursements, and to indemnify VRC and related persons against various liabilities, including certain liabilities under the federal securities laws. 

Certain Company Prospective Financial Information provided by the Company to Buyer

 

The Company does not make public disclosure of forecasts or projections of its expected financial performance because of, among other things, the inherent difficulty of accurately predicting financial performance for future periods and the risk that the underlying assumptions and estimates may prove incorrect. In connection with the negotiations with the Buyer, however, Company management provided certain limited unaudited prospective financial information for the Company on a stand-alone basis, without giving effect to the Asset Sale or any other similar transaction, to the Buyer's Parent on September 14, 2018, for purposes of considering and evaluating a transaction with the Sellers. As disclosed in the Companys periodic filings with the SEC, the Company's financial performance has been adversely affected by unfavorable recycled metal market conditions since the date of the projections. 
The prospective financial information for the Company reflects numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are inherently uncertain and difficult to predict and many of which are beyond the Company’s control. The prospective financial information is subjective in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. The prospective financial information may also be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. As such, the prospective financial information constitutes forward-looking information and is subject to risks and uncertainties, including the various risks set forth in the sections of this proxy statement entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and the other reports filed by the Company with the SEC.
The prospective financial information for the Company was generally not prepared with a view toward public disclosure or complying with GAAP, the published guidelines of the SEC regarding projections, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information included below, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the prospective financial information. Furthermore, the prospective financial information does not take into account any circumstances or events occurring after the date it was prepared.
You are strongly cautioned not to place undue reliance on the prospective financial information set forth below. The inclusion of the prospective financial information in this proxy statement should not be regarded as an indication that any of the Company, the Buyer or their affiliates, advisors or representatives considered or consider the prospective financial information to be necessarily predictive of actual future events, and the prospective financial information should not be relied upon as such. None of the Company, the Buyer or their respective affiliates, advisors, officers, directors or representatives can give any assurance that actual results will not differ from the prospective financial information, and none of them undertakes any obligation to update or otherwise revise or reconcile the prospective financial information to reflect circumstances existing after the date such information was prepared or to reflect the occurrence of future events even if any or all of the assumptions underlying the prospective financial information are shown to be inaccurate. None of the Company, the Buyer or their respective affiliates, advisors or representatives makes any representation to any Shareholder regarding the projections. The prospective financial information is not being included in this proxy statement to influence a Shareholder’s decision regarding how to vote on any given proposal, but solely because the prospective financial information was provided to the Buyer.
In light of the foregoing and considering that the annual meeting will be held [•] months after the prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, Shareholders are cautioned not to place unwarranted reliance on such information, and the Company urges all Shareholders to review the Company’s most recent SEC filings for a description of the Company’s reported financial results. See “Where You Can Find More Information” beginning on page 75 of this proxy statement.
35



The following table summarizes selected prospective unaudited financial information that was shared by the Company with the Buyer as described above.


Projected


Year Ended December 31,


(dollars in thousands)


2018

2019
2020

Revenue


$ 66,584

$ 71,512

$ 72,579
Cost of sales

50,950


54,958


55,783
Gross profit

15,634


16,554


16,796
Operating expenses

14,324


14,478


14,521
Operating income

1,310


2,076


2,275
Interest, other income (expense) and income taxes

(424 )

(648 )

(319 )
Net income

886


1,428


1,956
Adjusted EBITDA
$ 4,528

$ 5,238

$ 5,455

The following table reconciles net income to Adjusted EBITDA. Adjusted EBITDA is defined as income from continuing operations before interest expense, income taxes, stock-based compensation, other income, pro-forma addbacks, depreciation and amortization. The pro-forma addbacks represent certain estimated costs associated with the Company’s status as a public company, including compliance with the applicable reporting requirements of the Securities Exchange Act. Adjusted EBITDA should not be considered as a measure of financial performance under accounting principles generally accepted in the United States of America. The items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Management routinely calculates and presents Adjusted EBITDA because it believes that Adjusted EBITDA is useful and is a commonly used analytical indicator within the industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value.



Projected



Year Ended December 31,



(dollars in thousands)



2018
2019
2020
Net income

$ 886

$ 1,428

$ 1,956
Add: Interest, other (income) expense and income taxes

424


648


319

Share-based compensation expense

60


37


37

Depreciation and amortization



2,243


2,213


2,231

Pro-forma addbacks

915


912


912
Adjusted EBITDA

$ 4,528

$ 5,238

$ 5,455

Summary of Asset Purchase Agreement 
This section of this proxy statement describes certain material provisions of the Asset Purchase Agreement but does not purport to describe all the terms of the Asset Purchase Agreement. The following summary is qualified in its entirety by reference to the complete text of the Asset Purchase Agreement, which is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We urge you to read the full text of the Asset Purchase Agreement because it is the legal document that governs the Asset Sale. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find Additional Information” beginning on page 75.
36



Explanatory Note Regarding the Asset Purchase Agreement

The Asset Purchase Agreement is included to provide you with information regarding its terms. It is not intended to provide any other factual information about the Company, Buyer, or any of their respective subsidiaries or affiliates. 

The representations and warranties of the Company and its subsidiaries contained in the Asset Purchase Agreement have been made solely for the benefit of Buyer. The Company’s Shareholders are not third-party beneficiaries under the Asset Purchase Agreement and should not rely on the representations, warranties, covenants, or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, its subsidiaries, or Buyer. Such representations and warranties (a) have been made only for purposes of the Asset Purchase Agreement, (b) may be subject to limits or exceptions agreed upon by the contracting parties, (c) are subject to materiality qualifications contained in the Asset Purchase Agreement which may differ from what may be viewed as material by investors, (d) were made only as of the date of the Asset Purchase Agreement or other dates specified in the Asset Purchase Agreement and (e) have been included in the Asset Purchase Agreement for the purpose of allocating risk between the contracting parties rather than establishing matters as facts, among other limitations. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or Buyer or any of their respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of the Asset Purchase Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Asset Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

The Asset Sale

The Company and its subsidiaries (collectively the “Sellers”) have agreed to sell to Buyer substantially all of the assets of the Sellers’ business for an aggregate purchase price of $23,300,000, less certain payoff amounts relating to taxes, encumbrances and loans, and certain assumed capital leases. The purchase price is subject to an adjustment up or down based upon the net working capital, as defined in the Asset Purchase Agreement, estimated at the closing of the Asset Sale and finally determined following the closing of the Asset Sale. The amount of $600,000 of the purchase price will be held in escrow for 45 days (plus certain objection and resolution periods) to satisfy the potential net working capital purchase price adjustment, and the amount of $100,000 of the purchase price will be held in escrow to satisfy any liabilities of the Sellers relating to the Chemetco Superfund site in Hartford, Illinois. The only liabilities of the Sellers being assumed by Buyer are (a) pre-closing accounts payable incurred in the ordinary course of business, (b) performance obligations of the Sellers arising under assumed contracts from and after the closing, (c) certain assumed accruals, (d) any liabilities for non-compliance with the Permit and Agreed Order being negotiated with the Cabinet, including any civil penalties, stipulated penalties, or other fines or liabilities, but only to the extent arising thereunder and attributable to post-closing operations at the Sellers’ facility located on Grade Lane in Louisville, Kentucky, and (e) liabilities and obligations for taxes relating to the Sellers’ business, the purchased assets, or the other assumed liabilities for any post-closing tax period. The Buyer will also assume the Company's capital leases, but Buyer will deduct from the purchase price an amount equal to the amount on the Company's balance sheet related to such capital leases on a dollar-for-dollar basis. All other liabilities, including the Company's third-party and related party debt, are excluded from the transaction and will be paid by the Company from cash proceeds. All cash and cash equivalents and certain nominal accounts receivable are excluded from the Asset Sale, along with certain other assets specified as excluded assets in the Asset Purchase Agreement. The David J. Joseph Company (“Parent”) is party to the Asset Purchase Agreement solely for purposes of guaranteeing the payment of certain amounts due and payable by Buyer pursuant to the Asset Purchase Agreement.

37


Representations and Warranties

The Asset Purchase Agreement contains representations and warranties made by the Sellers to Buyer, including representations and warranties relating to:


· our organization, standing and power, and other corporate matters of the Sellers;


 

· the authorization, execution, delivery and enforceability of the Asset Purchase Agreement and related agreements;



· the absence of conflicts or violations under our organizational documents, contracts, or law, and required consents and approvals;




·
the absence of agreements with other persons to acquire the Sellers’ business or assets;




· our financial statements;




· the absence of certain changes or events since January 1, 2019;




·
our inventory and other assets;




·
our owned and leased real property;




· environmental matters;




· our intellectual property;




·
permits and licenses;




· material contracts;




· our employees and employee benefit plans;




· the absence of litigation and other proceedings;




· our insurance coverage;




·
tax matters;




· brokerage and finders’ fees payable by us with respect to the Asset Sale;




· our compliance with applicable laws;




· our consumers and suppliers;




·
transactions with related parties;




· our solvency; and




·
accounts receivable and payable.


38



Certain of the representations and warranties in the Asset Purchase Agreement made by the Sellers are qualified by a “materiality” or “Material Adverse Effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct would, as the case may be, be material or have a Material Adverse Effect). Under the Asset Purchase Agreement, a “Material Adverse Effect” is defined as a condition, fact or circumstance that, individually or in the aggregate, has (or could reasonably be expected to have) a material adverse effect on (a) the ownership or use of the purchased assets, taken as a whole, (b) the operation of the business as operated by Sellers on the date of the Asset Purchase Agreement or as contemplated to be operated by Buyer after the closing of the Asset Sale, taken as a whole, or (c) the ability of any Seller to perform its obligations under the Asset Purchase Agreement; provided, however, that “Material Adverse Effect” shall not include any condition, fact or circumstance directly or indirectly arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industry in which the business operates; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action taken (or omitted to be taken) with the written consent of or at the written request of Buyer; (vi) any changes in applicable laws or accounting rules (including GAAP) or the enforcement, implementation or interpretation thereof; (vii) the announcement, pendency or completion of the Asset Sale, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with Sellers and the business; or (viii) any failure by the business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); provided further, however, that any condition, fact or circumstance referred to in clauses (i) through (iv) and (vi) above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent such condition, fact or circumstance has a disproportionate effect on the Sellers’ business compared to other participants in the industry in which the business operates.

The Asset Purchase Agreement also contains representations and warranties made by Buyer to the Sellers, including representations and warranties relating to:


· organization, standing and power, and other corporate matters of Buyer;




· authorization, execution, delivery and enforceability of the Asset Purchase Agreement and related agreements;




· the absence of conflicts or violations under Buyer’s organizational documents, contracts, or law, and required consents and approvals;




· brokerage and finders’ fees payable by Buyer with respect to the Asset Sale; and




· the sufficiency of funds necessary to consummate the Asset Sale.

Indemnification

Pursuant to the Asset Purchase Agreement, the Sellers have agreed to jointly and severally indemnify and hold harmless Buyer, its affiliates and their respective officers, directors, employees, agents, successors and assigns against losses incurred by such parties arising from or in connection with:


· the breach, untruth or inaccuracy of any representation or warranty of any Seller set forth in the Asset Purchase Agreement or in any certificate or document delivered pursuant thereto;




· any breach or non-fulfillment by any Seller of any covenant or obligation set forth in the Asset Purchase Agreement or in any certificate or document delivered pursuant thereto;




· any claim that is related to any known or unknown off-site environmental matter or any hazardous material personal injury;




· any claim by any person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such person with any Seller (or any person acting on any Seller’s behalf) in connection with the Asset Sale; or




· any excluded liabilities.

39



The indemnification obligations of the Sellers are subject to a $120,000 true deductible and a $3,600,000 indemnity cap. However, the deductible and cap on indemnification do not apply with respect to breaches of certain fundamental representations and warranties, breaches of covenants, tax matters, environmental matters, and certain other matters, all of which are subject to an overall cap equal to the purchase price. The representations and warranties set forth in the Asset Purchase Agreement generally survive for one year following the closing, with longer survival periods with respect to tax matters, environmental matters, and fundamental representations and warranties.

Any materiality, Material Adverse Effect or similar qualifier contained in a representation or warranty of the Sellers is disregarded for purposes of determining losses, but not for purposes of determining whether any breach, untruth or inaccuracy of such representation or warranty has occurred.

Conduct of Business Pending the Asset Sale

From the date of the Asset Purchase Agreement through the closing of the Asset Sale, each Seller has agreed to:


· conduct its business only in, and not take any action except in, the ordinary course of business, except as expressly contemplated or required in the Asset Purchase Agreement;




· comply with all applicable material laws and all material obligations under all material contracts (including the assumed contracts);




· carry on the business (including managing its inventory) in substantially the same manner as it has up to and on the date of the Asset Purchase Agreement;




· maintain the purchased assets in substantially the same condition as existed as of the date of the Asset Purchase Agreement, normal wear and tear excepted;




· take all actions necessary and appropriate to deliver to Buyer title to the purchased assets free and clear of all encumbrances (other than certain permitted encumbrances);




· use commercially reasonable efforts to obtain appropriate releases, consents, estoppels, certificates and other instruments as needed to lawfully transfer the purchased assets and assign the assumed contracts and the permits to Buyer;




· keep in full force and effect, until the closing of the Asset Sale, certain insurance policies or other comparable insurance benefiting the purchased assets and the conduct of the business;




· pay or otherwise satisfy its liabilities in the ordinary course of business; and




· maintain and preserve its legal status in good standing.

In addition, during the same period, each Seller has also agreed not to take certain actions with respect to its business, including agreeing not to:


· amend, modify, renew, or terminate any assumed contract without the prior consent of Buyer;




· sell, assign, transfer, distribute or otherwise transfer or dispose of any of the purchased assets, except for Asset Sales in the ordinary course of business or of certain specified assets;




· make a distribution of any equity or purchased assets, except in the ordinary course of business;




· enter into any material transaction outside the ordinary course of business;



40




· take (or fail to take) any action that would (or could reasonably be expected to) result in any representation or warranty of the Sellers set forth in the Asset Purchase Agreement to be untrue or inaccurate in any material respect as of the closing of the Asset Sale; or




· agree, authorize, resolve, arrange or commit to do any of the foregoing.

In addition, the Sellers have also agreed to certain other covenants, including covenants relating to (a) employee matters; (b) affording Buyer the opportunity to conduct a full and complete due diligence investigation; (c) seeking consents, approvals, authorizations and clearances required to consummate the Asset Sale, including promptly holding a meeting of the Company’s Shareholders and seeking Shareholder approval of the Asset Sale; (d) not competing with the business or soliciting customers, suppliers or employees for five years following the closing of the Asset Sale; (e) tax matters; (f) allowing Buyer to fully participate in negotiations with respect to the Permit and Agreed Order being negotiated with the Cabinet, not seeking to materially alter certain terms thereof, and using commercially reasonable efforts to promptly secure the Permit and Agreed Order; (g) paying, or causing to be paid, liabilities arising out of or attributable to any environmental claims related to the Chemetco Superfund site in Hartford, Illinois for which the Company or any of its affiliates is liable; (h) removing automotive shredder residue, certain other residue and dirt, a certain crane not being assumed by Buyer, and certain other excluded assets from the Sellers’ property; (i) changing Sellers’ names within 90 days following the closing of the Asset Sale to names that are not confusingly similar with those names included in the purchased assets; and (j) certain other matters set forth in the Asset Purchase Agreement.

Conditions to the Closing

Conditions to Sellers’ Obligations

The obligations of the Sellers to close the Asset Sale are subject to the satisfaction or waiver by the Company of certain conditions, including the following:


· each of the representations and warranties of Buyer contained in the Asset Purchase Agreement shall be true, correct and complete in all material respects (disregarding for such purposes any qualifications or exceptions for, or reference to, materiality, Material Adverse Effect or similar expressions) on and as of the date of the Asset Purchase Agreement and, except where expressly limited to a specific date, on and as of the closing date of the Asset Sale;




· each of the terms, covenants and agreements to be complied with or performed by Buyer on or before the closing of the Asset Sale shall have been complied with and performed in all material respects (disregarding for such purposes any qualifications or exceptions for, or reference to, materiality, Material Adverse Effect or similar expressions);




· no governmental authority shall have taken or, to the knowledge of Sellers, threatened to take any action restraining or prohibiting the Asset Sale and as a result of which any Seller reasonably and in good faith deems it inadvisable to proceed with the Asset Sale, and there shall not be in effect any order restraining, enjoining or otherwise preventing consummation of the Asset Sale, provided that the parties to the Asset Purchase Agreement shall have used their respective commercially reasonable efforts to cause any such order to be vacated or lifted; and no proceeding shall have been instituted or threatened by any person to prohibit, restrain or delay the Asset Sale or otherwise challenge the power and authority of the parties to enter into the Asset Purchase Agreement or to carry out their obligations thereunder or the legality and validity of the Asset Sale;




·
the approval of the Asset Sale by the Company’s Shareholders shall have been obtained in accordance with applicable law and the organizational documents of the Company;




· Buyer shall have delivered to the Company certain deliverables required to be delivered at the closing of the Asset Sale; and




· the Permit and Agreed Order have been issued by the Cabinet, each on terms not materially different (in a manner adverse to Sellers with respect to the certain contemplated fines and penalties relating to noncompliance) from those being discussed with the Cabinet as of the date of the Asset Purchase Agreement.

41



Conditions to Buyer’s Obligations

The obligations of Buyer to close the Asset Sale are subject to the satisfaction or waiver by Buyer of certain conditions, including the following:


· each of the representations and warranties of Sellers contained in the Asset Purchase Agreement shall be true, correct and complete in all material respects (disregarding for such purposes any qualifications or exceptions for, or reference to, materiality, Material Adverse Effect or similar expressions) on and as of the date of the Asset Purchase Agreement and, except where expressly limited to a specific date, on and as of the closing date of the Asset Sale;




·
each of the terms, covenants and agreements to be complied with or performed by any Seller on or before the closing of the Asset Sale shall have been complied with or performed in all material respects (disregarding for such purposes any qualifications or exceptions for, or reference to, materiality, Material Adverse Effect or similar expressions);




· no governmental authority shall have taken or, to the knowledge of Buyer, threatened to take any action restraining or prohibiting the Asset Sale and as a result of which Buyer reasonably and in good faith deems it inadvisable to proceed with the Asset Sale, and there shall not be in effect any order restraining, enjoining or otherwise preventing consummation of the Asset Sale, provided that the parties to the Asset Purchase Agreement shall have used their respective commercially reasonable efforts to cause any such order to be vacated or lifted; and no proceeding shall have been instituted or threatened by any person to prohibit, restrain or delay the Asset Sale or otherwise challenge the power and authority of the parties to enter into the Asset Purchase Agreement or to carry out their obligations thereunder or the legality and validity of the Asset Sale;




·
Buyer shall have obtained or received from the Sellers documentation or other evidence reasonably satisfactory to Buyer that Sellers or Buyer have received or will receive the consents, permits, approvals, authorizations and clearances required to be obtained in order for certain assumed contracts, real property leases and permits to be transferred to Buyer, and the Asset Sale to be lawfully consummated in all material respects;




·
the approval of the Asset Sale by the Company’s Shareholders shall have been obtained in accordance with applicable law and the organizational documents of the Company;




·
there shall have been no Material Adverse Effect;




· Buyer shall have obtained or received from Sellers documentation or other evidence reasonably satisfactory to Buyer, issued by the Kentucky Department of Revenue, stating that no taxes are due by any Seller;




·

Sellers shall have delivered to Buyer certain deliverables required to be delivered at the closing of the Asset Sale; and





· the Permit and Agreed Order have been issued by the Cabinet, each on terms not materially different (in a manner adverse to Buyer) from those being discussed with the Cabinet as of the date of the Asset Purchase Agreement.

Closing of the Asset Sale shall occur on the second business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the Asset Sale (other than those conditions with respect to actions the respective parties will take at the closing itself), or at such other time or place as the parties may mutually agree. 

42



Termination of the Asset Purchase Agreement

The Asset Purchase Agreement may be terminated, and the Asset Sale abandoned:


· at any time before the closing of the Asset Sale, by mutual consent of Buyer and the Company without penalty or payment;




· at any time before the closing of the Asset Sale, by Buyer, on the one hand, or the Company, on the other hand, in the event of a material breach of the Asset Purchase Agreement by the non-terminating party, which breach is not cured by the breaching party within 15 days following receipt of written notice of the alleged breach sent by the party alleging breach, provided that the terminating party shall not itself be in material breach of its representations, warranties, covenants or obligations under the Asset Purchase Agreement;




·
by Buyer, on the one hand, or the Company, on the other hand, if the closing of the Asset Sale shall not have taken place within 150 days following the date of the Asset Purchase Agreement, provided that the terminating party shall not be in material breach of its representations, warranties, covenants or obligations under the Asset Purchase Agreement; provided, however, that if all conditions to the closing of the Asset Sale other than certain conditions relating to the Permit and Agreed Order have been satisfied or are able to be satisfied as of such 150-day deadline, then the Company (if the Sellers’ closing condition relating to the Permit and Agreed Order has not been satisfied) or Buyer (if Buyer’s closing condition relating to the Permit and Agreed Order has not been satisfied) may extend the 150-day deadline for one additional 30-day period via notice in writing to the other party; or




· at any time before the closing of the Asset Sale, by Sellers, if the Company’s Board withdraws its recommendation that the Company’s Shareholders approve the Asset Sale, cancels the meeting of the Company’s Shareholders at which approval of the Asset Sale was to be voted upon, and/or terminates the Asset Purchase Agreement at any time prior to the closing of the Asset Sale, in each case, after determining that recommending such Shareholder approval, holding such Shareholder meeting, or not terminating the Asset Purchase Agreement would reasonably be expected to be inconsistent with the Board’s fiduciary duties under applicable law (any such action of the Board, a “Board Termination”).

In certain circumstances set forth in the Asset Purchase Agreement relating to the issuance of the Permit and Agreed Order on terms materially different from those being discussed with the Cabinet as of the date of the Asset Purchase Agreement, the Asset Purchase Agreement requires senior executives of the Company and Buyer to work together in good faith for a period of 30 days to attempt to negotiate and resolve any outstanding issues relating to the Permit and Agreed Order; however, such requirement does not prevent the party with respect to whom such difference was materially adverse from terminating the Asset Purchase Agreement once the closing date deadline described above has passed.

Termination Fees and Expenses

Termination Costs

If Sellers terminate the Asset Purchase Agreement in connection with a Board Termination, then the Company shall pay to Buyer within five business days of such termination an amount equal to Buyer’s legal, consultant, advisory and other documented expenses incurred in connection with the Asset Sale. Such amount (the “Board Termination Costs”) shall not exceed $300,000.

Termination Fee

Additionally, if Sellers enter into an agreement with a third party to sell a controlling interest in the equity of the Company of all or substantially all of the purchased assets prior to or within 180 days following a termination of the Asset Purchase Agreement in connection with a Board Termination, then in addition to the Board Termination Costs, the Company shall also pay to Buyer within five business days of the later of such termination or the execution of such agreement an amount equal to $850,000 minus the Board Termination Costs (i.e., all previously paid Board Termination Costs will be credited against the $850,000 termination fee).

Expenses

Except as expressly set forth in the Asset Purchase Agreement, all expenses relating to the Asset Sale and the negotiation and preparation of the Asset Purchase Agreement will be borne by the party incurring such expense.

43



Amendment and Waiver

The Asset Purchase Agreement may not be amended except in a written instrument executed by all parties to the Asset Purchase Agreement.

The waiver by any party of any breach or violation by another party of any provision of the Asset Purchase Agreement or of any right or remedy of the waiving party in the Asset Purchase Agreement (a) shall not waive or be construed to waive any subsequent breach or violation of the same provision, unless expressly contemplated in such waiver, (b) shall not waive or be construed to waive a breach or violation of any other provision, and (c) shall be in writing and may not be presumed or inferred from any party’s conduct. In addition to any other rights and remedies any party may have at law or in equity for breach of the Asset Purchase Agreement, each party shall be entitled to seek an injunction to enforce the provisions of the Asset Purchase Agreement. 

Governing Law and Jurisdiction

The Asset Purchase Agreement will be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any other jurisdiction. 

Each party to the Asset Purchase Agreement submits to the exclusive jurisdiction of the state and federal courts located in Wilmington, Delaware, for purposes of all legal proceedings arising out of or relating to the Asset Purchase Agreement.

Shareholder Distributions

Assuming the Shareholders approve the Asset Sale, the timing and amount of any distributions to Shareholders upon consummation of the Asset Sale will depend upon, among other factors, the timing of the Company’s subsidiaries performing all of their obligations, the Companys operating performance prior to closing of the Asset Sale and requirements and payment of all Company liabilities and obligations. See “Risk Factors” above.

If the Shareholders approve the Asset Sale, subject to the satisfaction of the liabilities of the Company and certain assumptions, the Company intends, although there can be no assurance, to provide for an initial distribution of between $8.3 million and $8.8 million in the aggregate, or approximately $1.00 to $1.06 per share of common stock based on an estimated 8,328,163 fully diluted shares of common stock outstanding. No distribution will be made if there is no closing. The amount of any future distribution will be determined by the Board. To the extent the closing occurs and the initial distribution is made, the Company intends to pay one or more future distributions but such distribution(s) and amount(s) will depend on the Company’s available cash, after reflecting any reserve for future contingent liabilities, operating costs and any other uses of cash.

The Company currently anticipates that the initial distribution to the Shareholders will occur within 30 days after the closing, assuming the Shareholders approve the Asset Sale and that the Asset Sale is consummated.


44


Effects of the Transaction

If we complete the Asset Sale and our Shareholders approve the Plan of Dissolution, we will cease to do business and will not engage in any business activities except for the purpose of paying any debts and obligations, distributing the remaining assets to Shareholders, and doing other acts required to liquidate and wind up our business and affairs. However, the Company will need to continue its corporate existence until the escrowed portion of the purchase price is released and the liquidation of the Company is completed. Upon consummation of the Asset Sale, in order to reduce costs and maximize the assets available to our Shareholders, the Company intends to terminate the registration of its common stock under the Exchange Act pursuant to Section 12(g)(4) of the Exchange Act. The deregistration of the Company does not require Shareholder approval and will not be voted on at the Annual Meeting of the Shareholders.

When the Company deregisters its common stock, it may be more difficult (or even impossible) for Shareholders to sell shares of Company common stock held by them.

The following table sets forth management’s estimates of the potential use of the proceeds from the Asset Sale in determining the initial distribution. As noted above, following an initial distribution, the Company intends to pay one or more future distributions but such distribution(s) and amount(s) will depend on the Company's available cash, after reflecting any reserve for future contingent liabilities, operating costs and any other uses of cash.

 

Cash purchase price

$

23,300,000 

Contribution to Chemetco Superfund escrow


(100,000)

Contribution to net working capital escrow


(600,000)

Payoff of capital leases and third-party debt (1)


(8,463,000)

Payoff of related party debt (1)


(1,004,000)

Liabilities retained, net of assets retained


(236,000)

Closing costs (2)


(1,050,000)

Executive severance (3)


(317,000)

Non-executive retention and severance (4)


(300,000)

Post-closing dissolution costs (5)


(590,000)

Contingencies (6)


(2,250,000)

Available for distribution (7)

$

8,390,000 



(1) Represents balances shown on the Company’s June 30, 2019 balance sheet.




(2) Represents estimated fees related to the Asset Sale and associated with investment banker, fairness opinion, legal and proxy advisor.  




(3)
Represents estimated amounts due under Mr. Phillips’ employment agreement. See “Proposal No. 5 - Severance Payments Proposal for further detail.




(4) Represents estimated amounts to be paid to employees under various retention and severance agreements related to the Asset Sale.




(5) This amount represents estimated costs associated with post-transaction wind up, including post-closing insurance, professional fees and other dissolution costs.




(6) Represents contingencies for unidentified costs, estimated purchase price adjustments, additional wind up expenses and estimated operating losses from August 16, 2019 through the date of closing of the Asset Purchase Agreement.




(7) Represents the Company’s best estimate of net cash available for the initial distribution.

45



Appraisal Rights

Under Florida law, holders of shares of Company common stock are not entitled to appraisal rights in connection with the Asset Sale or the Plan of Dissolution.

Certain U.S. Federal Income Tax Considerations

The proposed Asset Sale will be a transaction taxable to the Company for U.S. federal income tax purposes. In general, the Company will recognize taxable gain in an amount equal to the difference, if any, between (i) the total amount realized by the Company on the Asset Sale and (ii) the Company’s aggregate adjusted tax basis in the assets sold. The total amount realized by the Company on the Asset Sale will equal the cash the Company receives in exchange for the assets sold, plus the amount of related liabilities assumed by the Buyer or cancelled in the transaction, less certain transaction costs. The Company expects that a portion of the taxable gain recognized on the Asset Sale will be offset by current year losses from operations and available net operating loss carry forwards, as currently reflected on our consolidated U.S. federal income tax returns. However, the Company believes that a significant portion of its net operating loss carry forwards will never be fully utilized and expire unused.

Shareholders will not be subject to U.S. federal income tax on the Asset Sale. However, as discussed below, Shareholders will be subject to U.S. federal income tax upon the receipt of any distribution of Asset Sale proceeds made by the Company to the Shareholders.

Management Changes

Our Named Executive Officers will no longer serve as officers or employees of the Company. Our directors will continue in their current roles following the completion of the Asset Sale.

Surrender of Stock Certificates

Subsequent to the Final Record Date, the Company may at its election require Shareholders to surrender certificates representing their shares of common stock in order to receive subsequent distributions. Shareholders should not forward their stock certificates before receiving instructions to do so. If surrender of stock certificates is required, all distributions otherwise payable by the Company to Shareholders who have not surrendered their stock certificates may be held in trust for such Shareholders, without interest, until the surrender of their certificates (subject to escheat pursuant to the laws relating to unclaimed property). If a Shareholder's certificate evidencing the common stock has been lost, stolen or destroyed, the Shareholder may be required to furnish us with satisfactory evidence of the loss, theft or destruction thereof, together with a surety bond or other indemnity, as a condition to the receipt of any distribution. 

The Board recommends a vote “FOR” the Asset Sale Proposal.

46


PROPOSAL NO. 3 - DISSOLUTION


Pursuant to the terms of the Plan of Dissolution (the “Plan of Dissolution”) that is described in this proxy statement, attached as Annex B and incorporated by reference into this proxy statement, the Company will dissolve and wind up its affairs in order to maximize Shareholder value (the “Dissolution”). Completion of the Dissolution is conditioned on approval of the Plan of Dissolution.


The following disclosure contains a summary of the material terms and conditions of the Plan of Dissolution. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Plan of Dissolution. This summary does not purport to be complete and may not contain all of the information about the Plan of Dissolution that is important to you. We encourage you to read the Plan of Dissolution carefully and in its entirety.


Reasons for the Plan of Dissolution

    

In considering adopting a Plan of Dissolution, the Board considered the terms of the Plan of Dissolution and the dissolution process under Florida law, as well as other available strategic options. In approving the Plan of Dissolution, the Board considered a number of factors, including but not limited to, the factors described elsewhere in this proxy statement as well as the following factors:

       


· The viability of the Company's business model following the Asset Sale, which constitutes substantially all of the Company's revenue-producing assets, and the costs and time that would be required to alter the Company's current business structure following the Asset Sale, and, assuming the completion of the Asset Sale, the Company would have limited assets with which to generate operating revenue and likely will have retained only those employees required to wind up its corporate existence;




· The determination by the Board that continuing to operate is not reasonably likely to create greater value for the Shareholders than the value that may be obtained for the Shareholders pursuant to the complete dissolution of the Company;




· That the Dissolution and liquidation provides Shareholders with an opportunity to potentially monetize their investment in the Company and allows the Company to distribute the maximum amount of cash to the Company’s Shareholders from the Asset Sale;




· The potential tax benefits of making distributions to Shareholders pursuant to the Plan of Dissolution;




· The costs associated with the Company’s operations, including accounting, legal and other expenses in connection with required filings with the SEC and required to support the day-to-day operations of the Company following the closing of the Asset Sale;




· The terms and conditions of the Plan of Dissolution, including the provisions that permit the Board to modify or abandon the Plan of Dissolution before its effective time without further action by the Company’s Shareholders to the extent permitted by the FBCA;




· The costs of retaining the personnel necessary to administer and manage the Company’s assets and retained liabilities during the winding up period.


The Board also considered certain material risks or potentially adverse factors in making its determination and recommendation, including, but not limited to, the following:



· The uncertainty of the timing, nature and amount of any proceeds and distributions to Shareholders, including the risk that the need to resolve or otherwise address contingent liabilities and the potential emergence of additional liabilities or contingent obligations during the dissolution process could significantly delay, reduce or prevent any distributions to the Shareholders;




·
That following approval of the Plan of Dissolution, the Board may authorize transactions thereafter with which the Shareholders may not agree;

       

47


       


· The risk that Shareholders may be required to repay some, or all, of the amounts distributed to them by the Company pursuant to the Plan of Dissolution if unknown or unanticipated claims arise against the Company during the winding up period;




· The risk that the directors of the Company may be held personally liable for the unpaid portion of any claims against the Company if they fail to comply with the statutory procedures for the dissolution of the Company, including the payment of claims against the Company;




· Potential changes in applicable laws (including tax laws) and regulations;




· The risk that the IRS could treat any liquidating distributions as an ordinary dividend and that Shareholders could receive less favorable tax treatment with respect to the distribution than is currently anticipated;




· The risk that the amounts available for distribution to Shareholders may be significantly less than the Company’s estimates due to the Companys operating performance before the closing of the Asset Sale or due to unknown or contingent liabilities or increases in the costs and expenses related to settling the Company’s and its subsidiaries’ liabilities and winding up their respective businesses;




· The fact that, if the Shareholders approve the Plan of Dissolution, they may not be permitted to transfer their shares of common stock after a date to be determined by the Board in its discretion, subject to applicable law;




· The risks related to the fact that the Company will not retain certain of its current officers and employees and that, if necessary, the Company may be unable to attract employees to conduct the winding up process;




· The interests of current and former directors and executive officers in the Asset Sale and the Dissolution, including the Company’s continuing indemnification obligations to certain directors and officers during the winding up period and the compensation that will be received by employees conducting the winding up process;




· That the Dissolution prevents the Company from entering into any future strategic business transaction that could enhance Shareholder value; and




· The other risks described under “Risk Factors.”


Timing and Effect of Dissolution and Business Activities During Dissolution

The Board approved the Plan of Dissolution on August 16, 2019. The Dissolution is conditioned on obtaining approval of the Plan of Dissolution from the holders of a majority of the outstanding shares of our common stock entitled to be cast at the annual meeting.
If the Dissolution is approved but (i) the Asset Sale is not authorized by the Shareholders or (ii) the Asset Sale is not consummated, then the Board of Directors does not expect to proceed with the Dissolution. In that event, the Board of Directors, in discharging its fiduciary obligations to the Shareholders, would evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to the Shareholders as the Asset Sale and the Dissolution together. This may include remaining an operating company, which may reduce amounts available to Shareholders in the event of a later dissolution. 
If the Shareholders do not approve the Plan of Dissolution, the Company will still complete the Asset Sale if it is authorized by the Shareholders and the other conditions to closing of the Asset Sale are satisfied or waived. In that case, the Company will have transferred all of its operating assets to Buyer and have no operations to generate revenue. The Board of Directors would likely continue to ask the Shareholders to approve the Plan of Dissolution, in a separate special meeting of Shareholders called for that purpose. In any event, with no assets with which to generate revenues and no Plan of Dissolution approved, the Company would use the cash received from the Asset Sale, as well as other cash, to pay off indebtedness, and pay ongoing operating expenses. The Company would have no material business or operations after the Asset Sale and will have retained only those employees required to maintain its corporate existence, satisfy any public company reporting obligations and wind down the Company. The Board of Directors would evaluate its alternatives under Florida law.
Assuming closing of the Asset Sale and approval by our Shareholders of the Dissolution proposal, we expect that the Plan of Dissolution would begin with the filing of our Articles of Dissolution with the Secretary of State of the State of Florida and end with the final liquidating distribution to Shareholders.
For additional information regarding the potential impact of the Dissolution, see Proposal No. 2 - Asset Sale - 'Effects of the Transaction.'
48



Appraisal Rights
Under Florida law, holder of shares of Company common stock are not entitled to appraisal rights in connection with the Plan of Dissolution.
Certain U.S. Federal Income Tax Considerations
The following is a general summary of certain U.S. federal income tax consequences of the Dissolution to our Shareholders. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code, judicial decisions and administrative rulings as of the date of this proxy statement, all of which are subject to change or differing interpretations, including changes and interpretations with retroactive effect.
This summary does not address any state, local or foreign tax consequences that may be relevant to particular Shareholders in light of their individual circumstances or to Shareholders who are subject to special rules.  This discussion also does not address the U.S. federal income tax consequences of our Shareholders who do not hold our stock as a capital asset.  This summary is for general information only, is not tax advice, and may not address all the considerations that may be significant to you.
The Company intends that the Plan of Dissolution constitute a plan of “complete liquidation,” and that distributions made pursuant to the Plan of Dissolution constitute distributions made in “complete liquidation” of the Company. The approval of the Plan of Dissolution, however, does not ensure any distributions we make will be treated as distributions in “complete liquidation” by the Internal Revenue Service (“IRS”).
We have not requested a ruling from the IRS with respect to the anticipated tax consequences of the Dissolution. If any of the anticipated tax consequences described in this proxy statement proves to be incorrect, the result could be increased taxation at the corporate and/or Shareholder level, thus reducing the benefit to Shareholders and us from the Dissolution and distributions. Tax considerations applicable to particular Shareholders may vary with and be contingent upon the Shareholder’s individual circumstances.
As a result of the Dissolution, for U.S. federal income tax purposes, Shareholders will recognize gain or loss equal to the difference between (a) the sum of the amount of cash distributed to them and the aggregate fair market value of any property (other than cash) distributed to them, and (b) their tax basis for their shares of Company common stock. A Shareholder’s tax basis in shares of Company common stock will depend upon various factors, including the Shareholder’s cost and the amount and nature of any distributions received with respect thereto. Any loss generally will be recognized only when the final distribution from the Company has been received, which may be years after our dissolution, and if the Shareholder is still the owner of the shares of Company common stock.
Shareholders may not be able to recognize a loss for federal income tax purposes until they receive a final distribution from us, which is not expected to occur until 2020 at the earliest and could be years from now.
Even if our Shareholders approve the Asset Sale and the Plan of Dissolution, the IRS may not treat the distributions to our Shareholders as distributions in complete liquidation. The tax treatment of any liquidating distributions may vary from Shareholder to Shareholder. You are urged to consult your own tax advisor and should not rely on the discussions of tax treatment in this proxy statement for tax advice.
Surrender of Stock Certificates

Subsequent to the Final Record Date, the Company may at its election require Shareholders to surrender certificates representing their shares of common stock in order to receive subsequent distributions. Shareholders should not forward their stock certificates before receiving instructions to do so. If surrender of stock certificates is required, all distributions otherwise payable by the Company to Shareholders who have not surrendered their stock certificates may be held in trust for such Shareholders, without interest, until the surrender of their certificates (subject to escheat pursuant to the laws relating to unclaimed property). If a Shareholder's certificate evidencing the common stock has been lost, stolen or destroyed, the Shareholder may be required to furnish us with satisfactory evidence of the loss, theft or destruction thereof, together with a surety bond or other indemnity, as a condition to the receipt of any distribution. 

49



At the Meeting, the Shareholders will be asked to vote upon a proposal to approve an amendment to the Company’s Amended and Restated Articles of Incorporation to change the Company’s corporate name to Recycling Asset Holdings, Inc. (the “Name Change”), if the Shareholders also approve the Asset Sale. The reason for the Name Change is that the Company’s corporate name is one of the assets being sold to the Buyer pursuant to the Asset Sale.

The Name Change is conditional and will be effective only upon the closing of the Asset Sale. If the Asset Sale does not occur, an amendment to the Company’s Amended and Restated Articles of Incorporation to effect the Name Change will not be filed with the Florida Secretary of State and the Company’s name will not change.

If the Name Change is approved by the Shareholders and if the Asset Sale is consummated, the Article I of the Company’s Amended and Restated Articles of Incorporation will be amended to read as follows:

“The name of the Corporation is: Recycling Asset Holdings, Inc.

The Name Change will become effective upon filing a Certificate of Amendment to the Company’s Amended and Restated Articles of Incorporation, which filing will be made on the closing date of the Asset Sale, or such other date agreed by the Company and the Buyer.

We will submit notification to NASDAQ regarding the Name Change in advance of the closing, pursuant to its requirements.

Following implementation of the Name Change, Shareholders should continue to hold their existing stock certificates representing common stock. Shareholders will not be required to tender their old stock certificates in exchange for new certificates with the new name. Shareholders should not destroy any stock certificates and should not deliver any stock certificates to the transfer agent.

Approval of the amendment to the Company’s Amended and Restated Articles of Incorporation to effect the Name Change requires the number of votes cast at the annual meeting in favor of such proposal to exceed the number of votes cast opposing such proposal.

The Board recommends a vote “FOR” the Name Change Proposal.


50


 

Severance Payments Triggered by the Asset Sale
On March 26, 2018, the Company entered into an Amended & Restated Employment Agreement (the “Employment Agreement”) with Todd L. Phillips, Chief Executive Officer, President and Chief Financial Officer, in each case effective as of January 1, 2018. Under the Employment Agreement, in the event of the termination of Mr. Phillips by the Company (including by non-renewal) without Cause (as defined in the Employment Agreement), Mr. Phillips will receive continued payment of his Base Salary and COBRA Premiums (as defined in the Employment Agreement) for twelve (12) months following such termination, each on the Company’s regular payroll schedule (the “Severance Payments”). In its discretion, the Board may determine to accelerate the Severance Payments into a lump sum payment. Pursuant to the Employment Agreement, payment of the Severance Payments to Mr. Phillips is expressly conditioned on Mr. Phillips’ execution and nonrevocation of a Release (as defined in the Employment Agreement) of the Company and its Affiliates (as defined in the Employment Agreement) in a form satisfactory to the Company.  
Upon approval of the Asset Sale proposal by the Shareholders, the Company anticipates providing Mr. Phillips with written notice of its intent to terminate the Employment Agreement upon consummation of the Asset Sale, with such termination triggering Severance Payments only once. 
On March 28, 2018 and March 15, 2019, the Company granted 40.6 thousand restricted stock units (“RSUs”) and 78.7 thousand RSUs, respectively, to Mr. Phillips under the Long Term Incentive Plan adopted in 2009 ("LTIP") pursuant to certain Restricted Stock Unit Grant Agreements (“RSU Agreements”). The grant date fair value of each RSU is based on the Company's closing common stock price as of the grant date. For book accounting purposes, the grant date fair value of RSUs granted on each of the two noted dates was $100.0 thousand and was recognized an as expense beginning in the quarter after grant and continuing over the 36-month vesting period. Each RSU represents the right to receive one share of the Company's common stock upon the vesting of the RSU, subject to the terms and conditions set forth in the RSU Agreements and the LTIP. Pursuant to the RSU Agreements, in the event a Change of Control (as defined in the RSU Agreements) occurs both before completion of the Service Period (as defined in the RSU Agreements) and before a Termination of Service (as defined in the RSU Agreements), the number of RSUs subject to the Award(s) (as defined in the RSU Agreements) that have not yet vested shall vest and become nonforfeitable on the date of the Change of Control.
On March 28, 2018 and March 15, 2019, the Company awarded options to purchase 31.0 thousand shares and 62.1 thousand shares (the “Options”), respectively, of the Company's common stock to Mr. Phillips. The Options are scheduled to vest over a three-year period, with 1/3 vesting on the first anniversary of the grant date and 1/3 every twelve months thereafter until the three-year anniversary of the grant date. The exercise price per share of the options granted on March 28, 2018 is $2.46, the fair value of the underlying common stock as of the grant date, with those options expiring March 26, 2023. The exercise price per share of the options granted on March 15, 2019 is $1.27, the fair value of the underlying common stock as of the grant date, with those options expiring March 15, 2024. Pursuant to the Non-Incentive Stock Option Agreements (“Option Agreements”) governing the foregoing option awards, upon the occurrence of a Change in Control (as defined in the Stock Option Agreements), the options shall become fully exercisable and will expire if not exercised by the date set by the Company.
The consummation of the Asset Sale will constitute a Change of Control under the RSU Agreements and a Change in Control under the Option Agreements (with the accelerated vesting of the RSUs and the Options triggered only once).
By virtue of his status as interim Chief Executive Officer of the Company during a part of 2018, Mr. Oliver is deemed a Named Executive Officer. Mr. Oliver did not receive any compensation in connection with his service as our interim Chief Executive Officer. Mr. Oliver will not receive severance payments or any other compensation in connection with the Asset Sale.


51



The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K promulgated by the SEC, which requires disclosures of information about certain compensation for the Company’s Named Executive Officers that is based on or otherwise relates to a Change of Control. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described below, and do not reflect certain compensation actions that may occur before a Change of Control. For purposes of calculating the amounts set forth below, we have assumed that a Change of Control occurred on December 31, 2018.






























Name


Cash ($)(1)


Equity

($)(2)


Pension

NQDC
($)


Perquisites Benefits
($)(3)


Tax

Reimbursement
($)


Other 
($)


Total

($)(4)

Todd L. Phillips


300,000

  


133,712





$ 17,571






451,283



  















 

  

 

Orson Oliver


 



$

 



 



$






 


 

(1)
The cash payment reflected in this column is severance pay under the terms of Mr. Phillips’ Employment Agreement based on his salary of $300,000.



(2)
Equity amounts include 119,386 RSUs valued at $1.12 per share, the closing price per share as of December 31, 2018. The Options are not reflected in this table as they are not considered in-the-money based on the closing price per share of $1.12 as of December 31, 2018 and the strike prices per share of $2.46 and $1.27, respectively.



(3)
Benefits include projected COBRA Premiums for twelve (12) months based on current benefit elections and the Company's current COBRA costs. 



(4)
Includes all amounts described in footnotes (1) through (3) above.


Advisory Vote on Specified Compensation

In accordance with Section 14A of the Exchange Act, the Company is providing Shareholders with the opportunity to cast a non-binding, advisory vote on the compensation that will or may become payable to Mr. Phillips that is based on or otherwise relates to the Asset Sale, the value of which is described in “Severance Payments Triggered by the Asset Sale” table included above. As required by Section 14A of the Exchange Act, the Company is asking Shareholders to vote on the adoption of the following resolution:
“RESOLVED, that the Shareholders approve, on an advisory (non-binding) basis, the agreements or understandings with and items of severance compensation payable to the Named Executive Officers that are based on or otherwise relate to the Asset Sale, as disclosed in the section of the proxy statement entitled “Severance Payments Triggered by the Asset Sale.”
The vote on executive compensation payable in connection with the Asset Sale is a vote separate and apart from the vote on the proposal to approve the Asset Sale. Accordingly, you may vote to approve such executive compensation and vote not to approve the Asset Sale and vice versa. Because the vote to approve the executive compensation is advisory in nature only, it will not be binding on the Company. Because the Company is contractually obligated to pay such executive compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the proposal to approve the Asset Sale is approved and regardless of the outcome of the advisory vote.
Vote Required and Board Recommendation
Approval of the advisory resolution on executive compensation that will or may become payable to the Named Executive Officers in connection with the Asset Sale requires that the number of votes cast at the Annual Meeting of the Shareholders in favor of such proposal exceeds the number of votes cast opposing such proposal. Abstentions and broker non-votes will have no effect on the outcome of the proposal.
The Board recommends that you vote “FOR” the Severance Payments Proposal.


52


 

The Audit Committee has selected MCM CPAs & Advisors LLP as the independent registered public accountants of our accounts for the fiscal year ending December 31, 2019. This selection will be presented to Shareholders for ratification at the annual meeting. If the Shareholders fail to ratify this selection, the Audit Committee will reconsider the matter of the selection of the independent registered public accountants. One or more representatives of MCM CPAs & Advisors LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so, and will be available to answer appropriate questions. We will deem the selection of MCM CPAs & Advisors LLP ratified if the votes cast in favor of the proposal exceed the votes cast against the proposal. We will not count abstentions and broker non-votes as votes cast either for or against the proposal, so they will have no effect on the outcome of the proposal.

 

The Board will present the following resolution to the meeting:

       

“RESOLVED, that the selection by the Audit Committee of the Board of Directors of MCM CPAs & Advisors LLP as the independent registered public accounting firm to audit the books of account and other corporate records of the Company for 2019 is ratified.”


The Board recommends a vote “FOR” the ratification of the independent registered public accounting firm MCM CPAs & Advisors LLP.

53



The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires us to give our Shareholders an opportunity to vote, on an advisory (non-binding) basis, regarding the compensation of our Named Executive Officers as disclosed in this proxy statement in accordance with SEC rules. This proposal, commonly known as a “say-on-pay” proposal, gives our Shareholders the opportunity to express their views on the compensation of our Named Executive Officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation philosophy, policies and practices described in this proxy statement.

       

As discussed in this proxy statement, the objectives of our executive compensation program are:


·
To recruit, retain and motivate highly qualified executives for the Company;




·
To differentiate compensation based on individual responsibilities and performance;




·
To align the interests of the Company's executive officers with the Company's Shareholders in long-term Shareholder value creation; and




· Avoid unnecessary or excessive risk taking that could harm the long-term value of the Company

We encourage you to carefully review the Executive Compensation Discussion and Analysis, tabular compensation disclosures and related narrative disclosures of this proxy statement. The Board of Directors believes that the Company's compensation policies and procedures are centered on a pay-for-performance culture and are strongly aligned with the long-term interests of Shareholders. In accordance with Section 14A of the Securities Exchange Act, Shareholders may vote to approve or not approve the resolution below on the compensation of the Company's Named Executive Officers: 

       

"RESOLVED, that the Shareholders approve the compensation of the Company's Named Executive Officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables and the related disclosure set forth under the caption Executive Compensation Discussion and Analysis of the proxy statement for the 2019 annual meeting of Shareholders, pursuant to Regulation S-K Item 402(m) through (q)."

       

Although the vote is advisory in nature and therefore not binding on the Company, the Board and the Compensation Committee will review the voting results. The Board and the Compensation Committee will consider the compensation paid to the Company's executive officers approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. We will not count abstentions or broker non-votes as votes cast either for or against the proposal, so they will have no effect on the outcome. If there are a significant number of negative votes, the Compensation Committee will seek to understand and consider the concerns that influenced the vote in making future decisions about executive compensation programs.

       

The Board recommends that you vote "FOR" the Say-on-Pay proposal.

       

54


 PROPOSAL NO. 8 - SAY-ON-FREQUENCY


As required by Section 14A of the Securities Exchange Act, Shareholders may vote on the resolution below regarding how often the Company will conduct a Shareholder advisory vote to approve executive compensation. You may vote on whether you prefer an advisory vote every one, two, or three years, or you may abstain from voting.

"RESOLVED, that the Company should include an advisory vote on approval of the compensation of the Company's Named Executive Officers, as required by Section 14A of the Securities Exchange Act, at the interval selected."

The Board recommends that you vote to hold an advisory vote to approve executive compensation every one year. As described in the Compensation Discussion and Analysis, a fundamental objective of the Company's executive compensation is to align the interests of the Company's executives with its Shareholders in long-term Shareholder value creation.

Although this vote is advisory in nature and therefore not binding on the Company, the Board and the Compensation Committee will consider the results of the vote in determining the frequency with which advisory votes on executive compensation will be conducted. The Board and the Compensation Committee will consider the frequency choice receiving the plurality of the votes cast as the Shareholders' selection of the frequency of advisory votes on executive compensation.

The Board recommends a vote "FOR" voting "EVERY ONE YEAR" on the advisory of frequency of the advisory approval of executive compensation.

55


PROPOSAL NO. 9 - ADJOURNMENT

If at the annual meeting of Shareholders, the Board determines it is necessary or appropriate to adjourn the annual meeting, we intend to move to vote on the Adjournment proposal. For example, the Board may make such a determination if the number of shares of Company’s common stock represented and voting in favor of the Asset Sale proposal at the annual meeting is insufficient to adopt the Asset Sale proposal, or if the number of shares of Company’s common stock represented and voting in favor of the Dissolution proposal at the annual meeting is insufficient to adopt the Dissolution proposal. If the Board determines that it is necessary or appropriate, we will ask our Shareholders to vote only upon (i) the Adjournment proposal and not the other proposals, or (ii) for example, the Asset Sale proposal, the Severance Payments proposal and the Adjournment proposal but not the Dissolution proposal if the number of shares of Company’s common stock represented and voting in favor of the Asset Sale proposal is sufficient to adopt the Asset Sale proposal but the number of shares of Company’s common stock represented and voting in favor of the Dissolution proposal is insufficient to adopt the Dissolution proposal.

In this proposal, we are asking you to authorize the holder of any proxy solicited by the Board to vote in favor of the Adjournment proposal. If the Shareholders approve the Adjournment proposal, we could adjourn the annual meeting and any adjourned session of the annual meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Shareholders that have previously voted against the Asset Sale proposal or the Dissolution proposal. Among other things, approval of the Adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against the Asset Sale proposal or the Dissolution proposal to defeat the respective proposals, we could adjourn the annual meeting without a vote on the Asset Sale proposal and the Dissolution proposal and seek to convince the holders of those shares to change their votes to votes in favor of the Asset Sale proposal and the Dissolution proposal. Additionally, we may seek to adjourn the annual meeting if a quorum is not present or otherwise at the discretion of the chairman of the annual meeting.

Vote Required and Board Recommendation

The Adjournment proposal will be approved if a majority of the shares of the Company’s common stock, present in person or represented by proxy and entitled to vote on the subject matter, vote in favor of the proposal, whether or not a quorum is present.

The Board recommends that you vote “FOR” the Adjournment proposal.

56


VOTING SECURITIES

 

Only Shareholders of record at the close of business on October [●], 2019 are entitled to vote at the annual meeting or any adjournments thereof. As of the record date, there were 8,160,777 shares of our common stock outstanding and entitled to vote. Each share of common stock entitles the holder to one vote on all matters presented at the annual meeting.

 

The following table sets forth information regarding beneficial ownership of our common stock as of October [●], 2019 for (i) each of our Named Executive Officers (as defined herein) and directors, (ii) each person known to management to own of record or beneficially more than five percent of our outstanding shares, and (iii) all of our executive officers and directors as a group.

 

 

 

 

 

 

 

 

 

Name and Address

 

Amount and Nature of Beneficial Ownership (1)(2)(3)

 

 

 

Percentage of Class (1)(3)

 

 

 

 

 

 

 

 

 

 

 

Directors and Officers:

 

 

 

 

 

 

 

 

Orson Oliver

7100 Grade Lane

Louisville, KY 40213

 

1,882,683

 

(4)

 

23.07%

 

(4)

 

 

 

 

 

 

 

 

 

Todd L. Phillips

 

96,076

 

(5)

 

1.18%

 

(5)

 

 

 

 

 

 

 

 

 

Albert Cozzi

 

136,980

 


 

1.68%

 


 

 

 

 

 

 

 

 

 

William Yarmuth

 

17,181

 


 

*

 


 

 

 

 

 

 

 

 

 

Vince Tyra

 

13,228

 


 

*

 


 

 

 

 

 

 

 

 

 

All directors and executive officers as a group

 

2,146,148

 

(6)

 

26.27%

 

(6)

 

 

 

 

 

 

 

 

 

* denotes less than 1% ownership

 

 

 

 

 

 

 

 

 

57


 

Name and Address

 

Amount and Nature of Beneficial Ownership (1)(2)(3)

 

 

 

Percentage of Class (1)(3)

 

 

 

 

 

 

 

 

 

 

 

Other Beneficial Ownership over 5%:

 

 

 

 

 

 

 

 

Recycling Capital Partners, LLC 

295 S. Commerce Drive

Waterloo, IN 46793

 

857,143

 

(7)

 

10.50%

 

(7)

 

 

 

 

 

 

 

 

 

Daniel M. Rifkin 

295 S. Commerce Drive

Waterloo, IN 46793

 

857,143

 

(7)

 

10.50%

 

(7)

 

 

 

 

 

 

 

 

 

Harry Kletter Family Ltd Ptnsp 

7100 Grade Lane

Louisville, KY 40213

 

750,000

 

(8)

 

9.19%

 

(8)

 

 

 

 

 

 

 

 

 

K&R, LLC 

7100 Grade Lane

Louisville, KY 40213

 

549,168

 

(8)

 

6.73%

 

(8)

 

 

 

 

 

 

 

 

 

Kletter Family Trust 

7100 Grade Lane

Louisville, KY 40213

 

517,788

 

(8)

 

6.34%

 

(8)

 

 

 

 

 

 

 

 

 

David Russell

P.O. Box 280481 

Northridge, CA 91328

 

795,197

 

(9)

 

9.74%

 

(9)

 

 

 

 

 

 

 

 

 

* denotes less than 1% ownership

 

 

 

 

 

 

 

 

 

58


 

 

 

(1)

The table reflects share ownership and the percentage of such share ownership as of October [●], 2019. We have determined the percentages on the basis of 8,160,777 shares of our common stock issued and outstanding and exclusive of 30,690 shares of common stock held as Treasury stock.

 

 

(2)

Except as otherwise indicated, each person or entity shown has sole voting and investment power with respect to the shares of common stock beneficially owned by him, her or it.

 

 

(3)

Based upon information furnished to the Company by the named persons, information contained in filings with the SEC, and information in our Shareholder records. Under the rules of the SEC, a person is deemed to beneficially own shares over which the person has or shares voting or investment power or has the right to acquire beneficial ownership within 60 days, and such shares are deemed to be outstanding for the purpose of computing the percentage beneficially owned by such person or group. However, we do not consider shares of which beneficial ownership can be acquired within 60 days to be outstanding when we calculate the percentage ownership of any other person.

 

 

(4)

Includes 20,025 shares held in trusts for Mr. Oliver's daughter and minor grandchildren for which Mr. Oliver is the trustee. Also includes 517,788 shares held by Kletter Family Trust of which Mr. Oliver has voting authority, 750,000 shares owned by The Harry Kletter Family Limited Partnership of which Mr. Oliver is general partner and 549,168 shares owned by K&R, LLC which is controlled by Mr. Oliver, of which all shares are pledged as security for commercial bank loans.

 

 

(5)

Includes options to purchase 10,347 shares exercisable within 60 days of October [●], 2019.

 

 

(6)

Includes the options and restricted stock units described in note 5 above with respect to 10,347 shares.

 

 

(7)

Based on information set forth on Schedule 13D/A filed with the SEC on October 14, 2014. As sole manager of Recycling Capital Partners, LLC, Daniel M. Rifkin shares voting and dispositive power over these shares. 

 

 

(8)

Included in shares beneficially owned by Orson Oliver as described in footnote 4 above.

 

 

(9)

Based on information obtained via email confirmation on September 18, 2019 from David Russell. Includes the following beneficially owned shares of our common stock: 96,802 shares held in a trust, 102,588 shares held in custodial accounts for Dr. Russell's minor children and 179,740 shares held in various retirement plans for Dr. Russell's benefit.

 

On June 13, 2014, in connection with a Securities Purchase Agreement, the Company and Recycling Capital Partners, LLC (the “Investor”) entered into a Director Designation Agreement (the "Director Designation Agreement") pursuant to which the Investor has the right to designate, and require the Company's Board to appoint, up to two directors (each, a "Designated Director"). As of the date of this proxy statement, the Investor had the right, which has not been exercised, to designate one director. A Designated Director will hold office until (i) his or her term expires and such Designated Director's successor designated by the Investor has been appointed or (ii) such Designated Director's earlier death, disability, disqualification, resignation or removal, and the Investor has the right to appoint any successor to such Designated Director. The Investor's designation rights terminate at such time that the Investor and its affiliates collectively hold less than 5% of the Company's outstanding common stock. Pursuant to the Director Designation Agreement, the Company and the Investor agreed that the designation and appointment of the Designated Director nominees will not violate applicable law and will not cause the Company to become delisted from any securities exchange or other trading market.

 

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INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON


Other than as set forth herein, the Company is not aware of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, of any director, executive officer or any associate or affiliate of any of the foregoing in any matter, to be acted upon at the Meeting.

Orson Oliver is the beneficial owner of 20,025 shares held in trusts for Mr. Oliver's daughter and minor grandchildren for which Mr. Oliver is the trustee, 517,788 shares held by the Kletter Family Trust (the Trust) of which Mr. Oliver is trustee, 750,000 shares owned by The Harry Kletter Family Limited Partnership (the Partnership) of which Mr. Oliver is general partner, and 549,168 shares owned by K&R, LLC (K&R) which is controlled by Mr. Oliver, of which all shares are pledged as security for commercial bank loans. K&R and 7100 Grade Lane, LLC, (7100 LLC”) an entity related to the Trust, the Partnership and K&R, will receive an early payoff of amounts due from the Company under certain notes as a result of the Asset Sale, as more fully described in “Certain Relationships and Related Transactions.

Under the All Net Lease (the "Lease") dated as of October 1, 2017, the Company leases a portion of its Louisville, Kentucky facility from 7100 LLC, an entity controlled by Kletter Holding LLC, of which Mr. Oliver is the sole manager. The Company is aware of ongoing negotiations between Buyer and 7100 LLC regarding the possible sale of property leased by the Company; the Company is not a party to the negotiations. These negotiations began following the public announcement of the execution of the Asset Purchase Agreement. The Company has a right of first refusal under the Lease for any real estate sale transaction. Assuming the Company does not exercise its right of first refusal and the real estate is sold to Buyer, the Company would not receive any proceeds from such sale or otherwise have an interest in the transaction.

Todd L. Phillips, our Chief Executive Officer, President and Chief Financial Officer, will receive certain severance payments and accelerated vesting of certain equity grants as a result of the Asset Sale. Pursuant to his employment agreement with the Company, Mr. Phillips would be entitled to certain severance payments if terminated following the consummation of the Asset Sale. These potential severance payments are described in more detail in the section entitled “Severance Payments Triggered by the Asset Sale” beginning on page 51 of this proxy statement.

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