Item 2.01 Completion of Acquisition or Disposition of Assets
On December 16, 2019 (the "Closing Date"), Industrial Services of America, Inc.
(the "Company") completed its previously announced asset sale (the
"Transaction") pursuant to the Asset Purchase Agreement (the "Purchase
Agreement") dated as of August 16, 2019, by and between the Company and its
subsidiaries, and River Metals Recycling LLC ("River Metals") and its parent
company, The David J. Joseph Company. The sale of the assets was made pursuant
to the Purchase Agreement which was previously reported on the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC")
on August 19, 2019 (the "Prior 8-K"), and which was described in the Company's
definitive proxy statement first mailed to security holders on October 21,
2019.
Pursuant to the Purchase Agreement, River Metals has acquired substantially all
of the assets of the Company and its wholly-owned subsidiaries and assumed
certain liabilities of the Company and its wholly-owned subsidiaries.
As previously reported in the Prior 8-K, the Purchase Agreement provided for a
base purchase price for the assets of $23.3 million in cash, which price was
subject to increase or decrease based on a working capital adjustment, based on
a target working capital amount of $8.4 million at the closing. For purposes of
the closing, the working capital was estimated to be approximately $5,291,843,
resulting in a negative purchase price adjustment of $3,108,157 for the working
capital underage. Within 45 days after the Closing Date (plus certain objection
and resolution periods), a final net working capital will be determined. The
final working capital adjustment is supported by a working capital escrow of
$600,000 in cash, which was funded out of the base purchase price on the Closing
Date. If the final net working capital is greater than the estimated working
capital as of closing, River Metals will pay the Company such excess amount and
the working capital escrow amount shall be released to the Company in its
entirety. If the final net working capital is less than the estimated working
capital, then the shortfall amount shall be paid to River Metals by the escrow
agent from the working capital escrow amount. If such shortfall is greater than
the working capital escrow amount, then the Company shall pay to River Metals in
cash the amount by which such shortfall amount exceeds the working capital
escrow amount.
In addition, $100,000 of the purchase price will be held in escrow to satisfy
potential liabilities of the Company relating to the Chemetco Superfund Site in
Hartford, Illinois. The purchase price was also subject to a deduction of
approximately $70,000 for a proration of taxes and fees. The Company had
additional closing costs of approximately $1.3 million.
In connection with the consummation of the Transaction, on the Closing Date upon
the Company's payment of approximately $5,600,000, all amounts outstanding under
the Loan and Security Agreement dated as of November 9, 2018, between the
Company and Bank of America, N.A., were repaid in full. In addition, on the
Closing Date the Company repaid all amounts outstanding (approximately $1.0
million) under the term notes issued to K & R, LLC and 7100 Grade Lane, LLC.
The purchase price was also subject to a deduction of approximately $765,000
related to certain capital leases that were either assumed or paid off by River
Metals.
The foregoing description of the Purchase Agreement is qualified in its entirety
by reference to the full text of the Purchase Agreement, a copy of which is
attached hereto as Exhibit 2.1 (incorporated by reference to Exhibit 2.1 to the
Prior 8-K), and is incorporated by reference herein.
Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial
Obligation or an Obligation
Under an Off-Balance Sheet Arrangement
The information provided under Item 2.01 is incorporated by reference into this
Item 2.04.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers
On December 16, 2019 (the "Separation Date"), pursuant to the Agreement and
Release (the "Release") dated as of December 16, 2019, by and between the
Company and Todd Phillips, attached hereto as Exhibit 10.1 and incorporated
herein by reference, Mr. Phillips' full-time employment with the Company was
terminated by Company action without Cause (as defined in the Employment
Agreement by and between the Company and Mr. Phillips dated January 1, 2018 (the
"Employment Agreement")). Pursuant to the Release, the Company will provide Mr.
Phillips with severance pay in an amount equal to Mr. Phillips' base salary rate
in effect immediately before the Separation Date,i.e., $300,000, payable on the
first normal payroll date following the receipt of the fully executed Release,
so long as such date is on or after December 27, 2019. In addition, pursuant to
the Release, the Company will pay the COBRA Premium (as defined in the
Employment Agreement) during the 12-month period following the Separation Date.
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On December 16, 2019, pursuant to the Stock Option Cancellation Agreement dated
as of December 16, 2019, by and between the Company and Mr. Phillips, attached
hereto as Exhibit 10.2 and incorporated herein by reference, all of Mr.
Phillips' outstanding options to purchase shares of common stock of the Company
were cancelled for nominal consideration.
On December 16, 2019, the Company entered into an Independent Contractor
Agreement with Mr. Phillips, attached hereto as Exhibit 10.3 and incorporated
herein by reference, pursuant to which Mr. Phillips will perform management
services for the Company in the capacities of Chief Executive Officer, President
and Chief Financial Officer to assist with the dissolution and winding up of the
Company's business. In exchange for the performance of these services, the
Company will pay Mr. Phillips a fee of $75.00 per hour of actual services
provided and will reimburse Mr. Phillips for all reasonable out-of-pocket
business expenses incurred during the performance of Mr. Phillips' services.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing
The information provided under Item 2.01 is incorporated by reference into this
Item 3.01.
In connection with the consummation of the Transaction, the Company notified the
Nasdaq Stock Market (the "Nasdaq") on December 20, 2019 that the Company expects
to file a Form 25 with the SEC on December 30, 2019, to remove the Company's
common stock from listing on the Nasdaq and to deregister the Company's common
stock pursuant to Section 12(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Additionally, the Company intends to file with the SEC a Form 15 requesting the
termination of registration of the Company's common stock under Section 12(g) of
the Exchange Act and the suspension of the Company's reporting obligations under
Sections 13 and 15(d) of the Exchange Act.
Item 8.01 Other Events
On December 16, 2019, the Company issued a press release relating to the
Transaction. A copy of the press release is furnished as Exhibit 99.1 to this
Current Report on Form 8-K and incorporated into this item 8.01 by reference.
As previously announced, the Company intends to dissolve and to distribute a
portion of the proceeds from the Transaction to its shareholders. The initial
distribution amount, anticipated to occur within thirty days of the Closing
Date, will be determined by the Company's board of directors and will be subject
to the satisfaction of the liabilities of the Company and certain assumptions.
In determining the initial distribution amount, the Company's board of directors
will consider a number of factors, including estimates of post-closing
dissolution costs, payment of liabilities retained on the Closing Date, and
contingencies for unidentified liabilities and additional working capital
adjustments. Additional monies may be distributed over time based on cash
available, after reflecting any reserve for future contingent liabilities,
operating costs and any other uses of cash.
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Forward-Looking Statements
The statements in this Form 8-K that are not historical, including without
limitation statements regarding the Company's expectations, prospects, strategic
plans and statements regarding the Plan of Dissolution approved by its
shareholders on November 20, 2019 (the "Plan of Dissolution") or any other
future events, constitute "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact should be considered "forward-looking
statements" for these purposes. In some cases, forward-looking statements can be
identified by the use of such terminology as "may," "will," "expects," "plans,"
"anticipates," "intends," "believes," "estimates," "potential," or "continues,"
or the negative thereof or other similar words. Although the Company believes
that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct.
Examples of forward-looking statements include, but are not limited to, those
regarding the Transaction and the Plan of Dissolution, including the timing and
amount of any distributions to shareholders. Forward-looking statements are
subject to inherent risks and uncertainties, and actual results and developments
may be materially different from those expressed or implied by the
forward-looking statements. Important factors, some of which are outside the
Company's control, that could cause actual results to differ from those
expressed or implied by the forward-looking statements and affect the Company's
ability to make shareholder distributions include the amount the Company will be
required to pay to satisfy unknown or contingent liabilities in the future; the
cost of operating the business through the final liquidation; general business
and economic conditions; the possibility that the other anticipated benefits
from the sale of the business or the Plan of Dissolution will not be realized;
and other risks as set forth in the Company's filings from time to time with the
SEC.
Further information on risks the Company faces is contained in its filings with
the SEC, including its Form 10-K for the fiscal year ended December 31, 2018,
and the definitive proxy statement on Schedule 14A filed on October 21, 2019.
Any forward-looking statement made by the Company speaks only as of the date on
which it is made. Factors or events that could cause its actual results to
differ may emerge from time to time, and it is not possible to predict all of
them. The Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information, future
developments or otherwise, except as may be required by law.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit
Number Description
2.1 Asset Purchase Agreement dated as of August 16, 2019, by and among
River Metals Recycling LLC, The David J. Joseph Company, 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*
10.1 Agreement and Release dated as of December 16, 2019, by and between
Industrial Services of America, Inc. and Todd Phillips
10.2 Stock Option Cancellation Agreement dated as of December 16, 2019,
by and Industrial Services of America, Inc. and Todd Phillips
10.3 Independent Contractor Agreement dated as of December 16, 2019, by
and between Industrial Services of America, Inc. and Todd Phillips
99.1 Press release, dated as of December 16, 2019, issued by Industrial
Services of America, Inc.
*Incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on August 19, 2019.
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