ISA, Algar Inc. discontinue management agreement

According to recent Security and Exchange (SEC) filings, the scrap metal recycling company Industrial Services of America (ISA), headquartered in Louisville, Kentucky, has terminated a management services agreement it signed with Algar Inc., Louisville, Dec. 1, 2013. The agreement originally was to run through the end of 2016.

ISA opted to sign the management agreement with Algar, which specialized in new and used auto parts and automotive and metal recycling, when ISA’s board of directors had sought various strategic alternatives to survive challenging markets.

Under the agreement signed by the two companies, Algar provided ISA with day-to-day senior executive level operating management supervisory services. Pursuant to its rights under the agreement, ISA appointed Sean Garber, president of Algar, to serve as the company's president and to sit on ISA’s board of directors.

Recently, ISA says it created a special committee to look at the future of ISA as a stand-alone company. The committee determined that ISA would be more successful if it separated from Algar. Following the decision, the two companies came to a mutually agreed upon termination of the agreement, and ISA filed the agreement termination notice with the SEC.

Having separated from Algar, the now independent ISA is looking at strategic alternatives for the business. Several sources note that one possible alternative could be selling the company.

ISA says it is in a geographically favorable location. A number of large manufacturing operations, including auto manufacturers, are near the company’s operations. ISA operates four locations: two in Louisville and two in Indiana. The company also has an auto shredder in “warm idle” mode, meaning that if markets improve enough, the shredder can be restarted.

As part of the termination agreement, ISA will pay Algar about $21,000 on the termination effective date; an aggregate amount equal to $50,000, payable in three equal monthly installments on the last day of October, November and December 2016; and an amount equal to 10 percent of the decrease, if any, in reported “loss before income taxes” for the nine months ended Sept. 30, 2016, as reported on the condensed consolidated statements of operations in ISA’s quarterly report on Form 10-Q for the period ended Sept. 30, as filed with the SEC, over ISA’s reported “loss before income taxes” for the nine months ended Sept. 30, 2016, as reported in the 3Q 2016 Form 10-Q.

With the termination, Garber has resigned as president of ISA. Todd Phillips, formerly chief financial officer of ISA, will take over as the new president. Orson Oliver will continue to serve as the interim CEO and chairman of ISA’s board.