RELATED PARTY TRANSACTIONS

In 2013, the Company entered into various transactions with related parties including the Company’s founder and principal shareholder as of December 31, 2013 and former Chief Executive Officer ("former CEO"), Harry Kletter and an affiliated company, K&R, LCC ("K&R"), which is wholly-owned by Kletter Holding, LLC, the sole member of which was Mr. Kletter as of that date.

On November 1, 2013, Mr. Kletter purchased 125.0 thousand shares of the Company's Common Stock from an affiliate of Blue Equity, LLC ("Blue Equity") in lieu of the Company's redemption of the shares, as contemplated in a Management Services Agreement by and between the Company and Blue Equity entered into on April 1, 2013 (the "Blue Equity Management Agreement"). The purchase price was equal to $4.00 per share, or $500.0 thousand in the aggregate, which were equal to the proceeds received by the Company from the original sale of these securities to Blue Equity. The closing price per share of the Company's Common Stock on the NASDAQ Capital Market on October 31, 2013 was $2.31. The Blue Equity Management Agreement was terminated effective July 31, 2013. As of December 31, 2013, Mr. Kletter beneficially owned approximately 1.8 million shares, or 25.9%, of the Company's issued and outstanding common stock.

In January 2014, the Company announced Mr. Kletter's passing. In addition to serving as the Company's Chairman of the Board and interim CEO, Orson Oliver is also the executor of Mr. Kletter's trust and had previously received an Irrevocable Proxy from each of Mr. Kletter, K & R and the Harry Kletter Family Limited Partnership (collectively, “Kletter”), which provided Mr. Oliver and Sean Garber joint voting authority over the shares owned by Kletter (see Note 2 - "Management Services Agreement with Algar, Inc."). Mr. Oliver is in an advisory position in connection to K&R transactions with the Company.

Except as noted below, all agreements between the Company and K&R are expected to remain in effect according to the terms of each agreement.

A summary of the K&R transactions, in thousands, as of December 31, 2013 is as follows:



	2013		2012		2011
Balance sheet accounts:
Accounts receivable	$	13.4	$	—	$	—

Notes receivable	$	—	$	—	$	45.4

Deposits (included in other long-term assets)	$	42.1	$	62.1	$	62.1

Accrued rent	$	30.0	$	—	$	—

Income statement activity:
Rent expense (property)	$	646.0	$	582.0	$	582.0

Lease expense (equipment)	$	126.0	$	126.0	$	101.0

Consulting fees	$	140.0	$	240.0	$	480.0

In 2012, the Company leased its corporate offices, processing property and buildings in Louisville, Kentucky for $48.5 thousand per month from K&R pursuant to the K&R lease. Deposits include one month of the original lease agreement’s rent in advance in the amount of $42.1 thousand. Effective January 1, 2013, the lease amount increased to $53.8 thousand per month based on the CPI index as stated in the lease agreement. As of December 31, 2013, we recorded an accrual of $30.0 thousand for rent expense owed to K&R.

In 2004, we paid for repairs totaling $302.2 thousand that we made to the buildings and property that we lease from K&R, located at 7100 Grade Lane, Louisville, Kentucky. K&R executed an unsecured promissory note, dated March 25, 2005, but effective December 31, 2004, to us for the principal sum of $302.2 thousand. The term of the note was ninety-six (96) months with an interest rate of 5.5%. After paying principal only payments of $3.1 thousand for twelve (12) months in 2005, the monthly installments increased to principal and interest payments of $3.9 thousand with the final installment paid in December of 2012.

In an addendum to the K&R lease as of January 1, 2006, the rent was increased $4.0 thousand as a result of the improvements made to the property in 2004. For the years 2012 and 2011, the payments to K&R by the Company of $4.0 thousand for additional rent and the payment from K&R to the Company of $3.9 thousand for the promissory note were offset. As of December 31, 2012, this note was paid in full.

Effective January 1, 2012, the Company and K&R entered into an agreement (the “Second Amendment”) which amends an April 1, 2010 amendment (the “Amendment") to a consulting agreement which the parties had entered into effective January 2, 1998 (the “Prior Agreement”). Under the Prior Agreement, the Company engaged K&R as a consultant and retained the services of K&R management personnel to perform planning and consulting services with respect to the Company’s businesses, including the preparation of business plans, pro forma budgets, and assistance with general operational issues. The Prior Agreement provided for a term of ten years, with an automatic renewal for additional terms of one year on January 1 of each successive calendar year unless either party provides the other party with written notice of its intent not to renew at least six months prior to the expiration of the then existing term. The Amendment increased the consulting fees from $240.0 thousand per annum to $480.0 thousand per annum. The Second Amendment reduced the consulting fees from $480.0 thousand per annum to $240.0 thousand per annum. The annual fee was payable in equal monthly installments of $20.0 thousand. The Second Amendment otherwise ratified the Prior Agreement in all respects. Deposits previously included one month of the original agreement’s consulting services in advance in the amount of $20.0 thousand. This deposit was used to offset a portion of the rent expense owed to K&R in December. Mr. Kletter was compensated through these consulting fees. As of December 31, 2012, we extended this consulting agreement for one year according to the terms of the contract. In connection with Mr. Kletter's retirement from his positions of CEO and Director and the termination of the Blue Equity Management Agreement, the Prior Agreement and amendments thereof were terminated effective July 31, 2013.

Effective December 1, 2010, the Company and K&R entered into a lease agreement under which the Company leases equipment from K&R for a monthly payment of $5.5 thousand for five years.

Effective June 1, 2011, the Company and K&R entered into a lease agreement under which the Company leases equipment from K&R for a monthly payment of $5.0 thousand for five years.

See also Note 5 - "Lease Commitment."

On September 13, 2013, K & R made a $500.0 thousand refundable, non-interest bearing deposit with the Company related to K & R's potential purchase of a piece of the Company's real property located at 1565 East 4th Street in Seymour, Indiana. The parties continue to negotiate the terms of the potential transaction. The Company was permitted and has used the deposited funds for general corporate purposes. If the parties are unable to agree to the terms of a transaction, the Company is obligated to refund the deposit to K & R. For the period ended December 31, 2013, this deposit is recorded as a current liability entitled "Deposit from related party" for $500.0 thousand.

Other related-party transactions are as follows:

Board of Directors' fees and consulting fees:

As of December 31, 2013, we had outstanding Board of Directors' fees of $71.0 thousand. We paid financial consulting fees of $95.0 thousand and $70.0 thousand during 2013 and 2012, respectively, to two of our directors.

Termination and Consulting Agreement with Brian Donaghy:

On June 11, 2013, Brian G. Donaghy notified the Company that, effective immediately, he was resigning from his position as the Company's President and Chief Operating Officer and all other positions he held with the Company, including principal executive officer.

On June 17, 2013, the Company and Mr. Donaghy entered into a Termination and Consulting Agreement (the “Consulting Agreement”) pursuant to which Mr. Donaghy provided consulting services to the Company with respect to the scrap metals industry with compensation at a monthly rate of $12.5 thousand. The Consulting Agreement terminated Mr. Donaghy's Amended and Restated Employment Agreement with the Company dated as of April 1, 2010. During the consulting period, the Company paid premiums for Mr. Donaghy's COBRA coverage to the extent of the amount of coverage premiums paid by the Company immediately before Mr. Donaghy's termination of employment. The Consulting Agreement was terminated effective December 16, 2013.

In connection with the Consulting Agreement, Mr. Donaghy granted the Company a full release of its obligations under his Amended and Restated Employment Agreement. The Company granted Mr. Donaghy a release of his non-competition obligations under that agreement, but the Consulting Agreement provides that Mr. Donaghy may not solicit Company employees to leave the Company during the consulting period and for two years thereafter and may not be employed by certain industry competitors during the consulting period.

Retirement of and Consulting Agreement with James K. Wiseman:

On October 29, 2013, James K. Wiseman notified the Company of his intent to retire as the Company’s Vice President and General Manager of Recycling and resign from all other positions he holds with the Company and its subsidiaries. Mr. Oliver, interim Chief Executive Officer and interim President, became responsible for the day-to-day operations of the Company.

Because of Mr. Wiseman’s experience with the Company and in the scrap metal industry, on November 1, 2013, the Company and Mr. Wiseman entered into a Consulting Agreement (the “Wiseman Consulting Agreement”) pursuant to which Mr. Wiseman provides consulting services to the Company with respect to that industry with compensation at a monthly rate of $10.0 thousand. The Wiseman Consulting Agreement provides for the termination of Mr. Wiseman’s employment with the Company as the Vice President and General Manager of Recycling, a position he had initially held in accordance with an Executive Employment Agreement with the Company dated as of April 4, 2007.

The Wiseman Consulting Agreement may not be terminated by either party until after October 31, 2014 after which time either party may terminate the Wiseman Consulting Agreement by giving 30 days prior written notice of termination to the other party. During the consulting period, the Company will pay premiums for Mr. Wiseman’s COBRA coverage to the extent of the amount of coverage premiums paid by the Company immediately before Mr. Wiseman’s termination of employment.

In connection with the Wiseman Consulting Agreement, Mr. Wiseman granted the Company a release of its obligations to pay any salary and welfare plan benefits under his Executive Employment Agreement. The Company granted Mr. Wiseman a release of his non-competition obligations under that agreement, but the Wiseman Consulting Agreement provides that Mr. Wiseman may not solicit Company employees to leave the Company during the consulting period and for two years thereafter. As of December 31, 2013, we accrued $70.0 thousand of the consulting fees as employee severances relating to the Wiseman Consulting Agreement.

Management Services Agreement with Algar, Inc.:

On December 2, 2013, the Company and Algar entered into the Management Agreement. Under the Management Agreement, Algar provides the Company with day-to-day senior executive level services. Algar will also provide business, financial, and organizational strategy and consulting services, as the Company’s board of directors may reasonably request from time to time.

Under the Management Agreement, Algar will be paid a bonus in an amount equal to 10.0% of any year-over-year increase in the Company’s pre-tax income during the term. Subject to shareholder approval and restrictions on exercisability set forth in the Stock Option Agreement, the Company granted Algar an option to purchase a total of 1.5 million shares of Company common stock at an exercise price per share of $5.00.

On December 2, 2013, in connection with the Management Agreement, the Company’s board of directors appointed Sean Garber as President. Under the Management Agreement, the Company will reimburse Algar for the portion of Mr. Garber’s salary that is attributable to Algar’s services under the Management Agreement in an amount not to exceed $20.8 thousand per month, or $250.0 thousand per year. As of December 31, 2013, we accrued management fees to Algar of $25.9 thousand. We also recorded $70.4 thousand in accounts payable to Algar as of this date.

See Note 2 - "Management Services Agreement with Algar, Inc." for additional details relating to the Management Agreement, the Stock Option Agreement and Mr. Garber's appointment as President.