UPDATE 1-Neo Material to acquire Recapture Metals

* Neo to offer 4.5 mln shares, C$5.6 mln cash for Recapture

* Takeover to help Neo diversify into speciality materials

Aug 24 (Reuters) - Neo Material Technologies Inc (NEM.TO), a processor of rare earth metals, said it agreed to acquire smaller privately held rival Recapture Metals Ltd, in a stock-and-cash deal, to diversify into speciality materials.

Toronto-based Neo Material, which operates processing units in China, said it will offer 4.5 million new common shares and pay C$6.5 million ($6.02 million) to Recapture shareholders, subject to closing adjustments.

The company said it also has an option to make additional payments in cash or new common shares, conditional upon the meeting or exceeding of certain agreed EBITDA (earnings before interest, tax, depreciation and amortization) targets for three calendar years, commencing in 2010.

Recapture, which operates in Canada, United States and Germany, is a refiner of high value niche metals and their compounds, mainly used in the wireless and solar industries.

The company, with about 65 employees, reported a revenue of C$22.5 million in 2008.

Recapture's current commercial product lines include rare metals gallium and indium, and the company in the process of commercializing a rhenium recycling operation.

Shares of Neo Material were up 7 cents at C$3.38 in morning trade Monday on the Toronto Stock Exchange. ($1=1.079 CANADIAN DOLLAR) (Reporting by Ashutosh Joshi in Bangalore; Editing by Unnikrishnan Nair)