SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THE TIREX CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 3559 3282985
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5
Telephone (514) 878-0727; Facsimile (514)878-9847
(Address and telephone number of principal executive offices
and principal place of business)
Frances Katz Levine, Esq., 621 Clove Road, Staten Island, NY 10310
Telephone (718) 981-8485; Facsimile (718)447-1153
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to public:_______________
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
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Title of Each Class Of Dollar Proposed
Securities Amount To Be Maximum Offering Amount Of
To Be Registered Registered (4) Price Per Share (3) Registration Fee
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Common Stock, $.001 Par Value (1) $3,454,450(7) $.295 $1,046.80
11,710,000 Shares
- ------------------------------------------------------------------------------------------------------
Common Stock, $.001 Par Value, $2,058,327(8) $.295 $623.74
6,977,380 Shares
Underlying Option (2)
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Common Stock, $.001 Par Value,
Underlying Warrants (3)(4):
266,666 Shares $786,666.47(8) $.295 $238.38
666,666 Shares $266,666.40(8) $.40 80.80
666,667 Shares $333,333.50(8) $.50 101.01
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Common Stock, $.001 Par Value, $1,456,544.88(8) $1.295 $441.38
Shares Underlying Convertible
Debentures (5)(6)
- ------------------------------------------------------------------------------------------------------
TOTAL $9,248,720.95 $2,532.11
======================================================================================================
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(Notes to the Registration Fee Table Appear on the Following Page)
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(1) Includes 11,710,000 shares (the "Outstanding Shares") which are held
by fifty-seven persons (the "Selling Shareholders") who purchased them from the
Company in a private placement (the "Type C Private Placement") effected
directly by the Company pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
available under Rule 506 thereof ("Rule 506") (see "Prospectus Summary - The
Offering", "The Company - Material Financing Activities", and "Selling
Shareholders").
(2) Includes, based on estimates as at the date hereof, for purposes of
calculating the registration fee only, 6,977,380 shares of Common Stock issuable
upon the exercise of an option (the "CGT Option") held by CGT to purchase a
number of shares which, upon their issuance, will be equal to up to ten percent
(10%) of the issued and outstanding common stock of the Company. The number of
shares subject to the CGT Option is governed by standard anti-dilution
provisions and may therefore be increased in proportion to any increase in the
number of shares of the Common Stock which are outstanding or, likewise,
decreased in proportion to any decrease in the number of shares outstanding.
Pursuant to Rule 416 under the Securities Act ("Rule 416"), this Registration
Statement covers such additional indeterminate number of shares of Common Stock
as may be issued by reason of adjustments in the number of shares of Common
Stock for which the CGT Option may be exercised. The CGT Option is exercisable
for a three-year period ending April 23, 2000 at an exercise price equal to
fifty percent (50%) of the average of the final bid and ask prices of the common
stock of the Corporation, as quoted in the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board") during the ten business days preceding the exercise date.
Pursuant to an amendment, dated September 30, 1997, 969,365 of the shares
subject to the CGT Option were made exercisable at 50% of the average market
price of the Company's common stock during the 10-day period preceding August
13, 1997. On May 18, 1998 CGT agreed to further amend its Option to make it
non-exercisable until after the effective date of this Registration Statement
(See "Prospectus Summary - The Offering", "Selling Shareholders", and
"Description of Securities").
(3) Includes two million shares of Common Stock issuable upon the exercise
of common stock purchase warrants (the "Type A Warrants") held by two persons.
The Type A Warrants were included as part of certain units (the "Type A Units"),
each consisting of one 10% convertible, subordinated debenture in the principal
amount of $25,000 (the "Type A Debentures") and 100,000 of Common Stock Warrants
to purchase a like amount of shares at a per share exercise price of $.001. The
Type A Units were offered and sold in a private placement (the "Type A Private
Placement") effected by the Company through its Placement Agent, H.J. Meyers &
Co., Inc. ("H.J. Meyers") during an offering period which commenced on November
5, 1997 and terminated on May 11, 1998. Twenty-eight Type "A" Units were offered
to a limited number of accredited investors, at a price of $25,000 per Unit,
pursuant to the exemption from the registration requirements of the Securities
Act provided by Rule 506. An aggregate of twenty Type A Units were sold to two
investors. The exercise period of the Type A Warrants was terminated as of the
day preceding the filing with the Securities and Exchange Commission of the
Registration Statement of which this Prospectus forms a part. A new exercise
period will commence on the date following the effective date of the said
Registration Statement (See "Prospectus Summary - The Offering", "The Company -
Material Financing Activities", "Selling Shareholders", and "Description of
Securities").
(4) Includes, based on estimates as at the date hereof, for purposes of
calculating the registration fee only, two million shares of Common Stock
issuable upon the exercise of warrants (the "SCT Warrants") held by Security
Capital Trading, Inc. ("SCT") at exercise prices of $.25 per share for the first
666,666 shares, $.40 per share for the second 666,666 shares, and $.50 per share
for the remaining 666,667 shares. SCT obtained the SCT Warrants pursuant to the
terms of a consulting agreement, dated April 1, 1998, by and between the Company
and SCT. The number of shares, if any, which will actually be issued pursuant to
the exercise of the SCT Warrants may differ significantly from the amount shown
for the following reasons: (i) SCT has not advised the Company and the Company
has
ii
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no way of predicting whether, or to what extent, SCT will exercise the SCT
Warrants and (ii) the SCT Warrants provide for cashless exercise whereby some
Warrants may be exercised in consideration of the return of other Warrants. The
exercise period of the SCT Warrants was terminated as of the day proceeding the
filing with the Securities and Exchange Commission of the Registration Statement
of which this Prospectus forms a part. A new exercise period will commence on
the date following the effective date of the said Registration Statement (See
"Prospectus Summary - The Offering", "The Company Material Financing
Transactions", "Selling Shareholders", and "Description of Securities").
(5) Includes, based on estimates as at the date hereof, for purposes of
calculating the registration fee only, 2,262,443 shares issuable upon the
conversion of certain convertible debentures (the "Type A Debentures"), which
formed part of the Type A Units sold in the Type A Private Placement. The Type A
Debentures are, convertible at 75% of the market price of the Company's common
stock at the time of conversion (see "Prospectus Summary - The Offering" and
"Selling Shareholders"). The Company is unable to determine with certainty, as
at the date hereof, the number of shares which will be issuable upon the
conversion of the Type A Debentures because (i) none of the holders of the Type
A Debentures have advised the Company, and the Company is unable to predict,
whether, and to what extent, such persons will choose to convert the Type A
Debentures to Common Stock, rather than redeem them for cash; (ii) such number
is dependent upon the average of the closing bid prices of the Common Stock, as
traded in the over-the-counter ("OTC") market and quoted in the OTC Electronic
Bulletin Board of the NASD, during the five-day period preceding the Company's
receipt of a notice of conversion from a Debenture holder (the "Conversion
Price"). If the Company were to receive notices of conversion from the holders
of all of the Type A Debentures on June __, 1998, the Conversion Price would be
$_________ per share and the aggregate number of shares issuable upon conversion
of all of the Type A Debentures would be ____________, which shares are included
in this Registration Statement. Should the aggregate number of shares actually
issuable upon conversion of the Type A Debentures exceed ___________, then
pursuant to Rule 416, this Registration Statement covers such additional
indeterminate number of shares as may be issued by reason of adjustments in the
number of shares of Common Stock into which the Type A Debenture may be
converted. The conversion period of the Type A Debentures was terminated as of
the day proceeding the filing with the Securities and Exchange Commission of the
Registration Statement of which this Prospectus forms a part. A new conversion
period will commence on the date following the effective date of the said
Registration Statement (See "Prospectus Summary - The Offering", "The Company -
Material Financing Transactions", "Selling Shareholders", and "Description of
Securities").
(6) Includes, based on estimates as at the date hereof, for purposes of
calculating the registration fee, 2,675,000 shares issuable upon the conversion
of 10% convertible subordinated debentures in the face amount $10,000, (the
"Type B Debentures") at a conversion ratio of one share for every $0.20 of the
face amount of the debenture plus interest earned thereon from the date of
issuance which formed part of certain units, (the "Type B Units") 30.5 of which
were assumed by the Company pursuant to a Merger with RPM Incorporated ("RPM")
and 23 of which were sold in a private placement (the "Type B Private
Placement") effected by the Company, through H.J. Meyers, as its Placement
Agent. A total of 85 Type B Units were offered, first by RPM and, subsequent to
the Merger, by the Company to a limited number of accredited investors, pursuant
to Rule 506, at a price of $10,300 per Unit, during an offering period which
commenced on November 28, 1997 and terminated on May 11, 1998. An aggregate of
53.5 Type B Units were sold to 36 investors. The Company is unable to determine
the number of shares, if any, which will actually be issued pursuant to the
conversion of the Type B Debentures because none of the holders of the Type B
Debentures have advised the Company, and the Company is unable to predict,
whether, and to what extent, the Type B Debentures will be converted to Common
Stock rather than redeemed for cash; The conversion period of the Type B
Debentures was terminated as of the day proceeding the filing with the
Securities and Exchange Commission of the Registration Statement of which this
Prospectus forms a part. A new conversion period will commence
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on the date following the effective date of the said Registration Statement (See
"Prospectus Summary The Offering", "Selling Shareholders", and "Description of
Securities").
(7) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) on the basis of the average of the
closing bid and ask prices of the Common Stock of the Registrant as traded in
the over-the-counter market and reported in the OTC Bulletin Board on May 15,
1998.
(8) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(e) on the basis of the average of the
closing bid and ask prices of the Common Stock of the Registrant as traded in
the over-the-counter market and reported in the OTC Bulletin Board on May 15,
1998. Pursuant thereto, the registration fees for all of the shares issuable
upon conversion of the Type A and Type B Debentures at the respective conversion
ratios of $.221 and $.20 per share, the 2,000,000 shares issuable under the Type
A Warrants at an exercise price of $.001 per share, and the 666,666 shares
issuable under the SCT Warrants at an exercise price of $.25 per share have been
calculated on the basis of the current reoffer price of $.295 per share. The
registration fees for the balance of the shares issuable under the SCT Warrants
have been calculated on the basis of the respective exercise prices of $.40
(666,666 shares) and $.50 (666,667 shares) per share.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
iv
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CROSS REFERENCE SHEET
Cross Reference Sheet Showing Location in Prospectus of
Information Required by Items of the Form Pursuant to Rule 404(a)
Form SB-2 Item No. and Heading Caption in Prospectus
------------------------------ ---------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus....... Prospectus Outside Front Cover
Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page;
AVAILABLE INFORMATION; TABLE OF
CONTENTS; REPORTS TO SECURITY
HOLDERS
3. Summary Information and
Risk Factors ........................... PROSPECTUS SUMMARY - The
Company, Risk Factors; SELECTED
FINANCIAL DATA; RISK FACTORS
4. Use of Proceeds........................... Prospectus Outside Front Cover
Page; USE OF PROCEEDS
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Shareholders...................... Prospectus Outside Front Cover
Page; PROSPECTUS SUMMARY; PLAN
OF DISTRIBUTION; SELLING
SECURITIES HOLDERS
8. Plan of Distribution...................... Prospectus Outside Front Cover
Page; PROSPECTUS SUMMARY;
SELLING SECURITIES HOLDERS; PLAN
OF DISTRIBUTION
9. Legal Proceedings......................... LEGAL PROCEEDINGS
10. Directors, Executive Officers,
Promoters and Control Persons........... MANAGEMENT
11. Security Ownership of Certain
Beneficial Owners and Management........ SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
12. Description of Securities................. DESCRIPTION OF SECURITIES
13. Interest of Named Experts
and Counsel ............................ Not Applicable
v
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14. Disclosure of Commission Position
on Indemnification....................... LIMITATION OF LIABILITY AND
INDEMNIFICATION MATTERS
15. Organization with Last Five Years......... CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
16. Description of Business................... PROSPECTUS SUMMARY; BUSINESS
17. Management's Discussion and Analysis
or Plan............................... MANAGEMENT'S DISCUSSION AND
ANALYSIS
18. Description of Property................... PROPERTIES
19. Certain Relationships and Related
Transactions ........................... CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
20. Market for Common Equity and Related
Stockholder Matters................... Prospectus Outside Front Cover;
RISK FACTORS; MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS
21. Executive Compensation.................... MANAGEMENT - EXECUTIVE
COMPENSATION; CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
22. Financial Statements...................... FINANCIAL STATEMENTS
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ................... Not Applicable
vi
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PROSPECTUS
THE TIREX CORPORATION
11,710,000 Shares Common Stock Presently Issued and Outstanding and
15,914,823 Shares Common Stock Underlying
Outstanding Options, Warrants, and Convertible Debentures
This Prospectus relates to the resale in a public offering of a total of
11,710,000 shares (the "Outstanding Shares") of the Common Stock of the Tirex
Corporation (the "Company") by 57 persons (the "Selling Shareholders") and the
sale by the Company, of (i) 10,977,380 shares of Common Stock issuable pursuant
to the exercise of presently outstanding options and warrants and (ii) 4,937,443
shares of Common Stock issuable upon conversion of presently outstanding 10%
convertible subordinated debentures. The shares of Common Stock issuable upon
the exercise of any of the warrants and options, or upon the conversion of any
of the debentures are referred to herein, collectively, as the "Underlying
Shares". The Outstanding Shares and the Underlying Shares, are hereinafter
referred to, collectively, as the "Shares". The Selling Shareholders and the
holders of the Underlying Shares may effect such transactions to or through
broker/dealers, and such broker/dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders or the
holders of the Underlying Shares for whom such broker/dealers may act as agents
or to whom they sell as principals, or both which compensation as to a
particular broker/dealer will not be in excess of customary commissions (See
"Plan of Distribution"). Each of the Selling Shareholders and each of the
holders of the Options, Warrants, and Convertible Debentures may be deemed to be
an underwriter for purposes of the federal securities laws (see "The Selling
Shareholders"). Sales by the Selling Shareholders of the Shares and sales by the
holders of the Options, Warrants, and Convertible Debentures, to the extent they
acquire the Underlying Shares from the Company and offer them for resale during
the _______________-day period following such acquisition, will be subject to
prospectus delivery and other requirements of the Securities Act of 1933, as
amended. The Company's Common Stock, is quoted on the OTC Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc. under
the symbol "TXMC". On May 15, 1998, the closing bid and asked prices for the
Common Stock were $0.28 and $0.31, respectively (See "Market Information"). The
market for the Common Stock is limited and sporadic and there can be no
assurance that an active and reliable public market will develop or, if
developed, that such market will be sustained.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK (SEE "RISK
FACTORS" BEGINNING ON PAGE 10
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to Proceeds to
Public (1) Discounts & Selling Company (3) (4)
Commissions (2) Shareholders(3) (5) (6) (7)
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Per Share, 11,710,000 shares Common -0- $
Stock
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Per Share, 10,977,380 shares Common -0-
Stock underlying Warrants and Options
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Per Share, 4,937,443 shares Common -0-
Stock underlying Convertible Debentures
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Total -0-
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(Notes to Table appear on following page)
THE DATE OF THIS PROSPECTUS IS _____________
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) on the basis of the average of the
closing bid and ask prices of the Common Stock of the Registrant as traded in
the over-the-counter market and reported in the OTC Bulletin Board on May 15,
1998.
(2) There is no underwriter involved in any distribution of the Shares being
registered hereby which may be made by the Selling Shareholders or by the
holders of the options, warrants, or debentures, except insofar as any
securities dealer executing sell orders for the Selling Shareholders may be
deemed an underwriter as that term is defined or used in the Securities Act.
When sold through a dealer, no more than the ordinary and customary brokerage
commission will be paid. Shares purchased by dealers for their own accounts may
be re-offered from time to time at prices obtainable and satisfactory to such
dealers.
(3) The Company will not receive any proceeds from the market sales of the
Outstanding Shares owned by the Selling Shareholders or, to the extent that such
shares are purchased from the Company and resold by the holders thereof, from
any resales of the Underlying Shares. Neither of the Selling Shareholders nor
the holders of the Options, Warrants, or Convertible Debentures will pay any
part of the expenses of this registration and the Company is responsible for all
of the costs and expenses incident to the offer and sale of the Outstanding
Shares by the Selling Shareholders or the resale of the Underlying Shares by the
holders thereof pursuant to this Prospectus, other than any brokerage fees or
commissions incurred by such persons in connection with such sales.
(4) Includes the following:
(a) proceeds, estimated solely for purposes of this Table, of
$_____________, from the exercise, in full, of an option (the "CGT
Option") held by CG TIRE, Inc., a Delaware corporation ("CGT"),
otherwise unaffiliated with the Company, to purchase a number of
shares which, upon their issuance, will be equal to up to ten
percent (10%) of the issued and outstanding common stock of the
Company. The amount of proceeds shown in the Table has been
calculated on the basis of the CGT Option being exercised, in full,
immediately after the effective date of the registration statement
of which this prospectus is a part (the "Registration Statement"),
at a per share price of $0.___________ per share (reflecting the
average of the final bid and ask prices of the common stock of the
Company, as quoted in the OTC Bulletin Board during the 10 business
days preceding _____________, 1998). The amount of proceeds which
may actually be received by the Company in respect of the exercise
of the CGT Option may differ significantly from the amount shown for
the following reasons: (i) CGT has not advised the Company and the
Company has no way of predicting whether, or to what extent, CGT
will exercise the CGT Option; (ii) the actual number of shares
subject to the CGT Option is governed by standard anti-dilution
provisions and may therefore be increased in proportion to any
increase in the number of shares of the Common Stock which is
outstanding or, likewise, decreased in proportion to any decrease in
the number of shares outstanding; (ii) the actual exercise price of
the CGT Option will be dependent upon the market prices for the
Company's Common Stock at the time of exercise, the CGT Option being
exercisable, by its terms, for a three-year period ending April 23,
2000 at an exercise price equal to fifty percent (50%) of the
average of the final bid and ask prices of the common stock of the
Corporation, as quoted in the OTC Bulletin Board during the ten
business days preceding the exercise date. The exercise period of
the CGT Option was terminated as of the day proceeding the filing
with the Securities and Exchange Commission of the Registration
Statement of which this Prospectus forms a part. A new exercise
period will commence on the date following the effective date of the
said Registration Statement (See "Prospectus Summary - The
Offering", "Selling Securities Holders", and "Description of
Securities").
(b) $766,666 in estimated proceeds from the exercise, in full, of
warrant to purchase a like number of shares (the "SCT Warrants")
held by Security Capital Trading, Inc. ("SCT") at exercise prices of
$.25 per share for the first 666,666 shares, $.40 per share for the
second 666,666 shares, and $.50 per share for the remaining 666,667
shares. The
2
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amount of proceeds which may actually be received by the Company in
respect of the exercise of the SCT Warrants may differ significantly
from the amount shown for the following reasons: (i) SCT has not
advised the Company and the Company has no way of predicting
whether, or to what extent, SCT will exercise the SCT Warrants and
(ii) the SCT Warrants provide for cashless exercise whereby some
Warrants may be exercised in consideration of the return of other
Warrants (see "Description of Securities").
(c) Includes estimated proceeds of $2,000, assuming the exercise, in
full, of warrants (the "Type A Warrants") to purchase an aggregate
of 2,000,000 shares held by two persons, at an exercise price of
$.001 per share (see "Prospectus Summary - The Offering", "The
Company - Material Financing Activities", "Selling Securities
Holders", and "Description of Securities").
(5) The Company will receive consideration for any shares issued pursuant
to the conversion of the debentures in the form of the conversion of outstanding
debt to equity. Such proceeds will not constitute any new cash infusion for the
Company. Proceeds from the conversion of the debentures, if any, may include the
following:
(a) proceeds, estimated solely for purposes of this table, in the amount
of $625,000 plus interest earned at an annual rate of 10% from the
date of issuance, from the conversion of 10% convertible debentures
in the aggregate principal amount of $500,000 (the "Type A
Debentures"). These Debentures are redeemable at maturity at a
premium of 125% of face value at an aggregate redemption price of
$625,000 plus interest earned at an annual rate of 10% from the date
of issuance. This amount, less earned interest which the Company is
unable to ascertain at this time, is shown in the Table as proceeds
to the Company. Such proceeds will be in the form of conversion of
debt to equity and do not represent any new cash infusion to the
Company. The maturity date of the Type A Debentures is the earlier
of: (i) the completion and closing of an underwritten public
offering of the securities of the Company, yielding gross proceeds
to the Company of not less than $8,000,000 (the "Proposed Public
Offering"); (ii) the completion and closing of any debt or equity
financing of the Company in excess of $4,500,000; or (iii) one year
from the issuance of the Debenture. The estimated proceeds shown in
the Table reflects the amount of debt which would be converted to
equity if all of the Type A Debentures were converted to Common
Stock instead of being redeemed. The Type A Debentures are
convertible at 75% of the average of the closing bid prices of the
Common Stock, as quoted in the OTC Electronic Bulletin Board, during
the five-day period preceding the conversion date. The Company is
unable to determine with certainty, as at the date hereof, the
actual amount of proceeds which it will receive from the conversion
of the Type A Debentures, if any, for the following reasons: (i)
none of the holders of the Type A Debentures have advised the
Company, and the Company is unable to predict, whether, and to what
extent, such persons will choose to convert the Type A Debentures to
Common Stock, rather than redeem them for cash; (ii) the conversion
ration will be dependent upon the average of the closing bid prices
of the Common Stock, as traded in the over-the-counter ("OTC")
market and quoted in the OTC Bulletin Board, during the five-day
period preceding the Company's receipt of a notice of conversion
from a Debenture holder (the "Conversion Price"). If the Company
were to receive notices of conversion from the holders of all of the
Type A Debentures on June _____, 1998, the Conversion Price would be
$_________ per share and the aggregate number of shares issuable
upon conversion of all of the Type A Debentures would be
____________________, which shares are included in this Registration
Statement. The conversion period of the
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<PAGE>
Type A Debentures was terminated as of the day proceeding the filing
with the Securities and Exchange Commission of the Registration
Statement of which this Prospectus forms a part. A new conversion
period will commence on the date following the effective date of the
said Registration Statement (See "Prospectus Summary - The
Offering", "The Company - Material Financing Transactions", "Selling
Securities Holders", and "Description of Securities").
(b) proceeds, estimated solely for purposes of this table, in the amount
of $107,000 plus interest earned at an annual rate of 10% from the
date of issuance, from the conversion of 10% convertible debentures
in the aggregate principal amount of $535,000 (the "Type B
Debentures"), at a conversion ratio of one share of Common Stock for
every $.20 of the principal amount of the Debenture plus earned
interest thereon. The Type B Debentures are redeemable at maturity
at face value plus unpaid accrued interest thereon, at an aggregate
redemption price of $535,000 plus interest earned at an annual rate
of 10% from the date of issuance. This amount, less earned interest
which the Company is unable to ascertain at this time, is included
in the Table as proceeds to the Company, in the form of conversion
of debt to equity and do not represent any new cash infusion to the
Company. The maturity date of the Type B Debentures is the earlier
of: (i) two years from the issue date or (ii) the completion and
closing of a public offering of its securities by the Maker. The
estimated proceeds included in the Table reflects the amount of debt
which would be converted to equity if all of the Type A Debentures
were converted to Common Stock instead of being redeemed. The
Company is unable to determine with certainty, as at the date
hereof, the actual amount of proceeds which it will receive from the
conversion of the Type B Debentures, if any, because none of the
holders of the Type B Debentures have advised the Company, and the
Company is unable to predict, whether, and to what extent, the Type
B Debentures will be converted to Common Stock rather than redeemed
for cash; The conversion period of the Type A Debentures was
terminated as of the day proceeding the filing with the Securities
and Exchange Commission of the Registration Statement of which this
Prospectus forms a part. A new conversion period will commence on
the date following the effective date of the said Registration
Statement (See "Prospectus Summary - The Offering", "The Company -
Material Financing Transactions", "Selling Securities Holders", and
"Description of Securities").
Until ________________________, ( days after the effective date of this
prospectus) all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters with respect to their unsold allotments
or subscriptions.
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TABLE OF CONTENTS
Page
Available Information................................................. 5
Reports to Security Holders........................................... 6
Prospectus Summary.................................................... 6
Risk Factors.......................................................... 9
Market for Common Equity
and Related Stockholder Matters..................................... 21
The Company. ......................................................... 22
Use of Proceeds....................................................... 26
Selected Financial Data............................................... 27
Management's Discussion............................................... 28
Business ............................................................. 31
Management ........................................................... 51
Executive Compensation................................................ 54
Security Ownership of Principal
Stockholders and Management........................................... 61
Selling Securities Holders............................................ 65
Plan of Distribution.................................................. 74
Related Transactions.................................................. 75
Description of Securities............................................. 86
Legal Proceedings..................................................... 91
Indemnification....................................................... 92
Experts............................................................... 93
Financial Statements.................................................. 94
AVAILABLE INFORMATION
The Company has filed a registration statement on Form SB-2 (together with
any amendments thereto, the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") under the Act with respect to the Common
Stock. This Prospectus, which constitutes a part of the Registration Statement,
omits certain information contained in the Registration Statement and reference
is made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock. Statements
contained in this Prospectus as to the contents of certain documents filed with,
or incorporated by reference in the Registration Statement are not necessarily
complete, and in each instance reference is made to such document, each such
statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is required to file reports, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, and other information
may be inspected and copied at the Commission's public reference room located in
Room 1024 at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th
Floor, New York, New York 10048. The Commission also maintains a web site at
"http:\\www.sec.gov" where such material filed electronically can be examined.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission located in Room 1024 at 450 Fifth
Street, N.W., Washington, D.C. 20549.
5
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REPORTS TO SECURITY HOLDERS
The Company does not intend to deliver an annual report to security
holders until such time as it has the financial resources to do so.
PROSPECTUS SUMMARY
This summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
references to and information concerning "the Company" includes The Tirex
Corporation and its wholly-owned subsidy, and historical information, except for
the financial statements, presents the operations of the Company and its
subsidiaries on a combined basis, unless otherwise indicated.
The Company
The Company, directly and through its subsidiary 3143619 Canada Inc.
(known and doing business, and hereinafter referred to, as "Tirex Canada Inc.")
is engaged in the early stages of the business of manufacturing, selling, and
leasing a cryogenic tire disintegration system (the "TCS-1 System") which
integrates proprietary disintegration technology with established conventional
mechanical and technologies (see "Business"). The Company was incorporated in
Delaware on August 19, 1987 under the name Concord Enterprises, Inc., its name
was changed to "Stopwatch Inc." on June 20, 1989 and to "Tirex America Inc." on
March 10, 1993 (see "The Company" and Business - History"). On July 11, 1997, in
order to encompass the current and projected international scope of its
operations, the Company's name was changed to "The Tirex Corporation". The
Company recently completed fund raising activities consisting of three private
placements, which yielded aggregate net proceeds to the Company of $2,063,795
(see "The Company - Material Financing Activities"). The Company's is
headquartered at 740 St. Maurice, Suite 201, Montreal, Quebec, H3C 1L5;
telephone: (514) 878-0727.
The Offering
The shares of the common stock of the Company, $.001 par value per share
("Common Stock") which are being offered hereby include: (i) the 11,710,000
Outstanding Shares, which are being offered by fifty-seven Selling Shareholders
for resale under this Prospectus (see "Selling Securities Holders") and the
15,914,823 Underlying Shares, which are being offered for sale by the Company
pursuant to the exercise of certain outstanding Warrants and Options and
pursuant to the conversion of certain outstanding convertible debentures (see
"The Company - Material Financing Activities", "Selling Securities Holders", and
"Description of Securities"). The Outstanding Shares and, to the extent they are
acquired from the Company, the Underlying Shares, are hereinafter referred to,
collectively, as the "Shares". The Shares may be offered and sold by the holders
thereof, from time to time, as market conditions permit in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices.
Solely for purposes of this discussion of the "Offering", it is assumed
that all of the Underlying Shares will be acquired from the Company and offered
under this Prospectus by the holders thereof, and the holders of the Underlying
Shares are treated in, and solely for purposes of, this discussion, as selling
securities holders on the same basis as are the holders of the Outstanding
Shares. Any and all sales of the Outstanding Shares or re-sales of the
Underlying Shares, shall be made for the respective accounts
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of the holders thereof and the Company will not receive any proceeds from such
sales or re-sales. All expenses of registering the Shares will be paid by the
Company (See "Plan of Distribution").
Securities registered on behalf of the Company:
(i) Common Stock Underlying
CGT Option (1)................... 6,977,380 Shares
(ii) Common Stock Underlying
Warrants (2).................... 4,000,000 Shares
(iii) Common Stock issuable upon
Conversion of Debentures (3)... 4,937,443 Shares
Securities registered on behalf of
the Selling Shareholders (4)............. 11,710,000 Shares
Common stock outstanding prior to this
offering ................................ 62,796,426 Shares
Common stock outstanding after this
offering (4)............................. 78,711,249 Shares
Use of Proceeds........................... The Company intends to utilize all
of the net proceeds from sales of
the Underlying Shares pursuant to
the exercise of the CGT Option and
the Type A, Type B, and SCT
Warrants, if any, as working capital
for general corporate purposes.
Proceeds from the Conversion of the
Type A or Type B Debentures, if any,
will be in the form of the
conversion of outstanding debt to
equity and will not represent any
new cash infusion for the Company.
- ----------
(1) Includes, based on estimates as at the date hereof, for purposes of
this discussion only, shares of Common Stock issuable upon the exercise of an
option (the "CGT Option") held by CGT to purchase a number of shares which, upon
their issuance, will be equal to up to ten percent (10%) of the issued and
outstanding common stock of the Company. The number of shares subject to the CGT
Option is governed by standard anti-dilution provisions and may therefore be
increased in proportion to any increase in the number of shares of the Common
Stock which are outstanding or, likewise, decreased in proportion to any
decrease in the number of shares outstanding. The CGT Option is exercisable for
a three-year period ending April 23, 2000 at an exercise price equal to fifty
percent (50%) of the average of the final bid and ask prices of the common stock
of the Corporation, as quoted in the OTC Electronic Bulletin Board maintained by
the National Association of Securities Dealers, Inc. (the "OTC Bulletin Board")
during the ten business days preceding the exercise date. Pursuant to an
amendment, dated September 30, 1997, 969,365 of the shares subject to the CGT
Option were made exercisable at 50% of the average market price of the Company's
common stock during the 10-day period preceding August
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13, 1997. On May 18, 1998 CGT agreed to further amend its option to make it
non-exercisable until after the effective date of this Registration Statement
(See "Prospectus Summary - The Offering", "Selling Securities Holders", and
"Description of Securities").
(2) Includes:
(a) Two million shares of Common Stock issuable upon the exercise, at a
price of $.001 per share, of common stock purchase warrants (the
"Type A Warrants") held by two persons. The exercise period of the
Type A Warrants was terminated as of the day proceeding the filing
with the Securities and Exchange Commission of the Registration
Statement of which this Prospectus forms a part. A new exercise
period will commence on the date following the effective date of the
said Registration Statement (the "effective Date") (See "Prospectus
Summary - The Offering", "Selling Securities Holders", and
"Description of Securities").
(b) Includes, based on estimates as at the date hereof, for purposes of
discussion only, two million shares of Common Stock issuable upon
the exercise of warrants (the "SCT Warrants") held by Security
Capital Trading, Inc. ("SCT") at exercise prices of $.25 per share
for the first 666,666 shares, $.40 per share for the second 666,666
shares, and $.50 per share for the remaining 666,667 shares. SCT
obtained the SCT Warrants pursuant to the terms of a consulting
agreement, dated April 1, 1998, by and between the Company and SCT.
The number of shares, if any, which will actually be issued pursuant
to the exercise of the SCT Warrants may differ significantly from
the amount shown for the following reasons: (i) SCT has not advised
the Company and the Company has no way of predicting whether, or to
what extent, SCT will exercise the SCT Warrants and (ii) the SCT
Warrants provide for cashless exercise whereby SCT Warrants may be
exercised as follows: In lieu of exercising any of the SCT Warrants
for cash, SCT Warrants may be exercised by surrendering them without
payment of any other consideration, commission, or remuneration and
by execution of a "cashless exercise subscription form", in
connection with which, the number of shares to be issued in exchange
for the surrendered Warrant will be computed by subtracting the per
share exercise price of the surrendered Warrant from the closing bid
prices of the Common Stock on the date of receipt of the cashless
exercise subscription form, multiplying that amount by the number of
shares represented by the surrendered warrant and dividing by the
closing bid price of the same date. The exercise period of the SCT
Warrants was terminated as of the day proceeding the filing with the
Securities and Exchange Commission of the Registration Statement of
which this Prospectus forms a part. A new exercise period will
commence on the date following the effective date of the said
Registration Statement (See "Selling Securities Holders" and
"Description of Securities").
(3) Includes:
(a) based on estimates as at the date hereof, for purposes of this
discussion only, 2,262,443 shares issuable upon the conversion of
certain convertible debentures (the "Type A Debentures"), which are
convertible at 75% of the market price of the Company's common stock
at the time of conversion (see "Prospectus Summary - The Offering",
"The Company - Material Financing Activities" and "Selling
Securities Holders"). The Company is unable to determine with
certainty, as at the date hereof, the number of shares which will be
issuable upon the conversion of the Type A Debentures because (i)
none of the holders of the Type A Debentures have advised the
Company, and the Company is unable to predict, whether, and to what
extent, such persons will choose to convert the
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<PAGE>
Type A Debentures to Common Stock, rather than redeem them for cash;
(ii) such number is dependent upon the average of the closing bid
prices of the Common Stock, as traded in the over-the-counter
("OTC") market and quoted in the OTC Electronic Bulletin Board of
the NASD, during the five-day period preceding the Company's receipt
of a notice of conversion from a Debenture holder (the "Conversion
Price"). If the Company were to receive notices of conversion from
the holders of all of the Type A Debentures on June __, 1998, the
Conversion Price would be $____ per share and the aggregate number
of shares issuable upon conversion of all of the Type A Debentures
would be ________, which shares are included in this Registration
Statement. The conversion period of the Type A Debentures was
terminated as of the day proceeding the filing with the Securities
and Exchange Commission of the Registration Statement of which this
Prospectus forms a part. A new conversion period will commence on
the Effective Date (see "Selling Securities Holders" and
"Description of Securities").
(b) based on estimates as at the date hereof, for purposes of this
discussion, 2,675,000 shares issuable upon the conversion of 10%
convertible subordinated debentures in the face amount $10,000, (the
"Type B Debentures") at a conversion ratio of one share for every
$0.20 of the face amount of the debenture plus interest earned
thereon from the date of issuance. The Company is unable to
determine the number of shares, if any, which will actually be
issued pursuant to the conversion of the Type B Debentures because
none of the holders of the Type B Debentures have advised the
Company, and the Company is unable to predict, whether, and to what
extent, the Type B Debentures will be converted to Common Stock
rather than redeemed for cash; The conversion period of the Type B
Debentures was terminated as of the day proceeding the filing with
the Securities and Exchange Commission of the Registration Statement
of which this Prospectus forms a part. A new conversion period will
commence on the date following the effective date of the said
Registration Statement (See "Prospectus Summary - The Offering",
"Selling Securities Holders", and "Description of Securities").
(4) Includes 11,710,000 shares (the "Outstanding Shares") which are held
by 57 persons (the "Selling Shareholders") who purchased them from the Company
in a private placement (the "Type C Private Placement") effected directly by the
Company pursuant to the exemption from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") available under Rule
506 thereof ("Rule 506") (see "The Company - Material Financing Activities", and
"Selling Securities Holders").
Risk Factors
The Shares offered hereby are speculative and involve a high degree of
risk, as well as immediate substantial dilution. The Shares should not be
purchased by investors who cannot afford the loss of their entire investment.
See "Risk Factors" and "Dilution."
RISK FACTORS
Prospective investors should carefully consider all of the information
contained in this Prospectus before deciding whether to purchase Shares and, in
particular, the factors set forth below. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes", "expects", "may",
"should" or "anticipates" or the negative
9
<PAGE>
thereof or other variations thereon or comparable terminology or by discussions
of strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following Risk Factors include,
among other things, cautionary statements with respect to certain
forward-looking statements, including statements of certain risks and
uncertainties that could cause actual results to vary materially from the future
results referred to in such forward-looking statements.
As a new enterprise, the Company is likely to remain subject to risks and
occurrences which management is unable to predict with any degree of certainty,
and for which it is unable to fully prepare. While the Company expects its
revenues to increase as manufacturing operations respecting the TCS-1 develop,
new products are introduced, and maintenance and rubber brokerage services are
initiated. Significant additional expenses will be incurred in developing and
marketing its products and in providing its contract services. Growth in the
Company's business could be expected to be accompanied by strains on the
Company's administrative, financial and operating resources. The Company's
ability to manage growth effectively will require it to continue to expand and
improve its operational, financial, and management controls, and to train,
motivate and manage its employees. In any event, there is no assurance that the
Company will achieve revenue growth sufficient to offset anticipated increases
in costs, nor is there any assurance that the Company will be successful in
overcoming problems associated with unforeseen costs and competition, technical
problems associated with new products and technology, and other risks which all
business ventures face and which could be especially acute for a relatively new
company attempting to establish and expand its business in a highly competitive
industry characterized by rapid technological and market development and change.
For all of the foregoing reasons, as well as the specified Risk Factors
described below, any purchase of the Shares should be considered a speculative
investment involving a significant risk of loss.
1. Development Stage Company; No Assurance as to Future Profitable
Operations. There is no assurance that the Company will generate net income or
successfully expand its operations in the future. Because it is in the
development stage and has had no significant operations to date, the Company
cannot predict with any certainty the future success or failure of its
operations. Its proposed operations are subject to all of the risks inherent in
the establishment of a new business enterprise, including the absence of any
significant operating history. The likelihood of the success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the formation of a new
business and the competitive environment in which the Company will operate. The
Company has had no significant operating revenues to date and there can be no
assurance of future revenues. There is limited evidence at this time upon which
to base an assumption that the Company's proposed business will prove successful
or that its proposed TCS-1 System will be successfully developed, manufactured,
and marketed. As a consequence, there is no assurance that the Company will be
able to operate profitably in the future. Additionally, the Company has a very
limited business history which investors can analyze to aid them in making an
informed judgment as to the merits of an investment in the Company. Any
investment in the Company should therefore be considered a high risk investment
because investors will be placing their funds at risk in an unseasoned start-up
company.
2. Need For Substantial Additional Capital. The Company recently completed
and closed certain financing activities which yielded aggregate net proceeds to
the Company in the amount of $2,063,795 (see Risk Factor No. 5 "Dilutive and
Other Adverse Effects of Debentures and Warrants and Presently Outstanding
Options" and "The Company - Material Financing Activities"). Such proceeds
(together with Canadian and Quebec government and governmental agency grants and
loans, in various forms) have provided the Company with what management believes
will be adequate funding to accomplish the following: (i) complete and cover all
of the Company's costs related to, the first production Model of the TCS-1
System (the "Production Model"); (ii) renovate the Company's new manufacturing
and assembly facility to bring it into full compliance with all applicable
provincial and municipal regulations (see "Business
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- - Properties"); and (iii) cover the Company's overhead costs and expenses
through the end of October 1998. It should be noted however that the period of
time for which these funds will be available to cover normal overhead costs
could be significantly reduced if the Company is required to make substantial,
presently unanticipated expenditures to correct any flaws or defects in the
design or construction of the Production Model which may become apparent during
the test phase which is to be assembled in the Company's new Montreal
Manufacturing and Assembly facility in May 1998.
The Company continues to require substantial additional capital to
commence manufacturing and marketing operations. The Company's future capital
requirements will depend upon numerous factors, including the amount of revenues
generated from operations (if any), the cost of the Company's sales and
marketing activities and the progress of the Company's research and development
activities, none of which can be predicted with certainty. The Company
anticipates that only limited revenues from operations will be available to fund
its operations without substantial additional capital. Further, although the
Company has signed a Letter of Intent with a broker-dealer registered with the
National Association of Securities Dealers, Inc., for the underwriting of a
proposed public offering (the "Proposed Public Offering") of the Company's
Common Stock in an amount of not less than $8,000,000, there can be no assurance
that such public offering will in fact be effected and, if effected, will be
successfully completed or, even if it is completed, that the Company will
receive adequate financing from the Proposed Public Offering. See Risk Factor
No. 6 "Proposed Public Offering; Reverse Split." The Company does not currently
have in place, other current options to fund its continued existence. In the
event that the Proposed Public Offering does not occur or does not occur within
a reasonable time, the Company could be required to reduce or suspend its
operations, seek an acquisition partner or sell securities on terms that may be
highly dilutive or otherwise disadvantageous to investors purchasing any of the
securities offered under this Prospectus. The Company has experienced in the
past, and may continue to experience, operational difficulties and delays in its
product development due to working capital constraints. Any such difficulties or
delays could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations"). Moreover, if the Proposed
Public Offering does not occur on a timely basis, the Company may be unable to
fund its business plan and may be forced to cease to operate. In such event,
purchasers of any of the securities being registered hereby may lose their
entire investment.
3. Going Concern Assumption. The Company's independent auditors' report on
the Company's financial statements for the years ended June 30, 1996 and 1997,
contains an explanatory paragraph indicating that: (i) the Company is still in
the development stage; (ii) it cannot be determined at this time that the
Company's tire disintegration technology will be developed to a productive
stage; and (iii) the Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about its ability to
continue as a going concern. In addition, the Company had an accumulated deficit
of $4,963,490 as at March 31, 1998. The Company may require substantial
additional funds in the future, and there can be no assurance that any
independent auditors' report on the Company's future financial statements will
not include a similar explanatory paragraph if the Company is unable to raise
sufficient funds or generate sufficient cash from operations to cover the cost
of its operations. The existence of the explanatory paragraph may materially
adversely affect the Company's relationship with prospective customers and
suppliers, and therefore could have a material adverse effect on the Company's
business, financial condition and results of operations.
4. No Guarantee of Product Acceptance in Market. The first production
model of the TCS-1 System has not yet been completed and there is no history of
commercial operations of the TCS-1 System. There can be no assurance that the
TCS-1 System will be accepted in the market for tire disintegration equipment.
Moreover, the Company has not conducted market research that focuses on the
potential demand for the TCS-1 System to the exclusion of other types of tire
disintegration equipment.
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Therefore, the Company is not able to estimate with any assurance the potential
demand for the TCS-1 System, if any. There can be no assurance that sufficient
market penetration can be achieved so that projected production levels of the
TCS-1 System will be absorbed by the market (see "Business-Sales and
Marketing").
5. Dilutive and Other Adverse Effects of Debentures and Warrants and
Presently Outstanding Options. The securities which were sold by the Company in
two of the three Private Placements (respectively, the "Type A Private
Placement" and the "Type B Private Placement"), which it recently completed and
closed (see "The Company - Material Financing Activities"), consisted of the
following:
(a) Twenty "Type A Units", each consisting of 100,000 common stock
purchase warrants (the "Type A Warrants") to purchase a like number
of shares of the Company's Common Stock and one 10% convertible,
subordinated debenture in the principal amount of $25,000 (the "Type
A Debentures"). Commencing the day following the effective date of
the Registration Statement, of which this prospectus forms a part
(the "Effective Date"), the Type A Debentures will be convertible
into shares of the Company's Common Stock at a conversion ratio
equal to 75% of the average of the closing bid prices of the Common
Stock, as quoted in the OTC Electronic Bulletin Board of the NASD,
during the five-day period preceding the Company's receipt of a
notice of conversion from a Debenture holder. Also commencing as at
the Effective Date, the Type B Warrants will be exercisable for an
aggregate of 2,000,000 shares of Common Stock at an exercise price
of $.001 per share.
(b) 53.5 "Type B Units", each consisting of 10,000 shares of the
Company's Common Stock and one 10% convertible, subordinated
debenture in the principal amount of $10,000 (the "Type B
Debenture"). Commencing the day following the Effective Date, the
Type B Debentures will be convertible into shares of the Company's
Common Stock at a conversion ratio of one share for every $.20 of
principal amount and interest earned thereon from the date of
issuance.
In addition, there are currently outstanding additional options and
warrants pursuant to which the Company is obligated to sell Common Stock, as
follows:
(a) an option to purchase 235,294, held by an unaffiliated consultant,
exercisable at a price of $.17 per share;
(b) (i) options to purchase an aggregate of 213,786, shares, held by two
unaffiliated consultants at an exercise price of $.187 per share
(expire on October 4, 1998); (ii) options to purchase an aggregate
of 250,000 shares to the same two unaffiliated individuals, and by
the spouse of a director of the Company, at an exercise price of
$.125 per share (expire on December 31, 1998); (iii) options to
purchase 250,000 shares to the foregoing three individuals at an
exercise price of $.1875 per share (expire on March 31, 1999); and
(iv) options to purchase 250,000 to the same three individuals at an
exercise price of $.28 per share (expire on June 30, 1998).
(c) an option, held by one outside director of the Company, to purchase
20,000 shares of convertible preferred stock at a price of $10 per
share (the "Preferred Option"). If purchased, such preferred stock
will be convertible into shares of the Company's Common Stock at a
conversion ratio equal to the number of shares of common stock
purchasable for the purchase price of each preferred share ($10) at
30% of the market price of the Common Stock at the time of
conversion. It is impossible for the Company to predict
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<PAGE>
whether the purchase of the preferred shares will occur or, if it
does occur, what the conversion ratio will be when such preferred
shares are converted to Common Stock. However, solely for the
purposes of illustration, using for a conversion ratio, one third of
the average of the closing bid prices of the Company's Common Stock
during the five-day period preceding _________________ ($0______),
each $10 Preferred Share would be convertible at a conversion ratio
equal to the number of shares of common stock purchasable for
$.________) per share (_______ shares) with the aggregate of 20,000
shares of preferred stock convertible into a total of _____________
shares. Exercise of the Preferred Option would require a $200,000
investment on the part of the holder thereof. To date, the Preferred
Option has not been exercised for any part of the preferred shares
purchasable thereunder and the Company is unable to state whether
such option shall ever be exercised; and
(ii) the CGT Option to purchase a number of shares equal, on a fully
diluted basis, to 10% of the total issued and outstanding Common
Stock of the Company, at an exercise price equal to fifty percent
(50%) of the average of the final bid and ask prices of the common
stock of the Corporation, as quoted in the OTC Bulletin Board during
the ten business days preceding the exercise date.
The Company is unable to determine with certainty, as at the date hereof,
the number of shares, if any, which will actually be issued pursuant to the
exercise of any of the foregoing options or warrants or the conversion of any of
the debentures because of several factors, including but not necessarily limited
to the following: (i) none of the holders of such securities have advised the
Company, and the Company is unable to predict, whether, and to what extent, such
persons will choose to exercise their options or warrants or convert their
debentures to Common Stock instead of redeeming them for cash, and (ii) with
respect to some of the options and debentures, the exercise price or conversion
ratio, and therefore the number of shares issuable, is dependent upon the market
price of the Common Stock at and around the time of exercise or conversion;
However, by way of example only:
(a) If the Company were to receive notices of conversion from the
holders of all of the Type A Debentures on June ________, 1998, the
Conversion ratio would be the number of shares issuable for the
aggregate principal amount of the Debentures, plus interest earned
thereon from the date of issuance, at a per share price of
$0.________ (75% of the average market price of the Common Stock
during the five-day period preceding _____________, 1998). The
aggregate number of shares issuable upon conversion of all of the
Type A Debentures would therefore be _______________________, which
shares are included in this Registration Statement.
(b) If the Company were to receive notices of conversion from the
holders of all of the Type B Debentures on June ______, 1998, the
Conversion Price would be one share for every $0.20 of the aggregate
principal amount of the Type B Debenture and all interest earned
thereon from issuance ($___________). The aggregate number of shares
issuable upon conversion of all of the Type B Debentures would
therefore be _________________, which shares are included in this
Registration Statement.
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(c) If all of the other presently outstanding options and warrants were
exercised (and, where exercise price is dependent on the market
price of the Common Stock at or around the time of exercise, current
market prices are used), the total number of shares of Common Stock
of the Company issued and outstanding would be _____________, prior
to the exercise of the CGT Option, in which case, the number of
shares subject to the CGT Option would be ______________.
(d) Given the circumstances set forth above in this example, if the CGT
Option was then exercised for ______________ shares, the total
number of shares of the Company, issued and outstanding, would be
_________________
Whether or not any of the above described securities are registered, the
holders of the convertible Debentures, the Warrants, and the outstanding options
would have an opportunity to profit from a rise in the market price of the
Common Stock, if such rise should occur, with a resulting dilution in the
interests of the other shareholders.
6. Proposed Public Offering: Reverse Split. The proposed terms for the
Proposed Public Offering require that not more than 10,000,000 shares of the
Company's Common Stock be issued and outstanding prior to the commencement of
the public offering. There are presently 62,796,426 shares of the Company's
Common Stock issued and outstanding, but, while the Company considers that it
would be highly unlikely, as described above, in Risk Factor No. 5. "Dilutive
and Other Adverse Effects of Debentures and Warrants and Presently Outstanding
Options." if all of the currently outstanding options and warrants were to be
exercised and all of the currently outstanding debentures were to be converted,
there could be up to _____________ shares of the Company's Common Stock issued
and outstanding prior to the Proposed Public Offering. While the number of
shares, which the proposed underwriter will allow to be outstanding prior to the
Proposed Public Offering may be adjusted to reflect a change in the development
and consequent valuation of the Company, persons who purchase any of the
securities being registered hereby prior to the effectuation of such reverse
split should note that, if the Proposed Public Offering is effected, the number
of such securities may be substantially reduced by the requirement that there be
not more than 10,000,000 shares of the Company's Common Stock issued and
outstanding prior to such offering. This would require a reverse split of all of
the Company's issued and outstanding shares (see "Risk Factor No. 6, Dilutive
and Other Adverse Effects of Debentures and Warrants and Presently Outstanding
Options) and "Descriptive of Securities").
7. Dependence on Major Customer. To date the Company has received orders
for eleven TCS-1 Systems, eight of which were ordered by Ocean/Ventures III,
Inc.("O/V III") of Toms River, New Jersey ("O/V III") and one of which was
ordered by Oceans Tire Recycling & Processing Co., Inc. ("OTRP"). O/V III and
OTRP are New Jersey corporations affiliated with each other through common
control. The loss of either or both of these two customers would have an adverse
effect on the Company. See BUSINESS: "Dependence on Major Customer".
8. Uncertainty of Product and Technology Development: Technological
Factors. The Company has completed development and construction, of the first
production model of the TCS-1 System. The Company's success will depend upon the
TCS-1 System's meeting targeted performance and cost objectives and its timely
introduction into the marketplace. Such an outcome will be subject to all of the
risks inherent in the development of a new product, technology, and, business,
including unanticipated
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delays, expenses, and difficulties, as well as the possible insufficiency of
funding to complete development (see Risk Factor No. 4 "Need for Substantial
Additional Capital", above). There can be no assurance that under commercial
usage conditions, the TCS-1 System will satisfactorily perform the functions for
which it has been designed and constructed, that it will meet applicable price
or performance objectives, or that unanticipated technical or other problems
will not occur which would result in increased costs or material delays in
establishing the Company's business at a profitable level. There can be no
assurance that, despite testing by the Company, problems will not be encountered
in the TCS-1 System after the commencement of commercial manufacture and sales,
resulting in loss or delay in market acceptance.
9. Protection of Tirex Proprietary Technology and Potential Infringement.
The success of the Company's proposed business depends in part upon its ability
to protect its proprietary technology and the proposed TCS-1 System which will
utilize such technology. On December 18, 1996, the Company filed patent
applications with the United States Patent and Trademark Office in the United
States and with the proper authorities in Canada. On October 23, 1997, the
Patent Application was allowed by the United States Patent and Trademark Office.
Issuance of the patent is not subject to any further contingencies and will be
effected by the Patent and Trademark Office in accordance with their scheduling
requirements. Upon issuance of the US patent, the examination papers will be
submitted to the Canadian Patent Office for review. The patent will cover the
Company's disintegration technology. Because the Company had previously filed
"preliminary patent applications" on December 19, 1995, the priority date of its
definitive patent application is retroactive to such earlier date. Prior to
obtaining its patent, the Company relied on trade secrets, proprietary know-how
and technological innovation to develop its technology and the designs and
specifications for the TCS-1 System. Except where the terms of their employment
agreements would make it redundant or, in the sole discretion of management, it
is determined that because of the nontechnical nature of their duties, such
agreements are not necessary or appropriate, the Company has, and will continue
to, enter into confidentiality and invention assignment agreements with all
employees and consultants which limit access to, and disclosure or use of, the
Company's proprietary technology. There can be no assurance, however, that the
steps taken by the Company to deter misappropriation or third party development
of its technology and/or processes will be adequate, that others will not
independently develop similar technology and/or processes or that secrecy will
not be breached. In addition, although the Company believes that its technology
has been independently developed and does not infringe on the proprietary rights
of others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. Moreover, there can be no assurance that the
Company will be granted a patent pursuant to its application or, that if a
patent is granted, the Company will have the resources to defend it by bringing
patent infringement or other proprietary rights actions.
10. Limited Public Market: Company Not Eligible for Inclusion on NASDAQ.
To date there has been only a limited and sporadic public market for the
Company's Common Stock. There can be no assurance that an active and reliable
public market will develop or, if developed, that such market will be sustained.
Purchasers of the securities offered hereby may, therefore, have difficulty in
selling the shares of Common Stock issuable upon the conversion of the
Debentures or the exercise of the Warrants. As a result, investors may find it
impossible to liquidate their investment in the Company should they desire to do
so. The Company's Common stock is currently traded in the over-the-counter
market and quoted on the OTC Bulletin Board. The Company intends to apply to
have its Common Stock approved for quotation on the Nasdaq SmallCap Market at
such time as it meets the requirements for inclusion. As at the date hereof,
however, the Company is not eligible for inclusion in NASDAQ or for listing on
any national stock exchange. All companies applying and authorized for NASDAQ
are required to have not
15
<PAGE>
less than $4,000,000 in net tangible assets, a public float(1) with a market
value of not less than five million dollars, and a minimum bid of price of $4.00
per share. At the present time, the Company is unable to state when, if ever, it
will meet the Nasdaq application standards. Unless the Company is able to
increase its net worth and market valuation substantially, either through the
accumulation of surplus out of earned income or successful capital raising
financing activities, it will never be able to meet the eligibility requirements
of NASDAQ. In addition, it is likely that the Company, which presently has
62,796,426 shares of Common Stock issued and outstanding, will have to effect a
reverse split of its issued and outstanding stock, in order to meet the minimum
bid price requirement (see, also, "Risk Factor No. 5 Dilutive and Other Adverse
Effects of Debentures and Warrants and Presently Outstanding Option). Moreover,
even if the Company meets the minimum requirements to apply for inclusion in The
Nasdaq SmallCap Market, there can be no assurance, that approval will be
received or, if received, that the Company will meet the requirements for
continued listing on the SmallCap Market. Further, Nasdaq reserves the right to
withdraw or terminate a listing on the Nasdaq SmallCap Market at any time and
for any reason in its discretion. If the Company is unable to obtain or to
maintain a listing on the Nasdaq SmallCap Market, quotations, if any, for "bid"
and "asked" prices of the Common Stock would be available only on the OTC
Bulletin Board where the Common Stock is currently quoted or in the "pink
sheets" published by the National Quotation Bureau, Inc. This can result in an
investor's finding it more difficult to dispose of or to obtain accurate
quotations of prices for the Common Stock than would be the case if the Common
Stock were quoted on the Nasdaq SmallCap Market. Irrespective of whether or not
the Common Stock is included in the Nasdaq system, there is no assurance that
the public market for the Common Stock will become more active or liquid in the
future. In that regard, prospective purchasers should consider that this
offering is being made without underwriting arrangements typically found in an
initial public offering of securities. Such arrangements generally provide for
the issuer of the securities to sell the securities to an underwriter which, in
turn, sells the securities to its customers and other members of the public at a
fixed offering price, with the result that the underwriter has a continuing
interest in the market for such securities following the offering. In order to
qualify for listing on a national stock exchange, similar minimum criteria
respecting, among other things, the Company's net worth and/or income from
operation must be met.
Accordingly, market transactions in the Company's common stock are subject
to the "Penny Stock Rules" of the Securities and Exchange Act of 1934, which are
discussed in more detail, below, under "Risk Factor No. 11. Applicability of
Penny Stock Rules to Broker-Dealer Sales of Company Common Stock". These rules
could make it difficult to trade the Common Stock of the Company because
compliance with them can delay and/or preclude certain trading transactions.
This could have an adverse effect on the ability of an investor to sell any
shares of the Company's Common Stock being registered hereunder.
11. Applicability of "Penny Stock Rules" to Broker-Dealer Sales of Company
Common Stock. As discussed above, at the present time, the Company's Common
Stock is not listed on The Nasdaq Stock Market or on any Stock Exchange.
Although dealer prices for the Company's Common Stock are listed on the OTC
Bulletin Board, trading has been sporadic and limited since such quotations
first appeared on April 4, 1994. See "Market Information".
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
special disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a "penny stock". Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share and is not listed on The Nasdaq Stock Market or a major
stock exchange.
- ----------
(1) "Public float" is defined as shares that are not held directly or
indirectly by any officer or director of the issuer and by any other
person who is the beneficial owner of more than 10 percent of the total
shares outstanding.
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<PAGE>
These regulations subject all broker-dealer transactions involving such
securities to the special "Penny Stock Rules" set forth in Rule 15g-9 of the
Securities Exchange Act of 1934 (the "34 Act"). It may be necessary for the
Selling Shareholders to utilize the services of broker-dealers who are members
of the NASD. The current market price of the Company's Common Stock is
substantially less than $5 per share and such stock can, for at least for the
foreseeable future, be expected to continue to trade in the over-the-counter
market at a per share market price of less than $5 (see "Market Information").
Accordingly, any broker-dealer sales of the shares being registered hereunder,
as well as any subsequent market transactions in the Company's Common Stock,
will be subject to the Penny Stock Rules. These Rules affect the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of purchasers in this offering to sell their shares in the secondary market, if
such a market should ever develop.
The Penny Stock Rules also impose special sales practice requirements on
broker-dealers who sell such securities to persons other than their established
customers or "Accredited Investors." Among other things, the Penny Stock Rules
require that a broker-dealer make a special suitability determination respecting
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. In addition, the Penny Stock Rules require that a
broker-dealer deliver, prior to any transaction, a disclosure schedule prepared
in accordance with the requirements of the Commission relating to the penny
stock market. Disclosure also has to be made about commissions payable to both
the broker-dealer and the registered representative and the current quotations
for the securities. Finally, monthly statements have to be sent to any holder of
such penny stocks disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
Accordingly, for so long as the Penny Stock Rules are applicable to the
Company's Common Stock, it may be difficult to trade such stock because
compliance with such Rules can delay and/or preclude certain trading
transactions. This could have an adverse effect on the liquidity and/or price of
the Company's Common Stock.
12. Experience of Management. Although Management has general business and
engineering experience, potential investors should be aware that no member of
management has been directly involved in administering a tire disintegration,
recycling, or tire disintegration equipment manufacturing, business, except for
Mr. Sanzaro, who has more than twenty years of experience in the recycling
business (excluding tires) (see "Management - Directors and Executive
Officers").
13. Dependence on Key Personnel. The Company believes that its success
depends to a significant extent on the efforts and abilities of certain of its
senior management, in particular those of Terence C. Byrne, President and Chief
Executive Officer; and Louis V. Muro, Vice President in charge of Engineering.
The loss of Mr. Byrne, or Mr. Muro could have a material adverse affect on the
Company's business, prospects, operating results, and financial condition. The
Company does not presently have key man life insurance policies, but intends to
try to obtain such coverage in the amount of $1,000,000 for Mr. Byrne and
$500,000 for Mr. Muro. There can be no assurance that such policies will be
available to the Company on commercially reasonably terms, if at all.
Additional, the ability of the Company to realize its business plan could be
jeopardized if any of its senior management becomes incapable of fulfilling his
obligations to the Company and a capable successor is not found on a timely
basis. There can however be no assurance that, in such event, the Company will
be able to locate and retain a capable successor to any member of its senior
management.
14. Regulatory and Environmental Considerations. The Company does not
expect that its equipment manufacturing operations will be subject to any
unusual or burdensome governmental regulations. However, test operations of the
TCS-1 and the Company's continuing research and development activities, may, as
is the case with the businesses of the Company's customers, require to
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<PAGE>
varying degrees and for varying periods of time, the storage or "stockpiling" of
scrap tires which, with their size, volume and composition, can pose a
particularly serious environmental problem. Among the numerous problems relating
to stockpiling scrap tires, is the fact that when stockpiled above ground, tires
create serious fire, public health, and environmental hazards ranging from
fires, which generate large and dense clouds of black smoke and are extremely
difficult to extinguish, to the creation of vast breeding grounds for mosquitoes
and vermin. As a result, many states have either passed or have pending
legislation regarding discarded tires including legislation limiting the storage
of used tires to specifically designated areas. For reasons including, but not
limited to the problems described above, the Company and the purchasers of its
TCS-1 Systems will be subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental, health, and labor agencies. Compliance with applicable
environmental and other laws and regulations governing the business of the
Company may impose a financial burden upon the Company that could adversely
affect its business, financial condition, prospects, and results of operations.
Likewise, the burden of compliance with laws and regulations governing the
installation and/or operation of TCS-1 Systems could discourage potential
customers from purchasing a TCS-1 System which would adversely affect the
Company's business, prospects, results, and financial condition. Actions by
federal, state, and local governments concerning environmental or other matters
could result in regulations that could increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 System and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that it will be able to operate in compliance with
such regulations. In this regard, it has retained environmental attorneys in
Montreal to advise it with respect to compliance with local environmental
regulations. It has also engaged a consultant to advise purchasers of its TCS-1
Systems with respect to compliance with local environmental regulations
applicable to the installation and operation of the TCS-1 System. To date, the
Company has not had to make significant capital expenditures relating to
environmental compliance because it has not yet commenced operations. However,
the storing and processing of tires which will be required for testing of the
first TCS-1 System at the Company's assembly facility in Montreal will be
subject to certain fire safety building code standards. The Company expects to
spend approximately $200,000 to bring the facility into compliance with such
standards. Moreover, the Company believes that the inception of equipment
manufacturing operations, together with continually changing compliance
standards and technology, may affect the Company's future capital expenditure
requirements relating to environmental compliance. Since all government
regulations are subject to change and to interpretation by local
administrations, the effect of government regulation could conceivably prevent,
or delay for a considerable period of time, the development of the Company's
business as planned and/or impose costly requirements on the Company or on its
TCS-1 System customers, which could result in the Company's or its TCS-1
customers' businesses being less profitable, or unprofitable, to operate. (See
"Business - Government Regulation").
15. Production and Supply. The Company intends to begin manufacturing the
TCS-1 System on a commercial basis within the current fiscal year. The Company
will be dependent on arrangements with its subcontractors for the manufacture
and assembly of the principal components incorporated into the TCS-1 System (see
BUSINESS "Agreements With Subcontractors", below). It will therefore be
substantially dependent on the ability of such subcontractors to satisfy
performance and quality specifications and to dedicate sufficient production
capacity for all TCS-1 System scheduled delivery dates. The Company believes
that all of its subcontractors have the requisite manufacturing capabilities and
the willingness to dedicate sufficient amounts of their manufacturing capacity
to allow the Company to meet all TCS-1 System delivery dates, currently
scheduled or expected to be scheduled within the next two years. However, no
assurance can be given that this will in fact be the case and failure on the
part of the Company's subcontractors in these regards would adversely affect the
Company's ability to manufacture and deliver TCS-1 Systems on a timely and
competitive basis. In such event the Company would have
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<PAGE>
to replace or supplement its present subcontractors. There can be no assurance
that should it be necessary to do so, the Company would be able to find capable
replacements for its subcontractors on a timely basis and on terms beneficial to
the Company, if at all; The Company's inability to do so would have a material
adverse effect on its business (see BUSINESS: "Production and Supply").
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
16. Technological Changes. To date, the market for tire disintegration
equipment has not, to the best of management's knowledge, been characterized by
rapid changes in technology. However, there can be no assurance that new
products or technologies, presently unknown to the Company, will not, at any
time in the future and without warning, render the Company's tire disintegration
technology less competitive or even obsolete. Moreover, the technology upon
which the Company's tire disintegration system is based, could be susceptible to
being analyzed and reconstructed by an existing or potential competitor.
Although the Company has filed a patent application respecting its proprietary
disintegration system, there cannot, at this time be any guarantee that a patent
will, in fact, be granted pursuant to such application. Moreover, even in the
event that the Company is granted a patent, the Company may not have the
financial resources to successfully defend such patent by bringing patent
infringement suits against parties that have substantially greater resources
than are available to the Company. The Company must continue to create
innovative new products reflecting technological changes in design, engineering,
and development, not only of new tire disintegration machinery, but of products,
and machinery capable of producing products, which incorporate and recycle the
rubber, steel, and/or fiber by-products which will be produced by the operation
of the TCS-1 System. Failure to do so, could prevent to Company from gaining and
maintaining a significant market for its products. This may require a continuing
high level of product development, innovation, and expenditures. To the extent
that the Company does not respond adequately to such technological advances, its
products may become obsolete and its growth and profitability may be adversely
affected.
17. Competition. Although management believes that the Tirex Technology
has distinct advantages over other existing tire disintegration methods, the
Company will face competition from other equipment manufacturers, virtually all
of whom will be larger than the Company, and will have substantially more assets
and resources than the Company has. Management intends to meet such competition
by developing technological innovations which will make the TCS-1 System more
economical and efficient than other tire disintegration methods (see "Business -
Competition").
18. Liability Insurance. The proposed TCS-1 System may expose the Company
to possible product liability claims if, among other things, the operation of
the TCS-1 System results in personal injury, death or property damage. There can
be no assurance the Company will have sufficient resources to satisfy any
liability resulting from such claims or will be able to cause its component
suppliers or customers to indemnify or insure the Company against such claims.
The Company does not presently intend to obtain product liability insurance
prior to the commencement of commercial operation of the TCS-1 System. Should
the Company determine that such insurance is required, there can be no assurance
that affordable insurance coverage will be available in terms and scope adequate
to protect the Company against material adverse effects in the event of a
successful claim.
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19. No Dividends and None Anticipated. The Company has not paid any cash
dividends, nor does it contemplate or anticipate paying any dividends upon its
Common Stock in the foreseeable future.
20. Authorization of Preferred Stock. The Company's Amended Certificate of
Incorporation authorizes the issuance of "open" stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to designate and issue the "open" stock as preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's
Convertible Debentures, Warrants, and Common Stock. Also, the voting power and
percentage of stock ownership of the shareholders of the Company's outstanding
capital stock can be substantially diluted by such preferred stock issuance. In
addition, the issuance of such preferred stock may have the effect of rendering
more difficult or discouraging an acquisition of the Company or changes in
control of the Company. The Company does not have any provisions in its
Certificate of Incorporation which would have an anti-takeover effect. However,
certain provisions in the employment agreements of certain of the Company's
officers could have such effect. Moreover, the Company may adopt anti-takeover
measures in the future. Such measures could include, but may not necessarily be
limited to, the issuance of preferred stock with anti-takeover provisions to
discourage bidders from making offers at a premium to the market price. In
addition, the mere existence of an anti-takeover device could have a depressive
effect on the market price of the Company's Common Stock.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, is traded on a limited basis in the
over-the-counter market and quoted on the OTC Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board"). The following table sets forth representative high and low bid
prices by calendar quarters as reported in the OTC Bulletin Board during the
last two fiscal years and the subsequent interim period through _______________,
1998. The level of trading in the Company's Common Stock has been limited and
the bid prices reported may not be indicative of the value of the Common Stock
or the existence of an active market. The OTC market quotations reflect
inter-dealer prices without retail markup, mark-down, or other fees or
commissions, and may not necessarily represent actual transactions. The shares
of Common Stock underlying the Warrants and issuable upon conversion of the
Debentures are subject to restrictions on transferability.
Bid Prices
Period Common Stock
------ ------------------
Low High
----- ------
Fiscal Year Ended June 30, 1996
September 30, 1995 0.125 0.75
December 31, 1995 0.125 0.375
March 31, 1996 0.125 0.28
June 30, 1996 0.10 0.56
Fiscal Year Ended June 30, 1997
September 30, 1996 0.19 0.45
December 31, 1996 0.13 0.44
March 31, 1997 0.23 0.58
June 30, 1997 0.18 0.44
Fiscal Year Ending June 30, 1998
September 30, 1997 0.13 0.4375
December 31, 1997 0.20 0.37
March 31, 1998 0.__ ______
June 30, 1998 _____ ______
* Through ______, 1998
Shareholders
As of May 18, 1998, the number of holders of record of the Common Stock,
$.001 par value, of the Company was 375.
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THE COMPANY
Overview
The Tirex Corporation (hereinafter, the "Company" or "Tirex") was
incorporated in Delaware on August 19, 1987 under the name "Concord Enterprises,
Inc." Its name was changed to "Stopwatch Inc." on June 20, 1989 and to "Tirex
America Inc." on March 10, 1993 (see "Business - History"). On July 11, 1997, in
order to encompass the current and projected international scope of its
operations, the Company's name was changed to "The Tirex Corporation". The
Company, directly and through its subsidiary, 3143619 Canada Inc. (known and
doing business, and referred to herein, as "Tirex Canada Inc."), is presently
engaged in the early stages of the business of manufacturing, selling, and
leasing a patented cryogenic tire disintegration system, which it has designed
and developed (the "TCS-1 System") which integrates its patented disintegration
technology with established conventional mechanical and technologies (see
"Business"). The Company's principal executive offices are located at 740 St.
Maurice, Suite 201, Montreal, Quebec H3C 1L5, Canada, its telephone number is
(514) 878-0727 and its Internet address is [email protected].
Background
The Company was originally formed as what was referred to as a "blind
pool", i.e., it had no operations of its own, its intent being to acquire
existing assets, properties, companies and/or operating a start-up business. On
April 12, 1989, under its original name, "Concord Enterprises Inc., the Company
completed a public offering upon the sale of 150,000 units, each unit consisting
of one share of its common stock, par value $.001 per share, and twelve common
stock purchase warrants, all of which warrants have since expired, at a price to
the public of $.75 per unit. In June of 1989, in a "reverse merger", Stopwatch,
Inc., a New Jersey corporation ("Stopwatch") was merged with and into Concord
and the Company's name was changed to Stopwatch, Inc. Stopwatch's proposed
business contemplated the provision of comprehensive health care services to
persons with Acquired Immune Deficiency Syndrome ("AIDS"). Implementation of the
Stopwatch business plan was entirely dependent upon its obtaining sufficient
financing therefor. Such financing was never obtained and as a consequence
Stopwatch never conducted any business operations and ceased all activities in
or about November of 1990.
On November 5, 1992, all members of the Stopwatch management resigned
their positions and appointed an interim board of directors, consisting of three
individuals, none of whom have been associated or affiliated with the Company
since January of 1995. In December of 1992, Louis V. Muro, currently a director
and Vice President of Engineering of the Company replaced a resigning member of
the said interim board which, with the appointment of Mr. Muro, will be referred
to hereinafter as the "Original Tirex Board". On March 26, 1993, the Company
acquired the core technology, based upon which it has developed its patented
cryogenic tire disintegration technology (the "Tirex Technology") and a Business
Plan for the exploitation thereof from the three members of the Original Tirex
Board in exchange for an aggregate of 15,900,000 shares of the Company's Common
Stock, 11,900,000 of which shares were placed into escrow, for release upon the
achievement of various development and performance goals. The Company's name was
changed to "Tirex America Inc." on March 10, 1993. During all of 1993 and 1994,
the Original Tirex Board tried, but was unable, to raise any significant
financing to fund the development and construction of the first TCS-1 System,
except for $104,000 which were expended on the development and construction of a
one-quarter scale model prototype of the proprietary disintegration mechanism of
the TCS-1 System, which was completed in July 1994. None of the 11,900,000
shares in escrow were released, but 3,000,000 new shares were issued to the
three persons who had constituted the Original Tirex Board, in respect of the
completion of such prototype.
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<PAGE>
In January of 1995, the three individuals, who had constituted the
Original Tirex Board, renounced all rights to the 11,900,000 escrowed shares and
confirmed that the performance levels required for the release of such shares
had never been met. Prior to that time, in light of its inability to move
forward effectively with the implementation of the Tirex business plan, the then
incumbent management of the Company had initiated a search for new management
personnel with expertise and the ability to raise financing for development
stage businesses. Effective January 18, 1995, all of the members of the said
incumbent management voted to reduce the number of members of the board to two,
resigned their positions as directors (and/or officers) of the Company, and
appointed the Company's present President and the company's present corporate
and securities attorney, as the directors of the Company for the purpose of
building a new management team with the ability to fund and direct the
development of the Tirex Technology and implement business operations for the
exploitation thereof (see "Management Executive Officers and Directors"). On
July 11, 1997, in order to encompass the projected international scope of its
operations, the Company's name was changed to "The Tirex Corporation".
The Company's principal executive offices are located at 740 St. Maurice,
Suite 201, Montreal, Quebec H3C 1L5, Canada, its telephone number is (514)
878-0727 and its Internet address is [email protected].
Material Financing Activities
The Type A Private Placement
Between November 5, 1997 and May 11, 1998, the Company offered to sell
(the "Type A Private Placement") through H.J. Meyers & Co., Inc., as placement
agent (the "Placement Agent"), 28 Units, (the "Type A Units") at a price of
$25,000 per Unit, each Type A Unit consisting of one 10% Convertible
Subordinated Debenture in the principal amount of $25,000 (the "Type A
Debentures") and 100,000 warrants (the "Type A Warrants") to purchase a like
number of shares of the Common Stock of the Company (the "Type A Warrant
Shares"). The Type A Private Placement was terminated by the Company and the
Placement Agent on May 11, 1998 upon the sale on April 9, 1998 of twenty Type A
Units to two purchasers, yielding gross proceeds of $500,000 and net proceeds of
$433,500 after payment of the Placement Agent's $10% commission, 3%
nonaccountable expense allowance, and an escrow agent's fee of $1,500. The Type
A Private Placement was effected in reliance upon the availability of an
exemption from the registration provisions of the Securities Act by virtue of
compliance with the provisions of Section 4(2) of the Securities Act and Rule
506 of Regulation D thereof ("Rule 506"). The Type A Units were offered and sold
to a limited number of sophisticated investors who understood and are
economically capable of accepting the risks associated with a speculative
investment, including the complete loss of such investment, and who are
"Accredited Investors" within the meaning prescribed by Regulation D and Rule
501 of the Securities Act.
The 2,000,000 outstanding Type A Warrants are exercisable at a price of
$.001 per share, commencing on the day following the effective date (the
"Effective Date") of the registration statement on Form SB-2 of which this
Prospectus is a part (the "Registration Statement"). The Type A Debentures are
convertible commencing on the day following the Effective Date of the
Registration Statement at a conversion ratio of 75% of market price. The
Debentures are redeemable at any time after issuance at 125% of face value (see
"Prospectus Summary - The Offering", "Selling Securities Holders" and
"Description of Securities").
The Company's sale of the 2,000,000 Type A Warrant Shares pursuant to the
exercise of the Type A Warrants and the Company's issuance of shares of its
Common Stock pursuant to the conversion of the Type A Debentures (the "Type A
Debenture Shares"), have been registered by way of inclusion in the Registration
Statement and all of such shares are included among the Underlying Shares. The
Underlying
23
<PAGE>
Shares, to the extent that are acquired from the Company, may be offered and
resold by the holders thereof, from time to time, as market conditions permit in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. To the extent that such shares are
acquired from the Company and offered for resale within
days of such acquisition, they will be subject to prospectus delivery
requirements (see "Prospectus Summary - The Offering" and "Selling Securities
Holders").
The Type B Private Placement
On January 7, 1998, The Company issued a total of 3,305,000 shares of its
common stock to thirty-six persons, none of whom had any affiliation with the
Company. These issuances were made pursuant to the terms of a merger agreement
by and among the Company, the Company's wholly-owned subsidiary Tirex
Acquisition Corp. ("TAC"), and RPM Incorporated ("RPM") respecting the merger of
RPM with and into TAC (the "RPM Merger").
The RPM Merger Agreement was effective on January 7, 1998, concurrent with
the initial closing of a private placement of its securities which had been made
by RPM (the "RPM Private Placement") in which RPM offered to sell units of its
securities (the "RPM Units"), each such Unit consisting of one 10% Convertible
Subordinated Debenture in the principal amount of $10,000 (the "RPM Debentures")
and 10,000 shares of the Common Stock of RPM. Such initial closing took place
upon the sale of 30.5 RPM Units. The RPM Private Placement was continued by the
Company after the Merger as the "Type B Private Placement", described below. In
effectuation of the RPM Merger, the Company:
(i) exchanged one share of its common stock ("Merger Shares") for every
issued and outstanding share of RPM common stock (which included
305,000 shares sold in the RPM Private Placement and 3,000,000
shares which had been issued and outstanding prior to the
commencement of the RPM Merger); and
(ii) assumed RPM's liabilities and obligations under 30.5 RPM Debentures
in the aggregate principal amount of $305,000 which RPM had
theretofore sold in the RPM Private Placement;
All of the net proceeds from the RPM Private Placement ($276,085) remained
in RPM when it was merged into TAC, which was the surviving entity.
From the date of the RPM Merger until May 11, 1998, the Company continued
the RPM Private Placement through the Placement Agent as the "Type B Private
Placement, offering the balance of the securities which had originally been
offered by RPM, with the exchange of RPM Common Stock for Company common stock
and the Company's assumption of the RPM debentures being deemed to have occurred
concurrently with the RPM Merger. Units sold by the Company in the Type B
Private Placement (the "Type B Units") were identical to the RPM Units except
that the Type B Debentures were issued directly by the Company and the 10,000
share component of the Unit consisted of shares of the Company's common stock.
Pursuant thereto, between January 23, 1998 and May 11, 1998, the Company sold 23
Type B Units, consisting in the aggregate of 230,000 shares of its common stock
and twenty-three 10% convertible Debentures, each in the principal amount of
$10,000, to 21 private investors, who had no affiliation with the Company.
All of the Type B Debentures and the RPM Debentures, which had been
assumed by the Company (referred to collectively, hereinafter as the "Type B
Debentures"), were amended prior to the filing of the
24
<PAGE>
Registration Statement to provide for: (i) the registration of the shares (the
"Type B Conversion Shares") issuable upon the conversion of the Debentures; (ii)
the termination of the holder's right to convert the Type B Debentures,
effective the day immediately prior to the filing of the Registration Statement,
of which this Prospectus forms a part, and the commencement of a new conversion
period as of the date following the effective date of the said Registration
Statement; and (iii) restrictions on the transfer of the Type B Conversion
Shares until the first to occur of: (a) six months from the effective date of
the Registration Statement, or (b) one year from the date of the issuance of the
Debenture. The Type B Debentures are convertible at a ratio of one share for
every $0.20 of the principal amount of the Debenture plus interest earned
thereon from the date of issuance. The Type B Debentures are redeemable at face
value plus all earned interest from the date of issuance on the first to occur
of: (i) two years from the issue date or (ii) the completion and closing of a
public offering of its securities by the Company.
Issuances of shares of the Company's common stock pursuant to the
conversion of the Type B Debentures and the RPM Debentures, which were assumed
by the Company in the Merger, have been registered by way of inclusion in the
Registration Statement and such shares are included among the Underlying Shares.
To the extent that such shares are acquired from the Company and offered for
resale within days of such acquisition, they will be subject to prospectus
delivery requirements (see "Prospectus Summary - The Offering" and "Selling
Securities Holders").
Merger with RPM Incorporated
3,000,000 shares (the "Pre-Placement RPM Shares") of the 3,305,000 shares
of RPM Common Stock for which the Company issued Merger Shares, constituted all
of the shares of RPM Common Stock which were issued and outstanding prior to the
commencement of RPM Private Placement. These shares were exchanged for 3,000,000
Merger Shares in consideration of RPM's waiver of certain consulting fees in the
amount of $4,000 per month, accrued prior and subsequent to the Merger pursuant
to the terms of a certain five-year consulting agreement, dated June 9, 1997,
among RPM, the Company, and two individuals who were, prior to the Merger, RPM's
principal shareholders, officers, and directors. None of the RPM Shareholders
had any affiliation of any kind with Registrant prior to or after the Merger
(except insofar as they have become shareholders of Registrant as a result of
the said Merger). Based upon information provided by the recipients (the RPM
Shareholders") of the above described 3,305,000 shares of Common Stock and
advice from the principals of RPM and the opinion of RPM's counsel, all
3,000,000 of the Pre-Placement RPM Shares were acquired by the RPM Shareholders
prior to March 31, 1997; all of the RPM Shareholders are "accredited investors"
as that term is defined in Rule 501(a) of the Securities Act; all 3,305,000 of
the shares of RPM common stock (including the Pre-Placement RPM Shares as well
as the RPM Shares sold in the RPM Private Placement) which were exchanged for
Merger Shares were acquired in transactions which were exempt from the
registration requirements of Section 5 of the Securities Act available under
Rule 506 of Regulation D thereof, which would not be integrated, as such term is
defined in Section 502(a) of Regulation D under the Securities Act, with the
distribution of the Merger Shares to the RPM Shareholders, so as to render
unavailable, for such distribution, the exemption from the registration
provisions of the Securities Act under Rule 506 of Regulation D.
Sales made in the RPM Private Placement and the Type B Private Placement
and the exchange of shares in the Merger were effected in compliance with Rule
506 to a limited number of sophisticated investors who understood and were
economically capable of accepting the risks associated with a speculative
investment, including the complete loss of such investment, and who were
"Accredited Investors" within the meaning prescribed by Regulation D and Rule
501 of the Securities Act.
25
<PAGE>
The Type C Private Placement
On May 11, 1998, the Company completed a private placement (the "Type C
Private Placement") made directly by the Company, with all offers and sales made
by officers of the Company, of a total of 11,710,000 shares of the Company's
Common Stock (the "Type C Shares") at a price of $.10 per share, yielding
proceeds of $1,171,000, without deducting nominal incidental expenses incurred
in connection with the offering. As was the case with the Type A and Type B
Private Placements, the Type C Private Placement was effected in compliance with
Rule 506 and the Type C Shares were offered and sold only to a limited number of
sophisticated investors who understood and were economically capable of
accepting the risks associated with a speculative investment, including the
complete loss of such investment, and who were "Accredited Investors" within the
meaning prescribed by Regulation D and Rule 501 of the Securities Act.
The 11,710,000 Type C Shares which were sold are included among the
"Outstanding Shares" and all of such shares have been registered for re-sale to
the public by the holders thereof by way of their inclusion in the Registration
Statement. (see "Prospectus Summary - The Offering", "Selling Securities
Holders" and "Description of Securities").
USE OF PROCEEDS
The Company will receive no proceeds from the sales of any of the
Outstanding Shares being registered hereunder for sale by the Selling
Shareholders or from any re-sale of the Underlying Shares, to the extent they
are acquired from the Company and offered for re-sale to the public. The Company
will receive the proceeds from the exercise of the CGT Option if CGT does, in
fact, exercise its option, in whole or in part. Except for 969,365 shares which
are subject to an amendment of the CGT Option (the "August 13, 1997
Amendment"),(2) the exercise price of the CGT Option is equal to fifty percent
(50%) of the average of the final bid and ask prices of the common stock of the
Corporation, as quoted in the OTC Bulletin Board during the ten business days
preceding the Exercise Date. On May 18, 1998, CGT agreed to further amend its
Option to terminate CGT's right to exercise the option as at the date preceding
the filing of the Registration Statement and to commence a new exercise period
as of the date following the Effective Date of the Registration Statement.
The number of shares subject to the CGT Option (the "CGT Option Shares")
is all, or any part of, the number of shares of the common stock of the Company
which shall constitute upon their issuance, on a fully diluted basis, ten
percent (10%) of the issued and outstanding common stock of the Company. The CGT
Option can be exercised by CGT at any time, and from time to time during a
three-year exercise period which will end on April 23, 2000. CGT has agreed to
exercise the CGT Option as soon as practicable following the date of this
Prospectus, for the purchase of the 969,365 shares subject to the August 13th
Amendment which provides for an exercise price of $.1195 per share. The proceeds
to the Company from such partial exercise will be $115,839.11. If the balance of
the Option were exercised, as
- ----------
(2) The August 13th Amendment will allow CGT to exercise part of the CGT
Option to purchase 969,365 shares of Company Common Stock at an
exercise price of $.1195 per share, which is equal to fifty percent
(50%) of the average of the final bid and ask prices of the common
stock of the Corporation, as quoted in the NASDAQ electronic
Bulletin Board during the ten business days preceding August 13,
1997.
26
<PAGE>
at the date hereof, the total proceeds to the Company would be $__________ based
upon the option being exercisable for __________ shares at an exercise price,
equal to 50% of the average of the final bid and ask prices of the common stock
of the Corporation, as quoted in the OTC Bulletin Board during the preceding ten
business days.
The Company may also receive proceeds from the exercise of the Type A
Warrants and the SCT Warrants, in an amount of up to $768,666. Reference is made
to the Notes to the Distribution Table, which appear on pages 2-5 of this
Prospectus, for a detailed discussion of the difficulties in predicting, at this
time, the actual amount of proceeds which the Company will, in fact, receive
from the exercise of the outstanding Warrants. All proceeds, which the exercise
of the Warrants will be used as working capital for general corporate purposes,
as the then current requirements of the Company shall dictate.
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock and has no
present intention to do so in the foreseeable future. The Company intends to
follow a policy of retaining earnings to finance the growth of its business. Any
future determination to pay dividends will be at the discretion of the Board of
Directors of the Company and will be dependent on the Company's results of
operations, financial condition,contractual and legal restrictions and other
factors deemed relevant by the Board of Directors at that time.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
General and Administrative
expenses $ 165,296 $ 182,674 $ 252,071 $ 793,948 $ 1,358,767
Total operating expenses 165,296 182,674 252,071 793,948 1,358,767
(Loss) from operations (165,296) (179,296) (220,576) (788,488) (1,358,767)
Interest expenses 2,088 8,531
(Loss) before provision (165,296) (179,296) (209,721) (789,628) (1,359,980)
Net loss per share (,02) (,01) (,01) (,04) (,05)
Weighted average shares
outstanding 8,131,129 22,498,176 20,439,268 19,647,590 27,992,502
Balance Sheet Data
Cash $ 4,003 $ 2,494 $ 58,470 $ 240 $ 155,037
Working capital (deficiency) (237,932) (74,068) (5,030) (246,603) (1,013,559)
Total assets 40,474 82,405 131,046 197,632 1,555,620
Total liabilities 241,935 76,562 134,658 367,429 1,695,350
Stockholder's equity
(capital deficiency) (201,461) 5,843 (3,612) (169,797) (139,730)
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the fiscal year ended June 30, 1997 ("Fiscal 1997"), and the interim
nine-month period ended March 31, 1998. This discussion contains both historical
and forward looking-statements. When used in this discussion, the words
"expect(s)", "feel(s)","believe(s)", "will", "may", "anticipate(s)" "intend(s)"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Factors that
might cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Readers are also urged to carefully review and consider the various
disclosures elsewhere in this Prospectus which discuss factors which affect the
Company's business, including the discussion under the caption "Risk Factors".
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements, respective notes and Selected Consolidated
Financial Data included elsewhere in this Prospectus. The Company is in the very
early stages of the business of manufacturing its patented cryogenic scrap tire
recycling equipment (the "TCS-1 System"). The Initial design and development
work on the first production model of the TCS-1 System (for purposes of this
discussion, the "Production Model") has been brought to approximately 90%
completion and construction was begun in February of 1997. In November 1997, the
fully-automated front-end tire preparation module, and in April 1998, the
cryogenic tire freezing section of the Production Model were completed, sold,
and delivered to the purchaser in January 1998 (see "Sales and Marketing -
Agreements with Oceans Tire Recycling & Processing Co., Inc.").
During the five-month period, which commenced on January 8, 1998 and
extended, beyond the period covered by the financial statements included in this
Prospectus, to May 15, 1998, in three private placements of the securities of
the Company (the "Private Placements"), the Company raised capital, in an amount
which management believes will be sufficient to cover all costs expected to be
required to complete construction, and testing operations, of the Production
Model (see, the discussion below under the subcaption "Liquidity and Capital
Resources"). As at the date hereof, Management is unable to predict with
certainty the amount of time or money which will be required to complete the
final assembly and testing, or "debugging" of the Production Model necessary to
bring it into conformance with its anticipated performance specifications.
However, a test phase of an estimated two months has been scheduled and is
expected to begin on or about June 15, 1998. If after such testing operations
are complete, the Production Model meets all anticipated performance
specifications, Management intends to begin manufacturing subsequent systems
immediately thereafter.
Liquidity and Capital Resources
On May 15, 1998, subsequent to the periods covered by the financial
statements included in this Prospectus, the Company completed three private
placements of its securities to a limited number of accredited investors, which
yielded aggregate net proceeds of 2,063,795 (see "The Company - Material
Financing Activities"). Management believes that these funds, (together with
Canadian and Quebec government and governmental agency grants and loans, in
various forms) will be sufficient for it to accomplish the following: (i)
complete and cover all of the Company's costs related to, the Production Model;
(ii) renovate the Company's new manufacturing and assembly facility to bring it
into full compliance with all applicable provincial and municipal regulations
(see "Business - Properties"); and (iii) cover the Company's overhead costs and
expenses through the end of October 1998. It should be noted however that the
period of time for which these funds will be available to cover normal overhead
costs
28
<PAGE>
could be significantly reduced if the Company is required to make substantial,
presently unanticipated expenditures to correct any flaws or defects in the
design or construction of the Production Model which may become apparent during
the test phase.
Management believes that after the testing and "debugging" phase of the
Production Model is completed, the Company will be able to obtain sufficient
"production financing" to cover the costs of constructing subsequent TCS-1
Systems, using the System which is being financed, as collateral for debt
financing used to cover its construction costs. However, such an outcome is
entirely dependent upon the Production Model meeting its anticipated performance
specifications. Because assembly of the Production Model has not yet been
completed and testing operations have not yet commenced, management is unable at
this time to give any assurances that such performance specifications will be
met, on a timely basis, without undue economic costs, if at all.
Management does not believe that, even with the possible availability of
production financing, that such financing together with cash flow from sales of
TCS-1 Systems will be sufficient to provide the funds necessary for the
Company's operations, capital expenditures and anticipated growth during the
next twelve months. It will therefore be necessary for the Company to satisfy
its financial needs by raising additional equity capital. In an effort to put
such funding into place, the Company has entered into a non-binding letter of
intent with a potential underwriter for a public offering of its securities in
an amount of not less than $8,000,000. Management is not able at this time to
give any assurances that the said non-binding letter of intent will ultimately
result in a public offering or that the Company will be successful in obtaining
another underwriter for such enterprise. In all events, no public offering is
expected to be effected during the current fiscal year. Management believes that
If the Company is not able to effect a public offering of its securities within
the next twelve months, or find other sources of outside funding, the Company's
financial position and its prospects for beginning and developing profitable
business operations could be materially adversely affected.
Prior to, and including the recently completed Private Placements
described above, the activities of the Company since its inception in 1987 have
been financed by sources other than operations. Such financing was principally
provided by the sale of securities in private transactions, as follows:
Proceeds From
Year Ended Sales of
June 30th Securities
--------- ----------
1998* 2,063,795
1997 $ 345,391
1996 80,872
1995 22,316
1994 237,430
1993 76,055
1990 80,812
1989 77,000
- ----------
* Includes $532,365 in proceeds from Private Placements received between January
1, 1998 and March 31, 1998
As at March 31, 1998, the Company had total assets of $2,293,333 as
compared to $1,555,620 at June 30, 1997 reflecting an increase of $737,713
during the first nine-months of the year ending June 30, 1998 and an increase of
$1,713,697 in total assets since March 31, 1997. Fiscal year-end total assets at
June 30, 1997 also reflected an increase of $1,357,988 over $197,632 in year-end
total assets at June 30, 1996. Management attributes such increases in total
assets principally to (i) accrued design and
29
<PAGE>
development costs of the TCS-1 System of during Fiscal 1997, and a further
increase of $135,577 during the nine months ended March 31, 1998; (ii) an
increase in cash in the amount of $154,037 during Fiscal 1997, and a further
increase of $150,206 during the nine months ended March 31, 1998; (iii) an
increase in research and development tax credit receivables in the amount of
$269,918 during Fiscal 1997, and a further increase of $369,844 during the nine
months ended March 31, 1998; (iv) deferred start up costs of $74,683; during
Fiscal 1997, and a further increase of $21,951 during the nine months ended
March 31, 1998.
As at March 31, 1998, the Company had total liabilities of $3,092,377 as
compared to $1,695,350 at June 30, 1997, reflecting an increase in liabilities
of $1,397,627 during the first nine months of Fiscal 1998 and an increase of
$2,601,978 in total assets since March 31, 1997. Fiscal year-end total
liabilities at June 30, 1997 also reflected an increase of $1,327,921 over
$367,429 in year-end total liabilities at June 30, 1996. Management attributes
such increases in total liabilities primarily to the recording of liabilities
associated with the accruing of various expenses, including (i) $492,643 in
accrued officers' salaries during Fiscal 1997, of which $126,181 was repaid by
way of the issuance of shares of common stock, and $366,462 was paid in cash as
of June 30, 1997, and $540,839, accrued during the nine months ended March 31,
1998, of which $153,191 will be repaid as of June 30, 1998 by way of the
issuance of shares of common stock, and 387,648, of which will be repaid in cash
as at the end of the current fiscal year; (ii) $415,000 reflecting the Company's
receipt of refundable deposits and repayments from O/V III, and Recycletron;
(iii) increase in bank indebtedness in the amount of $200,855 during Fiscal 1997
and $504,869 during the first nine months of Fiscal 1998; (iv) $200,545 in
advances from the Federal Office of Regional Development: Quebec ("FORDQ")
during Fiscal 1997 and $278,593 during the first nine months of Fiscal 1998,
pursuant to a loan contributed under the Industrial Recovery Program for
SouthWest Montreal; (v) $480,000 in refundable deposits and/or prepayments on
TCS-1 Systems for which orders have been taken during fiscal 1997 and an
additional $183,500 for the first nine months of Fiscal 1998; and (vi) the
issuance during the first nine months of Fiscal 1998, in one of the Private
Placements of 10% Convertible Subordinated debentures in the aggregate principal
amount of $445,000.
Reflecting the foregoing, as at June 30, 1997, the Company had a working
capital deficit (current assets minus current liabilities) of ($1,013,559 ). By
March 31, 1998, such working capital deficit had increased to ($1,406,828). At
the end of the prior comparative periods, the Company's working capital deficit
was ($246,031) at June 30, 1996, and ($478,544) at March 31, 1997.
The Company currently has limited material assets, negative working
capital, and a negative net worth. The success of its tire recycling equipment
manufacturing business and its ability to continue as a going concern will be
dependent upon Production Model's meeting anticipated performance specifications
on a timely and economical basis and the Company's ability to obtain adequate
financing to commence profitable, commercial manufacturing and sales activities
following the test phase of the Production Model.
Results of Operations
As noted above, the Company is presently in the very early stages of the
business of manufacturing and selling its patented cryogenic tire recycling
equipment, referred to herein as the "TCS-1 System". The Company recently
completed the initial design and development stage of the TCS-1 System and it
intends to begin manufacturing on a commercial basis following the test phase of
the Production Model if such test phase proves that the Production Model is
capable of meeting its anticipated performance specifications. The Company had
no income from operations during Fiscal 1997. It generated $415,000 in revenues
in January of 1998 from the sale of the front-end module of the Production Model
of the TCS-1 System. However, unless and until the Company successfully develops
30
<PAGE>
and commences manufacturing and sales operations on a full-scale commerical
level, it will continue to generate no or only limited revenues from operations.
Except for the foregoing, the Company has never engaged in any significant
business activities. There were no significant revenues from operations during
Fiscal 1996 or during the nine-month period ended March 31, 1997.
The financial statements which are included in this Prospectus reflect
increases in total general and administrative expenses, from $793,948 for Fiscal
1996, to $1,358,767 for Fiscal 1997 and to $1,369,130 for the nine-month period
ended March 31, 1998 (as compared to $620,433 for the nine-month period ended
March 31, 1997). The great bulk of such increases reflected the accrual, as
advances, of salaries for the Company's executive officers and corporate
counsel, in the amounts of $403,681 for Fiscal 1997 and of $540,839 for the
first nine months of Fiscal 1998. Other expenses during Fiscal 1997 and the
nine-month period ended March 31, 1998 were made principally for overhead and
operating costs. Management believes that the amounts accrued in respect of the
shares issued to compensate the executive officers and corporate counsel reflect
the fair value of the services rendered and not the value of the stock at the
time it was issued. In respect of the value of the shares received by such
persons in lieu of cash compensation, management believes that it was, as of the
dates when such shares were issued, impossible to determine the actual current
or potential value, if any, of the such shares in light of the fact that, as of
such dates, the shares had no or only very minimal actual market value and the
actual potential market value of such shares, if any, at such dates was, and as
at the date hereof remains, highly contingent upon, and subject to, extremely
high risks including but not limited to the following factors: (i) the very
early stage of development of the Company's business; (ii) the Company's lack of
sufficient funds to implement its business plan and the absence of any
commitments from potential investors to provide such funds; (iii) the absence of
a reliable, stable, or substantial trading market for such shares; (iv) the
restrictions on transfer arising out of the absence of registration of such
shares and, in some instances, to their being subject to certain stock
restriction agreements; and (v) the uncertainty respecting the Company's ability
to continue as a going concern, (See "Business", "Market for the Company's
Common Equity and Related Stockholder Matters", and "Management - Certain
Relationships and Related Transactions - Issuance of Stock in Lieu of Salaries
and Consulting Fees").
From inception (July 15, 1987) through March 31, 1998, the Company has
incurred a cumulative net loss of $4,963,490. Approximately 21% of such
cumulative loss was incurred, prior to the inception of the Company's present
business plan, in connection with the Company's discontinued proposed health
care business and was due primarily to the expensing of costs associated with
the unsuccessful attempt to establish such health care business. The Company
never commenced its proposed health care operations and therefore, generated no
revenues therefrom.
BUSINESS
History
The Company is in the early stages of the business of manufacturing and
selling cryogenic scrap tire disintegration equipment (the "TCS-1 System").
Therefore, although the Company has generated some limited revenues from
operations, it is still in the development stage. The Company acquired the core
technology, based upon which it has developed its patented cryogenic tire
disintegration technology (the "Tirex Technology") in the fall of 1992 (see
above, "The Company"). Since the beginning of 1993, it has devoted the bulk of
its efforts to completing the design and development, and commencing the
manufacture, of the TCS-1 System and raising the financing required for such
project. In August of 1995, the Company moved its corporate headquarters to
Quebec. The Company began taking orders for TCS-1 Systems in October of 1995
and, to date, has received refundable deposits of $25,000 each on five Systems
from two customers. Part of one of the five Systems on which the Company has
taken deposits
31
<PAGE>
has been delivered and paid for with the balance of such System to be delivered
when completed.(3) (see "Sales and Marketing - Agreements with Oceans Tire
Recycling and Processing Co., Inc." and "Backlog") The Company has located and
entered into written and oral agreements with various engineering and
manufacturing subcontractors and component suppliers, which Management believes
will supply it with sufficient production capacity to meet all current and
projected orders, on a timely basis, commencing upon satisfactory completion of
testing operations of the initial TCS-1 System (see below, "Products and
Services").
Products and Services
Product
The TCS-1 System
The TCS-1 System comprises a complete, turn-key, environmentally safe,
cryogenic tire disintegration system designed to: (i) disintegrate scrap tires,
using substantially less energy than is required by existing ambient methods
(which shred and/or chop tires at "ambient" or normal room temperatures) or
other currently available cryogenic methods (which reduce the temperature of the
materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber. The Company is
presently conducting two private placements of its securities (the Type "A and
Type B Private Placements") (see below "The Company - Material Financing
Activities"). If both Private Placements are successfully completed, the Company
expects to be able to complete the construction, and initiate testing, of the
first production model of its proprietary cryogenic scrap tire disintegration
system (the "TCS-1 System") by May 1998. Any failure or delay in the Company's
ability to obtain the required financing, because of a failure to complete such
Private Placements, would be directly reflected in a commensurate delay or
failure in the completion of the construction, and the commencement of the
testing, of the production model.
The functions and mechanisms of the proposed TCS-1 System have been
designed for the exclusive purpose of disintegrating automobile and truck tires,
which basically consist of the following elements:
* Two types of rubber. The sidewalls of tires are constructed of
material containing a higher percentage of natural, as opposed to
synthetic, rubber which is used in the treads. The TCS-1 System has
been designed to take advantage of these differences to produce a
separate rubber powder reclaimed exclusively from the sidewalls.
* Steel beads, which consist of steel wires tightly wound together to
a diameter of approximately 3/8 of an inch. These beads are imbedded
around the rims of the tire treads;
- ----------
(3) Construction of this System began in February of 1997 and it was
anticipated that delivery would occur on or before September 15, 1997. However,
completion of the System was, and remains, subject to delay because of the
limited funds available for such purpose. The Company was able to complete and
deliver the fully automated front-end sidewall cutter and debeader module of
this System by January of 1998, when it was accepted and paid for by the
purchaser. The parties rescheduled a new delivery date for the balance of the
System, which occurred in May of 1998 (see "Sales and Marketing Agreements with
Oceans Tire Recycling & Processing Co., Inc.").
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* Steel belting, which incorporates a thin layer of steel wires laid
out in a "herring bone" pattern and which underlies the entire
surface of the tread area, and
* Fiber threads which are incorporated into the rubber used throughout
the tire.
In April of 1997, the Company replaced its original, one-quarter scale
model with a new, larger sized (approximately 1/2 scale) operating prototype of
the TCS-1 System's proprietary disintegration unit. This scale model
disintegration mechanism is currently being used to run test operations for the
purpose of identifying and solving problems which may arise, as well as to test
the limits of the System's productive capacity. This has enabled the Company's
engineering team to further develop, under operating conditions, the designs and
specifications of the components of the disintegration mechanism to be used in
the first production model of the TCS-1 System, which is presently under
construction. The scale model disintegration mechanism is also being used to
produce rubber crumb for the purpose of testing the nature, quality, and
potential marketability thereof. To date, results of such tests have been highly
satisfactory.
Economy of Operation
The TCS-1 System has been designed to operate continuously (with minimum
amounts of downtime for maintenance), to consume approximately 6.50 kilowatts of
power, and is designed to require substantially less energy than is used by
presently existing equipment. TCS-1 System will be able to process both
automobile and truck tires in quantities equivalent to 180 automobile tires per
hour, or 1,000,000 automobile tires per year.
Projected Functions, Operations, and Capabilities
The following discussion of the functions, operations, and capabilities of
the TCS-1 System are based upon engineering design plans and specifications and
test operations of: (i) the 1/2 scale prototype disintegration mechanism; (ii)
the automated front-end system; and (iii) various other components of the System
which have already been completed and tested separately. This discussion also
assumes that the System, when complete and fully integrated, will function as
planned, of which there can be no assurance. However, because the TCS-1 System
is still in the development stage, the Company cannot, as at the date hereof,
guaranty how long after the completion of the first full-scale production model,
if ever, the System will perform fully in accordance with Management's
expectations.
Step-by-Step Operations
The projected step-by step operations of the TCS-1 System will encompass
the following:
(a) The two sidewalls will be cut off and the tread will be cut into
lengths of about one foot. (The sidewalls will be kept separate from
the tread sections throughout the process).
(b) The two steel beads which are contained within each tire will be
pulled out;
(c) Sidewall and tread sections will automatically be placed onto
separate conveying systems which will then feed them into the TCS-1
System's freezing chambers through separate air locks.
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(d) The frozen sections will then pass through proprietary
disintegrators where the sidewall and tread rubber will be reduced
to two separate coarse powders. This operation will not involve any
chopping, shredding, or hammer-milling. Therefore, the steel wires
will not be cut or broken. The fiber threads will retain their basic
shapes and characteristics. No steel powder or fiber fluff will be
produced.
(e) The steel wires will be magnetically removed from the rubber
powders.
(f) The fiber and rubber powder will be passed through screens to
separate the powder from the fiber threads. The fiber threads will
then be conveyed out of the machine to a fiber baler.
(g) The rubber powders will then be conveyed out of the TCS-1 System.
(h) 100% of the rubber powders yielded by the TCS-1 System will pass
through a ten mesh screen. Supplementary grinders will be supplied
for customers desiring finer powders which can pass through 40 mesh
or 80 mesh screens.
Production and Supply
The Company's activities to date have focused on the design and
development of the TCS-1 System. In connection with these activities, the
Company has been dependent on arrangements with its subcontractors for the
manufacture and assembly of the principal components incorporated into the TCS-1
System (see "Agreements With Subcontractors", below).
The Company has effected, and intends to continue to effect, all TCS-1
System manufacturing operations through its subcontractors. It will therefore be
substantially dependent on the ability of such subcontractors to satisfy
performance and quality specifications and to dedicate sufficient production
capacity for all TCS-1 System scheduled delivery dates. The Company believes
that all of its subcontractors have the requisite manufacturing capabilities and
the willingness to dedicate sufficient amounts of their manufacturing capacity
to allow the Company to meet all TCS-1 System delivery dates, currently
scheduled or expected to be scheduled for not less than the next two years.
However, no assurance can be given that this will in fact be the case and
failure on the part of the Company's subcontractors in these regards would
adversely affect the Company's ability to manufacture and deliver TCS-1 Systems
on a timely and competitive basis. In such event the Company would have to
replace or supplement its present subcontractors. There can be no assurance that
should it be necessary to do so, the Company would be able to find capable
replacements for its subcontractors on a timely basis and on terms beneficial to
the Company, if at all; The Company's inability to do so would have a material
adverse effect on its business. Components of the TCS-1 Systems, which are not
manufactured by the Company's subcontractors specifically for the TCS-1 System,
will be purchased, either directly by the Company or indirectly through its
subcontractors from third-party manufacturers. The Company believes that
numerous alternative sources of supply for all such components are readily
available.
Agreements With Subcontractors
The Company has entered into the following agreements with three machinery
manufacturing, engineering and designing firms located in Quebec:
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Agreement with Fedico, Inc. In January of 1997, the Company entered into
an agreement (the "Fedico Agreement") with Fedico, Inc. of St-Hubert, Quebec
("Fedico"), a machinery design firm located in Quebec. Prior thereto, Fedico had
provided consulting and other design engineering services to the Company since
the spring of 1996. Pursuant to the terms of the Fedico Agreement, Fedico acts
as project leader, guiding the over-all design and engineering of the TCS-1
System. In addition to supervising the over-all assembly and start-up procedures
of the first full-scale production model of the TCS-1 System, Fedico will
design, engineer, and fabricate certain peripheral equipment. The term of the
Fedico Agreement is for seven years, retroactively effective (to reflect work
completed prior to execution of the Agreement) as of September, 1996.
The Fedico Agreement also provides for the retention of Fedico for a
minimum of five hundred hours per year during the course of such agreement at
reasonable, competitive hourly rates for technicians, draftsmen, and
intermediate engineers, with overtime, on-site services, and travel expenses at
prevailing market rates.
Agreement with Lefebvre Freres Limitee. In January of 1997, the Company
entered into an agreement (the "Lefebvre Agreement") with Lefebvre Freres
Limitee ("Lefebvre"), a subsidiary of Lefebvre Inc., of Montreal, Quebec.
Lefebvre, specializes in custom design and fabrication of industrial machinery.
With its sister companies, Foresteel (specializing in pressure vessels and
welding) and Atelier D'Usinage Trempe (specializing in high precision
machining), Lefebvre has extensive experience and expertise in designing and
constructing equipment used in the pulp and paper, metallurgy, fiber, power
generation, and many other industries. Lefebvre had been providing the Company
with design consulting and other valuable design engineering services to the
Company since the spring of 1996. In recognition of services rendered by
Lefebvre prior to the finalization of the Lefebvre Agreement, it was made
retroactively effective as of July 23, 1996.
Lefebvre designed and constructed the prototype disintegration unit for
the TCS-1 System at competitive rates and accepted payment of approximately
one-third of its price in 340,160 unregistered shares of the common stock of the
Company. The stock portion of such price was issued to Lefebvre on January 17,
1997. Prior to such date, Lefebvre had completed the initial design
specifications for the TCS- 1 System's Disintegration Unit Assembly.
Agreement with Plasti-Systemes, Inc. In January of 1997, the Company
entered into an agreement (the "Plasti-Systemes Agreement") with
Plasti-Systemes, Inc. ("Plasti-Systemes") of Ville D'Anjou Quebec. Prior to that
date, Plasti-Systemes had been providing consulting services to the Company
respecting the design, construction, and installation of the "front-end" of the
TCS-1 System under agreed upon terms, but without a written agreement. The
Plasti-Systemes Agreement provided for Plasti-Systemes to design (including
rendering of all necessary engineering drawings), construct, and install the
"front-end" of the TCS-1 System. Design and construction of the Front End
System, which consists of a series of mechanisms which automatically: (i) cleans
and debeads the tires; (ii) separates the sidewalls from the treads; (iii) cuts
both sidewalls and treads into sections ready for processing; and (iv)
transports the beads and tire sections into separate areas for disposal or
processing has been completed. The first fully-automated front-end sidewall
cutter and debeader module was completed in November 1997 and was sold and
delivered to the purchaser in January 1998 (see "Sales and Marketing -
Agreements with Oceans Tire Recycling & Processing Co., Inc."). The
Plasti-Systemes Agreement, which was made retroactively effective as of October
16, 1996, covers mechanical work and equipment. On January 17, 1997,
Plasti-Systemes accepted payment of 26% of its total price for the foregoing
services 255,010 unregistered shares of the common stock of the Company. Prior
to such date, that part of the design and engineering work on the front-end
system, which was allocated to the stock portion of the purchase price, had been
completed.
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Proposed Services
TCS-1 System Maintenance:
Technical and Market Support
The Company requires all of its TCS-1 System purchasers to agree to enter
into a Maintenance and Technical and Market Support Agreement (the "Proposed
Maintenance Agreements"). In connection therewith the Company intends to provide
timely, high quality technical support to insure that the TCS-1 System will
perform in conformance with its specifications. Until the test phase of the
first production sized model of the TCS-1 System is completed, the Company will
be unable to finalize the definitive parameters of the services which it intends
to offer under the Proposed Maintenance Agreements. Currently proposed plans
call for the Company, or the Company's designated service provider (see
"Business - Negotiations With Proposed Service Provider", below), to provide, or
be responsible for, all technical and other labor necessary for the maintenance
of the TCS-1 System at a performance level capable of disintegrating the
equivalent of one million automobile tires per year on a twenty-four hour per
day, three hundred sixty-five day per year basis, in accordance with an
operations and performance specifications manual to be furnished to the
customer.
The Proposed Maintenance Agreements are expected to require the Company to
provide (i) regularly scheduled on-site preventive maintenance, including but
not be limited to regularly scheduled inspection and assessment of wear factors
affecting all constituent components of the System and determination and
effectuation of replacement and/or recalibration requirements and (ii)
unscheduled remedial maintenance, on an as needed basis. Other responsibilities
which the Company, or its authorized service provider, are intended to assume
under the Proposed Maintenance Agreements will include: (i) providing and
maintaining computerized equipment to monitor and document the performance by
the operator of the TCS-1 System of all routine maintenance procedures; (ii)
reviewing the data retrieved thereby on a monthly, or more frequent, basis;
(iii) immediately advising the operator of any improper performance of any of
such Procedures; (iv) providing remedial instructions to the Operator's
personnel with respect to the proper performance of certain routine maintenance
procedures to be performed by the TCS-1 System Operator, and; (v) upon request
of the Operator, re-training its personnel. The Proposed Maintenance Agreements
are intended also to provide that the Company, or its authorized service
provider, will provide an initial training period for the operator's personnel
as well as continuing training, seminars and updates, on an as needed basis.
The Proposed Maintenance Agreements are also intended to provide for
additional technical and market support including Pre-Operational Support by way
of, among other things: (i) assistance to the Operator with respect to
procedures and requirements related to obtaining all licenses, permits, and
other requirements for the establishment and operation of a TCS-1 System Plant,
including the development, documentation, and furnishing of all required
technical, environmental, operational, and other information and data; (ii)
instructions and assistance with respect to all applicable federal, state, and
local regulations and requirements respecting the preparation of the site and
the installation and operation of a TCS-1 System at the site.
In addition, it is intended that the Proposed Maintenance Agreements will
require that the Company, or its authorized service provider establish and
maintain laboratory facilities at which they shall:
(a) test and monitor the quality and properties of the rubber crumb
produced by the TCS-1 System, including but not limited to: (i)
total production rates (ii) the comparative percentages of various
crumb rubber mesh sizes produced, and (iii) wear factors existing or
developing in the disintegration mechanisms, so as to generate a
continual data base
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for the anticipation and determination of the maintenance,
remediation, and recalibration requirements of the disintegration
mechanisms and all other constituent components of the System under
actual operating conditions;
(b) test and monitor, on a continuing basis, oil samples from the TCS-1
System so as to ascertain and monitor the wear factors on the
bearings and on other components of the System;
(c) record and maintain all test data and records for the TCS-1 System
in a monthly log to be furnished to the operator at regular
intervals on a monthly basis, or on request by the operator, and be
available to the Operator at all times to discuss the meaning and
significance of all test results and any remedial or other actions
which such data indicate is necessary or advisable;
(d) creating and developing new products and uses for rubber crumb
produced by the TCS-1 System.
It is intended that the Company, or its authorized service provider will
also be responsible for certain accounting and record keeping services,
including providing accounting software to monitor the operations and output of
the TCS-1 System. It is intended that the Proposed Maintenance Agreements will
also impose obligations upon the Company, or its authorized service providers to
stock replacement parts for the TCS-1 System in order to minimize any
interruptions in the continual operation of the System. The monthly maintenance
fee for all services to be provided by the Company, or its authorized service
provider under the Proposed Maintenance Agreements is presently expected to be
$9,500 per month.
Negotiations With Proposed Service Provider
The Company is presently negotiating with Louis Sanzaro ("Sanzaro"), a
director of the Company and the controlling person of the two entities
(Ocean/Ventures III, Inc. and Oceans Tire Recycling & Processing Co., Inc.)
which have ordered nine of the ten TCS-1 Systems presently on order, to organize
and operate a maintenance company capable of serving as the Company's authorized
service provider and meeting all of the above described responsibilities. Mr.
Sanzaro has worked closely with the Company on the development of the TCS-1
System and the proposed maintenance and technical support program. Mr. Sanzaro
is a highly respected, knowledgeable, and experienced operator of recycling
organizations in New Jersey and the Company believes that he is eminently
qualified to organize and head its maintenance and technical support effort.
While the parties have not yet entered into an agreement respecting the terms
under which Mr. Sanzaro or an organization under his control will direct the
Company's maintenance services, they are currently in negotiations respecting
such arrangements. Currently, however, the Company expects that the service
provider to be organized and operated by Mr. Sanzaro will be paid a flat fee of
$4,000 per month to cover all of the services described above. The service
provider is also expected to establish and develop a training program to
instruct TCS-1 System operators and their personnel on the operation of a TCS-1
System plant and to furnish, at no additional cost, all equipment necessary to
effect the provision of such services.
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Sales and Marketing
Sales
The O/V III Agreements
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III, Inc.("O/V III")
of Toms River, New Jersey ("O/V III"). This agreement modified the terms of, and
replaced, a prior agreement between the parties dated June 6, 1995. O/V III is
under common ownership and control with the solid waste recycling firm, Ocean
County Recycling Center, Inc. and with Oceans Tire Recycling & Processing Co.,
Inc. (see, below "Sales and Marketing - Agreements with Oceans Tire Recycling &
Processing Co., Inc."). Under the terms of the Agreement, O/V III will purchase
and lease the various components which comprise the constituent parts of the
TCS-1 System. The Agreement provides for lease and purchase arrangements for
eight Systems at an aggregate lease and purchase price of three million dollars
($3,000,000) each.
Pursuant to the terms of the O/V III Agreement, the non-proprietary
equipment components of the System (the "Non-Proprietary Equipment") will be
purchased by O/V III for a total purchase price of $2,250,000. Such
Non-Proprietary Equipment includes: (i) all bailing systems contained in the
TCS-1 System, including all associated ancillary equipment and conveyance and
exit belts, chutes and/or other components combined or integrated therewith, and
(ii) freezing chambers and cryogenic systems.
The other constituent components of the TCS-1 System comprise equipment
which is proprietary to the Company (the "Proprietary Equipment"). Such
Proprietary Equipment is, under the terms of the O/V III L&P Agreement, subject
to a five year operating lease, with monthly lease payments of $12,500 each. The
Proprietary Equipment consists of (i) the disintegration system including but
not limited to all grinders contained therein, and (ii) the separation systems,
including but not limited to: (a) a magnetic separator; (b) a fiber/crumb
separator; (c) fiber collector; (d) crumb rubber sizing system; and (e) all
integrated conveyance and exit belts, chutes, and other components.
The O/V III L&P Agreement called for the delivery of the first System by
October 1998, with seven additional Systems scheduled for delivery every three
months thereafter, through July 2000. Construction of the components of the
first full scale prototype of the TCS-1 began in February of 1997, and was
completed in May of 1998. Because completion of the System was delayed, OV III
waived the delivery date and agreed to reschedule delivery, which occurred in
May 1998. The System is presently being assembled and a two-month test period is
scheduled to begin on or about June 1, 1998. The O/V III L&P Agreement requires
a downpayment of $25,000 for each System to be paid not less than fourteen
months prior to the anticipated delivery date. In an effort to assist the
Company at this early stage of its development, to date, O/V III has prepaid
$25,000 down payments on five Systems. Other payment terms for each of the eight
systems subject to the O/V III L&P Agreement, call for a $50,000 payment six
months prior to the anticipated delivery date, an additional $100,000 to be paid
three months prior to the anticipated delivery date, and $1,825,000 on O/V III's
acceptance of the System.
Pursuant to the terms of the L&P Agreement, O/V III also entered into
certain ancillary agreements with the Company, consisting of the following:
(a) a royalty agreement (the "Royalty Agreement") pursuant to which O/V
III will pay the Company a royalty of three percent (3%) of the
gross proceeds from all sales of rubber crumb fiber and steel from
scrap tires disintegrated through the utilization of the TCS-1
System;
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(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the Company and
option to purchase up to 40% of the rubber crumb, yielded by the
disintegration of scrap tires in the TCS-1 System, at negotiated
prices. The Company is currently exploring the feasibility of
vertically integrating its operations so as to include the rubber
crumb brokerage business and/or the value-added rubber crumb product
development business. It obtained the rubber crumb purchase option
in connection with the foregoing.
The parties also agreed to enter into a maintenance and technical support
agreement (the "Maintenance and Technical Support Agreement") pursuant to which
the Company or its designated service provider ("Service Provider") will provide
or be responsible for all technical and other labor necessary for the
maintenance of the TCS-1 System at a performance level capable of disintegrating
the equivalent of one million automobile tires per year on a twenty-four hour
per day, three hundred sixty-five day per year basis. Services to be provided
are described above under the caption "Proposed Services - TCS-1 System
Maintenance: Technical and Market Support".
The Company is presently negotiating with Louis Sanzaro ("Sanzaro"), a
director of the Company and the controlling person of the two entities
(Ocean/Ventures III, Inc. and Oceans Tire Recycling & Processing Co., Inc.) with
respect to, or an entity controlled by him, serving as the Company's authorized
service provider (see "Negotiations with Proposed Services Provider", above).
Agreements with Oceans Tire Recycling & Processing Co., Inc.
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a New Jersey corporation under common control with O/V III.
Pursuant to the OTRP L&P Agreement, OTRP will purchase the first production
model TCS-1 System. Under the terms of the Agreement, the anticipated delivery
date for this System was September 15, 1997. However, while construction of the
first full scale prototype of the TCS-1 began in February of 1997, completion of
the System was delayed because of the limited funds available for such purpose.
As a result, OV III waived the delivery date and agreed to reschedule delivery.
In January of 1997, OTRP accepted delivery and made payment on the first
fully-automated front-end sidewall cutter and debeader module, which forms part
of the TCS-1 System. The parties rescheduled a new delivery date for the balance
of the System, which occurred during the first week of May 1998. Upon the
Company's entering into a lease for its Research and Manufacturing facility in
Montreal (the "Company Facility"), OTRP shipped the Front End Module of the
System, which had originally been delivered to OTRP in New Jersey, to the
Company Facility and OTR accepted delivery of the balance of the System at the
Company Facility. This will allow for the assembly of the first complete
production model of the TCS-1 System, and the initial test phase operations
thereof to be conducted under supervision of both the Company and OTRP. This
will also create an opportunity for OTRP's personnel to be trained by the
Company's technical staff in the operation of the TCS-1 System.
The terms of the OTRP L&P Agreement, pursuant to which the constituent
components of the TCS-1 System will be leased and or purchased, are
substantially identical to those of the O/V III L&P Agreement, as described
above. The only significant differences are in the purchase price and payment
terms. The purchase price for the Non-Proprietary Equipment is $1,225,000 and
the terms of the 60- month operating lease call for monthly lease payments of
$8,770 each. Accordingly, the aggregate lease/purchase price under the OTRP L&P
Agreement is $1,751,200. OTRP has obtained "pre-commencement" sale and
lease-back financing from an outside source for the Non-Proprietary Equipment
being purchased under the Agreement. Pursuant thereto, OTRP has been making
lease payments since April of 1997. The terms of OTRP's lease financing
arrangements provide for the lessor to deliver the purchase price payments
directly to the Company, to be used to fund the construction of the first TCS-1
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production model. To date, approximately $605,000 of such financing has been
paid to the Company and used for such purpose.
Pursuant to the terms of the OTRP L&P Agreement, upon execution thereof,
the parties also entered, or agreed to enter, into the same types of ancillary
agreements as are described above with respect to the O/V III L&P Agreement,
i.e., a Maintenance and Technical Support Agreement, a Royalty Agreement, and a
Rubber Crumb Purchase Option Agreement. The terms of all of such ancillary
agreements are identical to those described above in connection with the O/V III
Agreements.
The Recycletron Inc. Agreements
On July 8, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "Recycletron L&P Agreement") with Recycletron Inc.
("Recycletron") of Montreal, Quebec. Pursuant to the Recycletron L&P Agreement,
Recycletron will purchase one TCS-1 System, with delivery scheduled for the end
of the second quarter of 1998. The terms of the Recycletron L&P Agreement,
pursuant to which the constituent components of the TCS-1 System will be leased
and or purchased, are substantially identical to those of the O/V III L&P
Agreement, as described above. The only significant differences are in the
purchase price and payment terms. The purchase price for the Non-Proprietary
Equipment is $2,000,000 and the terms of the 60-month operating lease call for
monthly lease payments of $12,500 each. Accordingly, the aggregate
lease/purchase price under the Recycletron L&P Agreement is $2,750,000. Upon
execution of the Agreement, Recycletron paid a $25,000 down payment. Other
payment terms require additional payments of $100,000 six months prior to the
anticipated delivery date, $125,000 prior to the anticipated delivery date, and
$1,750,000 upon Recycletron's acceptance of the System.
Pursuant to the terms of the Recycletron L&P Agreement, upon execution
thereof, the parties also entered, or agreed to enter, into the same types of
ancillary agreements as are described above with respect to the O/V III L&P
Agreement, i.e., a maintenance and technical support agreement, a royalty
agreement, and a rubber crumb purchase option agreement. The terms of all of
such ancillary agreements are identical to those described above in connection
with the O/V III Agreements.
Backlog
The Company includes in its "backlog", orders for a single TCS-1 System
under an executed Equipment Purchase and Lease Agreement, as well as orders for
more than one TCS-1 System under a single such executed Equipment Purchase and
Lease Agreement, for which a refundable deposit of not less than $25,000 per
Equipment Purchase and Lease Agreement has been paid. Accordingly, even when one
Equipment Purchase and Lease Agreement includes orders for multiple TCS-1
Systems, the Company will include all of the Systems ordered notwithstanding
that the proposed purchaser has paid a total refundable deposit of only $25,000.
Although the stated backlog may be used as a guideline in determining the value
of orders which are presently scheduled for delivery during the period
indicated, it is subject to change by reason of several factors including
possible cancellation of orders, change in the terms of the contracts, and other
factors beyond the Company's control and should not be relied upon as being
necessarily indicative of the Company's revenues or of the profits which the
Company might realize when the results of such contracts are reported.
Based on the foregoing, as of May 18, 1998, the Company's backlog amounted
to $30,250,000. This includes, for ten complete TCS-1 Systems: (i) the full
purchase price for the Non-Proprietary Equipment which will be sold by the
Company, and (ii) total lease payments for the Proprietary Equipment under the
five-year operating lease and, for one additional system, (the full purchase
price of which has
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already been invoiced and partially paid), the stated backlog includes the total
lease payments for the Proprietary Equipment under the five-year operating
lease.
Together, the Non-Proprietary Equipment and the Proprietary Equipment
constitute a complete TCS-1 System. The Systems included in the above stated
backlog include: (i) eight systems ordered by O/V III for an aggregate
lease/purchase price of $3,000,000 each, for which the Company has already
received over $130,000 by way of prepayments of the $25,000 downpayments (due
for each system fourteen months before the scheduled delivery date of such
System) on five of the eight Systems ordered by O/V III; (ii) one TCS-1 System
ordered by Recycletron for an aggregate lease/purchase price of $2,750,000, for
which the Company has received a $25,000 down payment; and (iii) on TCS-1 System
ordered by Goman Alberta, Inc., for which the Company has received a $25,000
downpayment. The foregoing ten TCS-1 Systems are currently scheduled for
deliveries commencing after the test operations of the first Production Model
are concluded through July 2000, with two of such Systems (the OTRP and
Recycletron Systems) scheduled for delivery during the current fiscal year.
Management reiterates, however, that delivery dates for all Systems on order
have always been, and remain, subject to delay principally because of unknown
and presently unforeseeable problems which may become manifest during the test
phase of the Production Model. The Company will not fill any of the
above-described backlog during the current fiscal year.
The Company has not included in its backlog any revenues which may result
from the Royalty Agreements which all TCS-1 System purchasers must enter into
with the Company. These Royalty Agreements entitle the Company to receive a
royalty in the amount of 3% of the gross revenues from sales of rubber crumb
produced by the TCS-1 System. The Company has also not included additional
revenues which it expects to receive under the Proposed Maintenance Agreements
to be signed in connection with the ten Systems already on order (see "Business
- - Proposed Services").
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by "O/V III" and one of which was ordered "OTRP". Both O/V
III and OTRP are under the control of Louis Sanzaro. The foregoing orders
constitute 89% of the Company's present backlog. The loss of either of these two
customers would have a major adverse effect on the Company. However, the Company
also believes that while Mr. Sanzaro's companies comprise the initial TCS-1
System purchasers, future sales efforts will be widespread and, as the Company
matures and its business develops, it will not be dependent upon the business of
one or more major customers. In connection with the foregoing, it should be
noted that Mr. Sanzaro is a director of the Company and serves as a consultant
to the Company (see "Management - Executive Officers and Directors" and "Certain
Relationships and Related Transactions"). Mr. Sanzaro is also presently in
negotiations with the Company with respect to his serving as the Company's
authorized service provider (see "Business - Proposed Services - Negotiations
with Proposed Service Provider") and he has agreed to accept appointment as the
Company's exclusive sales distributor in the United States and Puerto Rico (see
"Business - Sales and Distribution' and "Management - Certain Relationships and
Related Transactions").
Marketing and Distribution
Potential Markets
The Company believes that the potential market for its TCS-1 System can be
expected to directly reflect the level of demand for economical, high quality
rubber crumb derived from the recycling of scrap tires. The following discussion
of the potential markets for rubber crumb assumes that the TCS-1 System
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will be capable of economically producing high quality recycled rubber crumb, in
a variety of sizes, capable of being used in a wide range of products. While
this accurately reflects management's present expectations, it should be noted
that the TCS-1 System is still in the research and development stage. Further,
because development of the TCS-1 System is at an early stage, the Company cannot
give any assurance with respect to if, or when, it will in fact be able to
complete the design and construction of the TCS-1 System in accordance with its
plans and specifications or that, if completed, the TCS-1 System will perform as
expected. Therefore, even if the demand for rubber crumb should increase in
accordance with the Company's expectations, there can be no assurance that a
concomitant development of demand for the TCS-1 System will develop.
Rubber is a valuable raw material and the Company believes that recycling
this valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet underpadding,
increasing resiliency in running track surfaces and gymnasium floors, and
absorbing shock and lessening the potential for injuries as a ground cover for
playgrounds and other recreational areas.
Recycling tires into reusable crumb rubber (or "ground rubber") was, as of
1996, the third largest use of scrap tires. "Crumb rubber" is the end product of
the tire disintegration process. The ideal crumb rubber is a powder, which can
be produced in various particulate sizes, ranging from relatively coarse to very
fine, and which is not significantly contaminated by fiber and metal particles.
It is generally derived from used automobile tires or tire parts such as treads.
The Scrap Tire Use Disposal Study - 1996 Update (the "STMC Study"), published by
the Scrap Tire Management Council (the "STMC") in April of 1997, reported that
of the approximately 266 million scrap tires generated in 1996, market
applications were found for 76% (or 202 million). The STMC Study reported
further that the largest use presently being made of scrap tires is burning them
as tire derived fuel (sometimes referred to as "TDF"), which serves principally
as a low-cost substitute for, or supplement to, coal, wood chips, or other
combustible fuels. In this regard, 152 million or 76% of the tires for which
market applications had been found, were burned as TDF. Exporting used tires
(for refitting and re-use as tires) was the second largest use for scrap tires.
While utilizing scrap tires to produce crumb rubber still constitutes a
significantly smaller market for used tires, the STMC Study reported that this
usage experienced significant growth during the last two years, increasing two
hundred and seventy-seven percent (277%) from 4,500,000 tires in 1994 to
12,500,000 tires in 1996. Historically, most crumb rubber available and sold in
the market was derived not from recycled scrap tires, but from tire "buffings",
a by-product of the tire re-treading process.4 Recently, however, this has
changed significantly recently, with tire buffings now representing 52% and
scrap tires representing 48% of source material for crumb rubber. According to
the STMC, the demand for crumb rubber for various uses could experience further
substantial increases over the next two to five years, with expected overall
growth in sales of crumb rubber from 25% to 33%. The Company believes that
because the supply of buffings is limited, the main source of an increased
supply of crumb rubber must come from scrap tires.
At present, there are at least seven general categories of markets for
crumb rubber of various sizes and grades. These consist of the following:
* Rubber Modified Asphalt ("RMA", 168 million pounds in 1996): Crumb
rubber can be blended with asphalt to modify the properties of
asphalt used in highway construction. Crumb rubber can be used
either as part of the asphalt rubber binder, seal coat, cape seal
spray, or joint and crack sealant (generally referred to as
"asphalt-rubber") or as an
- ----------
(4) Tire buffing consist of relatively small piece of rubber which
remain on the tire shell during the re-treading process. After the
used tread is removed, these small pieces are "buffed" off the shell
before the new tread is attached.
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aggregate substitution (rubber modified asphalt concrete or
"RUMAC"). At present, the cost of using asphalt-rubber and RUMAC is
somewhat higher than conventional materials. However, the service
life of such products has proved in some cases to be two to three
times that of conventional asphalt pavements. While the use of crumb
rubber in asphalt pavement has a large potential market, certain
technical issues must be addressed before the potential can be
reached. The ability to recycle asphalt pavement containing crumb
rubber and the development of standards, particularly for materials
testing and the environment are the key issues to be addressed. In
general, asphalt-rubber, or the "wet process", has proven to be the
most successful product, representing approximately 95% of the RMA
market in 1996, according to the STMC. States using RMA to a
significant degree include Arizona, California and Florida, with
lesser activity in Kansas and Texas.
* Bound Rubber Products (134 million pounds in 1996): Ground or
powdered scrap tire rubber is formed into a set shape, usually held
together by an adhesive material such as urethane or epoxy. Examples
of such applications are injection molded products and extruded
goods such as railroad crossing pads; dock bumpers, patio floor
blocks, flooring material, roof walkway pads, and carpet underlay.
* New Tire Manufacturing (48 million pounds in 1996): Fine crumb
rubber or powder reclaimed from scrap tires can be used as a low
volume filler material in both the tread and the sidewalls of new
tires. The percentage of recycled rubber that can be used in new
tires is somewhat in excess of 1.5%.
* Athletic and Recreational Applications (24 million pounds in 1996):
Coarse crumb rubber can be used in several applications, such as in
running track material, grass surfaced playing areas, or as a
substitute for playground surfaces. The use of crumb rubber for
these purposes will generally make playing surfaces and running
tracks more resilient and less rigid, but capable of maintaining
traction and shape.
* Molded and Extruded Plastics and Rubber (18 million pounds in 1996):
Finely ground scrap tire rubber can be placed into production molds
to form products for the automotive industry, such as sound
insulation, step pads, truck and trailer liners, matting and drip
irrigation pipes. Management believes that there are significant
potential markets for these applications which may result from
continuing research and development of products using a surface
modified rubber. There has also been increasing interest on the part
of automotive manufacturers in the purchase of products which
contain recycled rubber.
* Friction Material (8 million pounds in 1996): Coarse crumb rubber is
used in friction brake materials for brake pads and brake shoes.
Distribution
The Company's objective is to market and distribute its products
worldwide, through national and international distributors and sales
representatives. However, to a large extent the Company has to date
concentrated, and is continuing to concentrate, its efforts on completing the
design, development, and construction of the first production model of the TCS-1
System and raising adequate financing to support such efforts. It has,
therefore, not yet commenced a full scale marketing campaign and does not intend
to do so until the production model is complete and adequate funding is
available to cover the costs thereof. During the last two fiscal years and the
subsequent period, the Company has however taken initial steps to prepare a
foundation for a world-wide marketing program. In connection therewith, the
Company has taken the following steps during the last fiscal year and the
subsequent interim period:
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(a) Appointed Vijay Kachru as Vice President of Market Development to
oversee market and product development activities;
(b) Entered into an agreement with Alan Crossley, a director of the
Company, pursuant to which Mr. Crossley will serve as Director of
European Market Development (see "Management - Certain
Transactions", below);
(c) Obtained the agreement of Louis Sanzaro, a director of the Company
and the principal of Ocean Ventures III, Inc. and Oceans Tire
Recycling & Processing Co., Inc. to accept appointment as the
Company's exclusive sales distributor in the United States and
Puerto Rico (see the discussions under the caption, "Sales", above,
see also "Management Certain Transactions", below).
The Company can make no assurances with respect to the success of its
distribution strategy. Furthermore, the Company has limited resources to achieve
the distribution of its products and no assurances can be given that the Company
will not require additional financing, which may not be available, to achieve
such objective.
Canadian Operations
Tirex Canada
The governments of Canada and, in particular, the province of Quebec, have
officially acknowledged the pivotal role played by business investment in
research and development in ensuring sustained economic growth and long-term
prosperity. In order to encourage such activities, these governments support
research and development programs by granting individuals and businesses tax
incentives that encourage technological development in Quebec. As a result,
Quebec offers the most generous tax incentives for research and development
programs of which the Company is aware.
In May of 1995, in an effort to take advantage of such financial
incentives, the Company formed a Canadian corporation, 3143619 Canada Inc.
(referred to herein as "Tirex Canada") in the Province of Quebec, Canada, for
the purpose of completing all research and development work on the first
production model of the TCS-1 System and, thereafter, to serve as the Company's
manufacturing arm. To qualify for Canadian Government grants and tax benefits,
the record owners of 51% of the issued and outstanding capital stock of Tirex
Canada are Terence C. Byrne, President and a member of the Executive Committee
of the Board of Directors the Company and Louis V. Muro, Vice President of
Engineering 's and a member of the Executive Committee of the Board of Directors
the Company, both of whom are Canadian residents. The Company is the record
holder of the balance of 49% of the issued and outstanding capital stock of
Tirex Canada. Messrs. Byrne and Muro hold their Tirex Canada shares under the
terms of the shareholders agreement, dated July 3, 1995, as amended February 2,
1996 and August 27, 1997 (The "Tirex Canada Shareholder Agreement") which will
require them to transfer all such shares to the Company for no compensation in
2,001 or earlier under certain circumstances.
The Tirex Canada License
Tirex Canada holds an exclusive, ten year license from the Company, which
expires on July 2, 2005, to design, develop, and manufacture the TCS-1 System in
North America. The terms of the said license require that Tirex Canada may
manufacture TCS-1 Systems only upon and pursuant to specific
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purchase orders and requires that Tirex Canada sell all TCS-1 Systems which it
manufactures exclusively to the Company.
Canadian Financial Assistance - Grants and Commitments
Transfer of the Company's research and development, and its proposed
manufacturing, activities to Tirex Canada has made the Company eligible for
various Canadian and Quebec government programs which provide grants and tax
incentives for eligible investment, research and development, and
employee-training activities. Canadian and Quebec tax incentives take the form
of deductions and tax credits with respect to eligible research and development
expenditures of Tirex Canada. Certain tax credits are refundable when they
exceed the tax payable. Thus such credits function effectively as monetary
grants. To qualify for such tax credits, research and development activities
must comprise investigation or systematic technological or scientific research
conducted through pure or applied research, undertaken to advance science and
develop new processes, materials, products or devices or to enhance even
slightly existing processes, materials products or devices.
Refundable tax credits are calculated as a percentage of eligible research
and development expenditures of Tirex Canada. They are called "refundable"
because to the extent that the amount of the tax credit exceeds the taxes
payable, they are paid over or "refunded" to the taxpayer. During the last
fiscal year, virtually all of the activities connected with the development and
construction of the first production model of the TCS-1 System qualified as
eligible expenses. Moreover, some approved, anticipated tax credits for
contemplated research and development expenditures can serve as "receivables"
for the collateralization of debt. To date, the Company has received financial
assistance by way of loans and grants from Quebec government agencies, for the
design and development of the TCS-1 System and for export market development, as
follows:(5)
================================================================================
Granting Agency Approved Disbursed
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Grant from Recyc Quebec(6) $ 52,500 $ 35,000
- --------------------------------------------------------------------------------
Loan from FORDQ for Expenditures on 350,000 350,000
Design and Development of the TCS-1 System
- --------------------------------------------------------------------------------
Loan from FORDQ for Expenditures on Export 223,205 145,510
Market Development
- --------------------------------------------------------------------------------
Total of loans and grants $625,705 533,510
================================================================================
- ----------
(5) Amounts shown are based upon an exchange rate of Exchange Rate of
$1.4695 (Canadian) f or every $1 (United States), in effect on
January 22, 1998.
(6) References to "Recyc-Quebec" are to the Societe Quebecoise de
Recuperation et de Recyclage, a Quebec government agency which
promotes, develops, and supports the reduction, reuse, recovery, and
recycling of containers, packaging materials or products, as well as
their transformation from a resource conservation perspective.
Recyc-Quebec is a self financed state- owned corporation.
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Research and Development
The Company's technical expertise has been an important factor in its
development and is expected to serve as a basis for future growth. Since its
inception, the Company has devoted substantial resources to the design and
development of the TCS-1 System as well as to raising the financing necessary
for such activities. The Company expended approximately $600,000 on research and
development activities during the fiscal year ended June 30, 1997, (virtually )
all of which funds were applied to the design, development, and construction of
the first TCS-1 production model. Research and Development activities during the
fiscal year ended June 30, 1997, focused on completion of the engineering design
of the TCS-1 System and redesign of the front end system to increase automation
and optimize performance.
All of such activities were carried out by the Company's engineering and
technical staff, consisting of Louis V. Muro, Vice President in Charge of
Engineering, and John Carr, Program Director, who devoted 100% of their time to
such projects. Such activities were conducted in conjunction with the Company's
outside Consultant, Bentley Environmental Engineering Inc., and the Company's
outside subcontractors, Plasti-Systemes, Fedico, Inc., and Lefebvre Freres,
Limitee.
Although the basic design and development of the TCS-1 is expected to be
brought to completion by the end of 1997, the Company intends to continue to
seek to refine and enhance its tire disintegration technology and to enhance it
to comply with emerging regulatory or industry standards or the requirements of
a particular customer. The Company also intends to endeavor to develop new
products and uses for the crumb rubber produced by the operation of the TCS-1
System.
Employees
The Company had nine employees including its officers: Terence C. Byrne,
Louis V. Muro, John Threshie, and Vijay Kachru, its Corporate and Securities
Counsel, its Technical Program Director, one secretary-receptionist, one Junior
Engineer, and one Director of Recycling Projects. All of the foregoing persons
devote their full time to the business and affairs of the Company. The Company
also utilizes the services of several part-time consultants to assist them with
market research and development and other matters. The Company intends to hire
additional personnel, as needed.
Patent Protection
On December 18, 1996, the Company filed patent applications in the United
States and Canada based on provisional priority under preliminary patent
applications filed on December 19, 1995. On October 23, 1997, the Patent
Application was allowed by the United States Patent and Trademark Office.
Issuance of the patent is not subject to any further contingencies and will be
issued by the Patent and Trademark Office in accordance with their scheduling
requirements. Upon issuance of the US patent, the examination papers will be
submitted to the Canadian Patent Office for review. The patent will cover the
Company's disintegration technology. Because the Company had previously filed
"preliminary patent applications" on December 19, 1995, the priority date of its
definitive patent application is retroactive to such earlier date. Prior to such
filings, the Company relied on trade secrets, proprietary know-how and
technological innovation to develop its technology and the designs and
specifications for the TCS-1 System.
The Company has entered into confidentiality and invention assignment
agreements with certain employees and consultants which limit access to, and
disclosure or use of, the Tirex technology. There can be no assurance, however,
that the steps taken by the Company to deter misappropriation or third
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<PAGE>
party development of its technology and/or processes will be adequate, that
others will not independently develop similar technology and/or processes or
that secrecy will not be breached. In addition, although the Company believes
that its technology has been independently developed and does not infringe on
the proprietary rights of others, there can be no assurance that the Company's
technology does not and will not so infringe or that third parties will not
assert infringement claims against the Company in the future. The Company
believes that the steps it has taken to date will provide some degree of
protection and that the issuance of a patent pursuant to its application will
materially improve this protection. However, no assurance can be given that this
will be the case.
On or about September 13, 1996, the Company received a letter from
attorneys for a New York based recycling company respecting its filing for
worldwide patent protection for a tire recycling process utilizing a natural air
freezing system and claiming that, upon issuance of its Canadian patent, the
Company's recycling process would be the subject of a patent infringement claim.
The Company responded to such letter on September 20, 1996 stating its position
that any such claim would be completely without merit. The Company has received
no further communications respecting this matter. Since that time, a member of
the Company's engineering staff and the Company's patent agent have examined the
patent which was involved in this matter and have advised the Company that to
the best of their knowledge, the specifications thereof are different from those
of the patent for which the Company has applied and that no meritorious patent
infringement claim could arise in connection therewith. However, No assurance
can be given, in the absence of a final court determination, that any particular
patent is valid and enforceable or that any patent may not be the subject of
patent infringement claims. The Company has no present knowledge of any
information which would adversely affect the issuance of a patent pursuant to
the allowance described above, or the validity thereof.
Competition
The Company knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 System, which are
presently being sold or used anywhere in the world, nor is it aware of any
patents relating to the Company's disintegration technology. However, the TCS-1
System, may reasonably be expected to compete with related or similar processes,
machines, apparata or devices for tire disintegration, cryogenic or otherwise.
Moreover prospective competitors which may enter the field may be considerably
larger than the Company in total assets and resources. This could enable them to
bring their own technologies to more advanced stages of development with more
speed and efficiency than Company will be able to apply to the TCS-1 System.
Additionally, manufacturers of presently available equipment may be in a
position to operate research and development departments dedicated continually
to improving conventional systems and to developing new and improved systems.
There can be no assurance that the TCS-1 System, will successfully compete with
existing systems or with any improved or new systems which may be developed in
the future.
Government Regulation
While the Company's equipment manufacturing operations may not be directly
subject to extraordinary government regulations, test operations of the TCS-1
and the Company's continuing research and development activities may involve, to
varying degrees and for varying periods of time, the storage of scrap tires
which, with their size, volume and composition, can pose serious environmental
problems and subject the Company to stringent environmental regulations.
The Company believes that, while normal operations of TCS-1 System plants
will require the storage of scrap tires, such storage will not involve amounts
of tires or periods of time so large or extensive that they would constitute the
"stockpiling" of scrap tires. However, it should be noted that the
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stockpiling of scrap tires can constitute a particularly serious environmental
problem. Among the numerous problems relating to stockpiling scrap tires, is the
fact that when stockpiled above ground, tires create serious fire, public
health, and environmental hazards ranging from fires, which generate large and
dense clouds of black smoke and are extremely difficult to extinguish, to the
creation of vast breeding grounds for mosquitoes and vermin. As a result, many
states have either passed or have pending legislation regarding discarded tires
including legislation limiting the storage of used tires to specifically
designated areas. For reasons including, but not limited to the problems
described above, the Company and purchasers of TCS-1 Systems may be subject to
various local, state, and federal laws and regulations including, without
limitation, regulations promulgated by federal and state environmental, health,
and labor agencies. As a result, the business of the Company will be directly
and indirectly affected by government regulations. Management does not expect
that the operation of the TCS-1 Systems will result in the emission of air
pollutants, the disposal of combustion residues, or the storage of hazardous
substances (as is the case with other tire recycling processes such as
pyrolysis). However, establishing and operating a plant for tire recycling will
require numerous permits and compliance with environmental and other government
regulations, on the part of the Company's customers, both in the United States
and Canada and in most other foreign countries.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company, and of all TCS-1 System Operators, may
impose financial burdens them that could adversely affect the business,
financial condition, prospects, and results of operations, of the Company. Such
adverse affects could include, but may not be limited to, the burden of
compliance with laws and regulations governing the installation and/or operation
of TCS-1 Systems discouraging potential customers from purchasing a TCS-1.
Actions by federal, state, and local governments concerning environmental or
other matters could result in regulations that could increase the cost of
producing the recyclable rubber, steel, and fiber which are the by-products from
the operation of the TCS-1 System and make such by-products less profitable or
even impossible to sell at an economically feasible price level.
The process of obtaining required regulatory approvals may be lengthy and
expensive for both the Company and for its TCS-1 System customers. Moreover,
regulatory approvals, if granted, may include significant limitations on either
the Company's or its customer's operations. The EPA and comparable state and
local regulatory agencies actively enforce environmental regulations and conduct
periodic inspections to determine compliance with government regulations.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
System customers to operate profitably and in compliance with such regulations.
In this regard, it has retained environmental attorneys in Montreal to advise it
with respect to compliance with local environmental regulations. It has also
engaged a consultant to advise purchasers of its TCS-1 Systems with respect to
compliance with local environmental regulations applicable to the installation
and operation of the TCS-1 System. To date, the Company has not had to make
significant capital expenditures relating to environmental compliance because it
has not yet commenced operations. However, the storing and processing of tires
which will be required for testing of the first TCS-1 System at the Company's
assembly facility in Montreal will be subject to certain fire safety building
code standards. The Company expects to spend approximately $200,000 to bring the
facility into compliance with such standards. Moreover, the Company believes
that the inception of equipment manufacturing together with continually changing
compliance standards and technology, may affect the Company's future capital
expenditure requirements relating to environmental compliance. Since all
government regulations are subject to change and to interpretation by local
administrations, the effect of government regulation could conceivably prevent,
or delay for a considerable period of time, the
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development of the Company's business as planned and/or impose costly
requirements on the Company or on its TCS-1 System customers, which could result
in the Company's or its TCS-1 customers' businesses being less profitable, or
unprofitable, to operate.
PROPERTIES
Corporate Headquarters
The Company's corporate headquarters are located at 740 St. Maurice, Suite
201, Montreal, Quebec, H3C 1L5. The Company occupies a 1988 square foot suite in
a modern office building located in the commercial and business district of
South West Montreal. All of such facility is devoted to executive offices,
reception, and conference areas including six executive offices. The Company
occupies these premises under a three-year lease, dated June 23, 1997, (expires
on June 30, 2000) with Les Immeubles 740 Saint-Maurice Inc. The lease provides
for monthly rental payments of 2,825 Canadian Dollars (approximately 2,034
United States Dollars at current exchange rates). Rental payments are inclusive
of all taxes, utilities, and any other applicable fees or charges. The lease is
renewable for an additional three years at market rates then prevailing.
Research and Manufacturing Facility
On February 17, 1998, the Company entered into a five-year term lease (the
"Tri-Steel Lease") with Tri-Steel Industries Inc. ("Tri-Steel"), effective as of
March 1, 1998 for 90,000 square foot research and manufacturing facility on a
completely fenced 180,000 square foot contiguous lot located at 3828 Saint
Patrick Street and 2200 Pitt Street in Montreal, Canada. The facility is a
concrete and reinforced steel structure consisting of three completely
integrated areas, including:
(a) a 40,000 square foot reinforced concrete and galvanized structural
steel, area, with a reinforced concrete floor and a mezzanine, which
was constructed in 1941. Approximately 800 square feet will be
dedicated to administrative offices, a reception area, and a
conference room. The balance of this structure will be used for
fabrication of TCS-1 Systems and ancillary equipment;
(b) a 20,000 square foot area constructed of galvanized structural
steel, one-story (thirty to forty feet) in height, with a concrete
floor, added at or around 1982. This structure will be used for test
operations of the TCS-1 and further development and improvements
thereon.
(c) a 30,000 square foot area constructed of galvanized structural steel
with a dirt floor, constructed at or around 1986, to be used for
warehousing purposes.
The facility is in excellent repair, is well suited to the requirements of
the Company, and will not require any major modifications. It will however
require an updated fire suppression system in the 20,000 section in order to
comply with local Montreal fire code as it relates to the storage of rubber
product. This must be completed before the Company can begin testing operations
of the TCS-1 System. The Company believes that the foregoing will require
expenditures in the approximate aggregate amount of $200,000 and that all of
such work should be completed by the end of June, 1998.
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A Canadian National Railway spur terminates within the building which has
both entrance and exit railway track openings. In addition, the facility has two
additional "drive-through" entrance ways which accommodate trucks and tractor
trailers for indoor loading and unloading, as well as an extensive (30,000
square foot) covered outdoor parking and loading area, which can also be used
for protected outdoor storage. The facility comes equipped with three 5-ton
overhead bridge cranes, each one spanning 50-60 feet cranes. All utilities
(electricity, gas, heat, and water) are in place and in working order.
The Facility is situated, adjacent to an interstate highway and a Canadian
National Railway line in an industrial area located approximately two miles from
the principal downtown Montreal business center and the Company's executive
headquarters.
The Tri-Steel Lease provides for rental payments, as follows: (i) year-one
(commencing March 1, 1998): CA $10,000 per month (approximately $7,000 US at
current exchange rates); (ii) year-two: CA $20,000 per month (approximately
$14,000 US at current exchange rates); and (iii) years-three, four, and five: CA
$25,000 per month (approximately $17,500 US at current exchange rates). Quebec
sales taxes ("QST") and (Canadian) Government sales taxes ("GST") are also
payable by the Company on all rental payments. It is estimated that year-one
sales taxes will aggregate to approximately 14% of all rental payments made. The
Company's present income tax status is such, however, that QST and GST payments
will be refunded to it by the government. The Company is obligated to pay
additional costs, including all fuel and utility charges, real estate taxes. The
Lease requires the company to carry insurance on the premises for not less than
CA $4,000,000 (approximately $2,800,000 US at current exchange rates) and public
liability insurance for not less than CA $3,000,000 (approximately $2,100,000 US
at current exchange rates). The Company estimates that the aggregate amount of
such additional costs will be approximately CA $10,265 (approximately $7,153 US
at current exchange rates) for temporary coverage for the first year of the
lease.
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MANAGEMENT
Directors and Executive Officers
The following sets forth the names and ages of all directors and executive
officers of the Company and the date when each director was appointed, and all
positions and offices in the Company held by each:. Each director will hold
office until the next annual meeting of shareholders and until his or her
successor has been elected and qualified:
Date
Offices Appointed
Name Age Held Director
---- --- ---- --------
Terence C. Byrne 40 President, Jan. 18, 1995
Treasurer,
and Director
Louis V. Muro 64 Vice President Jan. 1, 1996
of Engineering
and Director
John G. Hartley 51 Director Feb 21, 1995
John L. Threshie, Jr. 44 Vice President of June 1, 1995
of Operations, Secretary
and Director
Louis Sanzaro 48 Director January 17, 1997
Alan Crossley 50 Director January 17, 1997
Vijay Kachru 46 Vice President of Sept 1, 1996
Market Development
Family Relationships
No family relationship has ever existed between any director, executive
officer of Company or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director and executive officer, of the Company:
TERENCE C. BYRNE. Mr. Byrne has served as president, treasurer, and a
director of Company since January 18, 1995. He holds a Bachelor's degree in
Economics from Villanova University in Philadelphia. Mr. Byrne has been the
controlling shareholder and an officer and director of Bartholemew & Byrne,
Inc., a consulting firm specializing in corporate finance and general business
consulting, since its founding in January 1993. From September 1992 through
August 1993, he directed European marketing and business development for Pacer
Systems Corporation, a public company engaged in the
51
<PAGE>
business of systems engineering for high tech industries. From July 1989 to
August 1992, Mr. Byrne served as president of Digital Optronics Corporation, a
public company which, until August 1992, was engaged in the business of
manufacturing digital optronic measuring devices, (principally) for the defense
industry. From November 1988 (prior to being acquired by Digital Optronics)
until March 1992, Mr. Byrne also served as president and a director of Byrne
Industries, Inc.("BII"), a wholly-owned subsidiary of Digital Optronics, Inc.
BII was, until the drastic down-turn in the defense industry in March of 1991,
in the business of manufacturing electronic defense equipment as a
sub-contractor to major multi-billion dollar defense industry companies, such as
Lockheed Aviation.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company
from January 18, 1995 until January 1, 1996 when he was appointed as a director
and as vice president in charge of engineering. Mr. Muro served as a director of
the Company from December 29, 1992 until January 18, 1995. He also served as the
Company's secretary from December 29, 1992 until March 1994 when he was
appointed president of the Company, a position he held until January 18, 1995.
Mr. Muro received a B.S. degree in Chemical Engineering from Newark College of
Engineering in 1954, since which time he has continually been employed as a
chemical engineer. From 1974 to 1993 Mr. Muro has been the sole proprietor of
Ace Refiners Corp. of New Jersey, a precious metals refinery. From 1971 to 1974,
he worked as an independent consultant and from 1964 until 1971, he was director
of research and development for Vulcan Materials Corporation in Pittsburgh, Pa.,
a public company engaged in the business of recovering useable tin and clean
steel from scrap tin plate. From 1960 to 1964, Mr. Muro was the sole proprietor
of Space Metals Refining Co. in Woodbridge, NJ, a company involved in the
purification of scrap germanium to transistor grade metal. From 1959 to 1960 he
was employed by Chemical Construction Co., of New Brunswick, NJ, where he
developed a process for the waste-free production of urea from ammonia, carbon
dioxide and water. From 1954 to 1959, Mr. Muro worked in the research and
development department at U.S. Metals Refining Co. in Carteret, NJ where he was
involved with the refinement of precious metals.
JOHN G. HARTLEY. Mr. Hartley holds a Bachelor of Science Degree in
Economics from Manchester University in England. He has acted as a director of
Pacer Systems Inc. since 1985. Pacer Systems is a publicly held company with
offices in Boston, Mass. and is engaged in the business of Systems Engineering
for high tech industries. Since 1993, Mr. Hartley has also served as a
consultant to Moore Rowland International, an investment banking firm
headquartered in Monaco.
JOHN L. THRESHIE, JR. Mr. Threshie holds a Bachelor of Science Degree in
Business from the University of North Carolina. He was self employed as a
management consultant, doing business as Primerica Financial Services, from 1991
through 1994. From 1988 to 1990, Mr. Threshie was an advertising Account
Supervisor for Ammirati & Puris Inc., an advertising firm in New York, where Mr.
Threshie supervised all advertising for BMW of North America.
LOUIS SANZARO. Mr. Sanzaro, who is 47 years old, holds a degree in
marketing from Marquette University. In 1997, he was named "Recycler of the
Year" for the State of New Jersey and was also awarded the distinction of being
named "Recycling Processor of the Decade" by Ocean County, New Jersey. He is the
President and a member of the Board of Directors of the nation-wide,
Construction Material Recycling Association. Since 1986, Mr. Sanzaro has served
as President and CEO of Ocean County Recycling Center, Inc. ("Ocean County
Recycling"), in Tom's River, New Jersey. Ocean County Recycling is in the
business of remanufacturing construction and demolition debris for reuse as a
substitute for virgin materials in the construction and road building
industries. In addition, since 1989, Mr. Sanzaro has served as Vice President
and COO of Ocean Utility Contracting Co., Inc., a New Jersey the Company engaged
in the installation of sewer and water main pipelines and the construction of
new roadway infrastructure. From 1973 until 1990, Mr. Sanzaro was the President
and CEO of J and L Excavating and Contracting Co., Inc., a company engaged in
the construction of residential, commercial, industrial, and government
building. Mr. Sanzaro was a member of the Board of Directors of the New Jersey
state-wide Utility Transportation.
52
<PAGE>
ALAN CROSSLEY. Mr. Crossley, who is 49 years old, holds a degree in
Economics from Cambridge University in England and an MBA degree from INSEAD in
France. In addition to serving as a Director of Registrant, Mr. Crossley is
participating in developing, and will have charge of implementing, the Company's
projected marketing operations in Europe and Asia. Since 1986, Mr. Crossley has
served as president of FAISLESA, Arganda del Rey in Madrid, Spain. FAISLESA, a
company which Mr. Crossley established in 1986 as a venture capital project, is
a manufacturer and applicator of thermal insulants and water-proofing products
for the construction industry. It runs a network of regional distributors
throughout Spain and has its own application crews in the Madrid Area. Mr.
Crossley has full executive responsibility in all areas of manufacturing,
marketing, research, and administration of FAISLESA. Mr. Crossley's previous
business experience includes his work as: a Eurocurrency trader in the
International Division of S.G. Warburg and Co. Ltd., Merchant Bankers in London
(1968-1970); a management consultant for McKinsey and the Company, Inc. in
Brazil, France, Germany, Holland, Italy, Spain, Switzerland, the UK and the
United States (1971-1977); Managing Director of Satlan, S.A., a Madrid firm
involved in International trading of petroleum products and various commodities
(1977-1980) and; President of Gapco, S.A., a Madrid commercial and financial
consulting firm (1980-1994).
VIJAY KACHRU. Ms. Kachru, who is 46 years old holds, a Bachelor's degree
in English literature and has attended business management, marketing, and
behavioral sciences courses at McGill University in Montreal. She was appointed
Vice President in charge of Market Development for the Company on September 1,
1996. From 1992 until she joined the Company, Ms. Kachru worked as an
independent consultant in the area of market research and market development.
Pfizer Canada, CP Rail marketing division and Techtran Technology Transfer
Company were among her clients during this period. From 1989 until 1992, Ms.
Kachru was a training specialist for CP Rail System where she designed and
implemented a drug and alcohol abuse control program throughout North America.
From 1981 to 1989, Ms. Kachru worked as a consultant with, among others,
Proudfoot Consulting Firm on projects with Bell Canada, Alberta Great Telephone,
Firestone Bridgestone, East Midland Electric Board in England, Columbus
McKennin, and International Paper.
Compliance With Section 16(a) of the Exchange Act.
None of the Company's securities have been registered pursuant to Section
12 of the Exchange Act of 1934, as amended (the "Exchange Act"). Therefore,
Section 16(a) of the Exchange Act is not applicable.
53
<PAGE>
EXECUTIVE COMPENSATION
Current Remuneration
Except for individually negotiated employment agreements with its
executive officers and consulting agreements with two of its non-employee
directors, the Company has no stock option or stock appreciation rights, long
term or other incentive compensation plans, deferred compensation plans, stock
bonus plans, pension plans, or any other type of compensation plan in place for
its executive officers, directors, or other employees; except pursuant to the
terms of their respective employment or consulting agreements, none of its
executive officers or directors have any received compensation of any such types
from the Company pursuant to plans or otherwise. The following table sets forth
information concerning the annual compensation received or accrued for services
provided in all capacities to the Company for the fiscal years ended June 30,
1995, 1996, and 1997 by the Company's chief executive and the persons who are,
or were during such periods, the Company's most highly compensated executive
officers and whose compensation may be deemed for these purposes to have
exceeded $100,000 (see "Executive Compensation - Employment Contracts and
Termination of Employment and Change-in-Control Arrangements").
SUMMARY COMPENSATION TABLE
================================================================================
Annual Compensation
==========================================
Salary Bonus
Name and Principal ($) ($)
Position Year
(a) (b) (c) (d)
- --------------------------------------------------------------------------------
1997 $62,457 (1)(10)(11) (10)(11)(12)
Terence C. Byrne -------------------------------------------------
President and Treasurer 1996 $17,424 (2)(10)(11) (10)(11)(12)
-------------------------------------------------
1995 -0- (3)(10)(11) (10)(11)(12)
- --------------------------------------------------------------------------------
1997 $51,510 (4)(10)(11) (10)(11)(12)
Louis V. Muro -------------------------------------------------
Vice President of Engineering 1996 $ 7,592 (5)(10)(11) (10)(11)(12)
-------------------------------------------------
1995 -0- (6)(10)(11) (10)(11)(12)
- --------------------------------------------------------------------------------
1997 $17,437 (7)(10)(11) (10)(11)(12)
Frances Katz Levine -------------------------------------------------
Secretary 1996 -0- (8)(10)(11) (10)(11)(12)
(Resigned Dec. 22, 1996) -------------------------------------------------
1995 -0- (9)(10)(11) (10)(11)(12)
================================================================================
Notes To Summary Compensation Table Appear on Following Page:
54
<PAGE>
(1) For the year ended June 30, 1997, Mr. Byrne received cash salary payments
directly from the Tirex Corporation, or indirectly, through Tirex Canada Inc.,
in the aggregate amount of $62,457 (this does not include cash disbursements
made to Mr. Byrne during fiscal 1997 by way of reimbursements for expenses paid
by him for or on behalf of the Company). Mr. Byrne waived cash payment of the
balance of $187,543 in salary payments due to him under the terms of his
employment agreement with the Company (the "Byrne Executive Agreement") for
fiscal 1997. The terms and conditions of the Byrne Executive Agreement, which
calls for an annual salary in the amount of $250,000, are discussed in more
detail, below, under the caption, "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements - Executive Agreements". In lieu
of cash payment of salary, Mr. Byrne agreed to accept shares of the Company's
stock, valued at one-half the average market price of such stock during the
periods in which such salary was earned. The number of Compensation Shares
issued to Mr. Byrne for services rendered pursuant to his Executive Agreement
during fiscal 1997 aggregated to 1,130,217 shares. For a discussion in detail of
all issuances of Compensation Shares made to Mr. Byrne during fiscal 1997,
including the dates, amounts, and share prices thereof, reference is made to,
"Certain Relationships and Related Transactions - Issuance of Stock in Lieu of
Salaries and Consulting Fees and Stock Restriction Agreements", below.
Subsequent to the period covered by this report, Mr. Byrne has continued to
waive payment of substantial portions of his contractual salary and he has
agreed to continue to waive all or part of such salary until the Company's
financial position improves significantly.
(2) For the year ended June 30, 1996, Mr. Byrne received cash salary payments
directly from Tirex America Inc., or indirectly, through Tirex Canada Inc., in
the aggregate amount of $17,424 (this does not include cash disbursements made
to Mr. Byrne during fiscal 1996 by way of reimbursements for expenses paid by
him for or on behalf of the Company). Mr. Byrne waived cash payment of the
balance of $ 232,576 in salary payments due to him under the terms of Byrne
Executive Agreement for the year ended June 30, 1996. In lieu of cash payment of
salary, Mr. Byrne agreed to accept shares of the Company's stock, valued at
one-half the average market price of such stock during all or part of the period
in which such salary was earned. The number of Compensation Shares issued to Mr.
Byrne for services rendered pursuant to his Executive Agreement during fiscal
1996 aggregated to 1,676,075. For a discussion in detail of all issuances of
Compensation Shares made to Mr. Byrne during fiscal 1996, including the dates,
amounts, and share prices thereof, reference is made to "Certain Relationships
and Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees and Stock Restriction Agreements".
(3) For the approximately five and one-half month period which commenced on
January 18, and ended on June 30, 1995, Mr. Byrne waived cash payment of
$104,166 in total salary payments due to him under Byrne Executive Agreement.
This does not include cash disbursements made to Mr. Byrne during the quarter
ended June 30, 1995 by way of reimbursements for expenses paid by him for or on
behalf of the Company. In lieu of cash salary payment of the foregoing amount,
Mr. Byrne agreed to accept shares of the Company's stock, valued at one-half the
average market price of such stock during all or part of the period in which
such salary was earned ("Compensation Shares"). The number of Compensation
Shares issued to Mr. Byrne for services rendered pursuant to his Executive
Agreement during fiscal 1995 aggregated to 1,478,174.
(4) For the fiscal year ended June 30, 1997, Mr. Muro received cash salary
payments directly from Tirex America Inc., or indirectly, through Tirex Canada
Inc., in the aggregate amount of $51,510. (This does not include cash
disbursements made to Mr. Muro during fiscal 1997 by way of reimbursements for
expenses paid by him for or on behalf of the Company.) Mr. Muro waived cash
payment of the aggregate balance of $98,490 in salary payments due to him under
the terms of his employment agreement with the Company (the "Muro Executive
Agreement") during the year ended June 30, 1997. In lieu thereof, Mr. Muro
agreed to accept shares of the Company's stock, valued at one-half the average
market price of such stock during the periods in which such salary was earned.
The number of Compensation Shares issued to Mr. Muro for services rendered
pursuant to his Executive Agreement during fiscal 1997 aggregated to $595,540.
For a discussion in detail of all issuances of Compensation Shares made to Mr.
55
<PAGE>
Muro during fiscal 1997, including the dates, amounts, and share prices thereof,
reference is made to "Certain Relationships and Related Transactions - Issuance
of Stock in Lieu of Salaries and Consulting Fees", below. Subsequent to the
period covered by this report, Mr. Muro has continued to waive payment of
substantial portions of his contractual salary and he has agreed to continue to
waive all or part of such salary until the Company's financial position improves
significantly.
(5) From January 18, 1995 through December 31, 1995, Mr. Muro served as an
Engineering Consultant to the Company pursuant to the terms of his consulting
agreement (the "Muro Consulting Agreement") which provided for aggregate
consulting fees in the amount of $150,000. Effective January 1, 1996, Mr. Muro
served as the Company's vice president of Engineering pursuant to the Muro
Executive Agreement, which provides for salary payments to Mr. Muro in the
annual amount of $150,000 annually). For the six-month period which commenced on
July 1, 1995 and ended on December 31, 1995, Mr. Muro waived payment in cash of
all consulting fees due to him. For the balance of the fiscal year ended June
30, 1996, Mr. Muro received cash salary payments directly from Tirex America
Inc., or indirectly, through Tirex Canada Inc., in the aggregate amount of
$7,592. (This does not include cash disbursements made to Mr. Muro during fiscal
1996 by way of reimbursements for expenses paid by him for or on behalf of the
Company.) Mr. Muro waived cash payment of the aggregate balance of $142,408 in
consulting fees and salary payments due to him under the terms of the Muro
Consulting Agreement and the Muro Executive Agreement during the year ended June
30, 1996. In lieu thereof, Mr. Muro agreed to accept shares of the Company's
stock, valued at one-half the average market price of such stock during all or
part of the period in which such consulting fees and salary were earned. The
number of Compensation Shares issued to Mr. Muro for services rendered pursuant
to his Consulting and Executive Agreements during fiscal 1996 aggregated to
1,074,367. For a discussion in detail of all issuances of Compensation Shares
made to Mr. Muro during fiscal 1996, including the dates, amounts, and share
prices thereof, reference is made to "Certain Relationships and Related
Transactions - Issuance of Stock in Lieu of Salaries and Consulting Fees",
below.
(6) Mr. Muro waived cash payment of $75,000 in consulting fees due to him
pursuant to the Muro Consulting Agreement for the approximately 24 week period
which commenced on January 18, 1995 and ended on June 30, 1995 (this does not
include cash disbursements made to Mr. Muro during this period by way of
reimbursements of expenses). In lieu of such unpaid consulting fees, Mr. Muro
agreed to accept shares of the Company's stock, valued at one-half the average
market price of such stock during all or part of the period in which such fees
were earned. The number of Compensation Shares issued to Mr. Muro for services
rendered pursuant to his Consulting Agreement during fiscal 1995 aggregated to
464,000.
(7) During fiscal 1997, Ms. Levine was employed by the Company as its Secretary
and General Counsel from July 1, 1996 through December 21, 1996 under the terms
of an employment agreement dated January 18, 1995 (the "First Levine Employment
Agreement"). On December 22, 1996, resigned her positions as Secretary and as a
Director of the Company. Her resignation was not caused by any disagreement with
the Company on any matter relating to the Company's operations, policies, or
practices. Following her resignation from the foregoing positions, Ms. Levine
has continued to be employed by the Company as its in-house Corporate and
Securities Counsel pursuant to the terms of her employment agreement, dated
December 22, 1996 (the "Second Levine Employment Agreement"). The terms and
conditions of both the First and the Second Levine Employment Agreements, call
for an annual salary in the amount of $150,000, and are discussed in more
detail, below, under the caption, "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements - Executive Agreements". For the
year ended June 30, 1997, for services rendered through December 21, 1996, as an
executive officer of the Company, and thereafter, as corporate counsel to the
Company, Ms. Levine received cash salary payments directly from The Tirex
Corporation, or indirectly, through Tirex Canada Inc. in the aggregate amount of
$17,437.45 (this does not include cash disbursements made to Ms. Levine during
fiscal 1997 by way of reimbursements for expenses paid by her for or on behalf
of the
56
<PAGE>
Company). Ms. Levine waived cash payment of an aggregate of $136,702.55 in
salary payments due to her under the terms of both the First and the Second
Levine Employment Agreements for fiscal 1997. In lieu of cash salary payments,
Ms. Levine agreed to accept shares of the Company's stock, valued at one-half
the average market price of such stock during all or part of the period in which
such salary was earned. The number of Compensation Shares issued to Ms. Levine
for services rendered under both the First and Second Levine Employment
Agreements during fiscal 1997 aggregated to 824,868 shares. For a discussion in
detail of all issuances of Compensation Shares made to Ms. Levine during fiscal
1997, including the dates, amounts, and share prices thereof, reference is made
to "Certain Relationships and Related Transactions - Issuance of Stock in Lieu
of Salaries and Consulting Fees and Stock Restriction Agreements", below.
Subsequent to the period covered by this report, Ms. Levine has continued to
waive payment of substantial portions of her contractual salary and she has
agreed to continue to waive all or part of such salary until the Company's
financial position improves significantly.
(8) For the year ended June 30, 1996, Ms. Levine received no cash salary
payments directly from Tirex America Inc., or indirectly, through Tirex Canada
Inc. (this does not include cash disbursements made to Ms. Levine during fiscal
1996 by way of reimbursements for expenses paid by her for or on behalf of the
Company). Ms. Levine waived cash payment of the $150,000, in salary payments due
to her under the terms of the First Levine Employment Agreement for the year
ended June 30, 1996, and in lieu thereof, Ms. Levine agreed to accept shares of
the Company's stock, valued at one-half the average market price of such stock
during all or part of the period in which such salary was earned. The number of
Compensation Shares issued to Ms. Levine for services rendered pursuant to her
Executive Agreement during fiscal 1996 aggregated to 942,459. For a discussion
in detail of all issuances of Compensation Shares made to Ms. Levine during
fiscal 1996, including the dates, amounts, and share prices thereof, reference
is made to "Certain Relationships and Related Transactions - Issuance of Stock
in Lieu of Salaries and Consulting Fees and Stock Restriction Agreements",
below.
(9) For the approximately five and one-half month period which commenced on
January 18, and ended on June 30, 1995, Ms. Levine waived cash payment of
$68,750 in total salary payments due to her under the Levine Executive
Agreement. This does not include cash disbursements made to Ms. Levine during
this period by way of reimbursements for expenses paid by her for or on behalf
of the Company. In lieu of cash salary payments in the foregoing amount, Ms.
Levine agreed to accept shares of the Company's stock, valued at one-half the
average market price of such stock during all or part of the period in which
such salary was earned ("Compensation Shares"). The number of Compensation
Shares issued to Ms. Levine for services rendered pursuant to her Executive
Agreement during fiscal 1995 aggregated to 886,904.
(10) Management believes that it is impossible to determine the actual current
or potential value, if any, of the such shares in light of the fact that, as of
the dates when such shares were issued to the executive officers, they had no or
only very minimal actual market value and the actual potential market value of
such shares, if any, was at such dates, and as at the date hereof remains,
highly contingent upon, and subject to, extremely high risks including but not
limited to the following factors: (I) the very early stage of development of the
Company's business; (ii) the Company's lack of sufficient funds to implement its
business plan and the absence of any commitments from potential investors to
provide such funds; (iii) the absence of a reliable, stable, or substantial
trading market for such shares; (iv) the restrictions on transfer arising out of
the absence of registration of such shares and certain stock restriction
agreements which each of such persons has entered into; and (v) the uncertainty
respecting the Company's ability to continue as a going concern, (See the
discussions included above, in "Business" and "Market for the Company's Common
Equity and Related Stockholder Matters").
(11) All Compensation Shares and Stock Bonuses issued to the executive officers
named in this Summary Compensation Table in lieu of cash compensation were
issued pursuant to certain special compensation agreements and stock restriction
agreements between each of them and the Company.
57
<PAGE>
The terms and conditions of such agreements are discussed in detail below, under
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements - Executive Agreements and Special Compensation Agreements" and in
"Certain Relationships and Related Transactions - Sales of and Restrictions on
Shares Held by Executive Officers", below.
(12) On May 29, 1997, The Company awarded stock bonuses to Mr. Byrne, Mr. Muro
and Ms. Levine (the "Stock Bonuses"), for the fiscal years ended June 30, 1995
and 1996 (the "1995/1996 Bonuses"). Subsequent to the end of the last fiscal
year, on September 3, 1997, Registrant awarded additional stock bonuses to each
of these persons in the form of options to purchase Common Stock (the "1997
Bonus Options") and on January 13, 1998, Registrant awarded bonuses to such
persons (the "1998 Bonuses") consisting of a reduction in the exercise price of
the 1997 Bonus-Options from the full market price of the Common Stock on the
exercise date thereof to $.001 per share. The foregoing bonuses were granted to
these individuals in recognition of: (i) their success in bringing the Company
from a virtual start-up position in January 1995 to its present stage of
development, and (ii) that such persons have not been adequately compensated for
their contributions because, among other things, they have accepted, for all of
the services rendered by them to the Company, compensation consisting
principally of shares of the Company's common stock, the value of which has been
and continues to be completely dependent upon the success of the Company and
therefore has always placed and continues to place the recipients thereof at
risk. The awarding of each of the aforesaid bonuses was approved by the full
board of directors and was effected pursuant to the terms of the Company's
employment agreements with each of such persons. Such Agreements provide that
Mr. Byrne, Mr. Muro, and Ms. Levine are each eligible to receive a discretionary
bonus for each year (or portion thereof) during the term of such Agreement and
any extensions thereof, with the actual amount of any such bonus to be
determined in the sole discretion of the Board of Directors based upon its
evaluation of the Executive's performance during such year. The 1995/1996
Bonuses consisted of options to purchase the following numbers of shares, at a
per share exercise price of $.001 per share, in the following amounts: Mr. Byrne
- - 1,413,382 shares; Mr. Muro - 1,115,093 shares; Ms. Levine - 811,684 shares.
The 1997 Bonuses consisted of options to purchase the following numbers of
shares: Mr. Byrne - 2,000,000; Mr. Muro - 1,000,000; Ms. Levine - 1,000,000 at
the exercise price described above, as reduced to $.001 per share pursuant to
the award of the 1998 Bonuses. Because the shares which were purchased pursuant
to the exercise of the foregoing options, were issued under the terms of the
above described employment agreements, they are also subject to the terms of the
respective stock restriction agreements which each of such persons has entered
into. The terms and conditions of such agreements are discussed in detail below,
in "Employment Contracts and Termination of Employment and Change-in-Control
Arrangements - Executive Agreements and Special Compensation Agreements" and in
"Certain Relationships and Related Transactions - Sales of and Restrictions on
Shares Held by Executive Officers".
Compensation of Directors
The directors of the Company are not compensated for their services as
such, except as follows: Except for Mr. Muro, all of the Company's present
directors, as well as Ms. Levine, who was a director until her resignation on
December 22, 1996, received unregistered shares of the Company's common stock
("Directors Shares"). Messrs. Byrne, Hartley, and Threshie and Ms. Levine
received Directors Shares in consideration of their agreement to join the
Company's board of directors and, in the case of Mr. Threshie, in consideration
of services rendered as well as his agreement to serve as Vice President in
Charge of Operations without compensation. Messrs. Crossley and Sanzaro received
Directors Shares as compensation for services, under the terms of certain
Directors Compensation Agreements, dated July 7, 1997. Directors Shares have
been issued, or transferred to the recipients thereof, as follows: 2,500,000
shares transferred by two members of the Company's former management to Terence
C. Byrne on January 18, 1995; 500,000 shares transferred by two members of the
Company's former management to Frances Katz Levine on January 18, 1995; 100,000
shares issued by the Company to John G. Hartley
58
<PAGE>
on February 16, 1995; 250,000 shares issued by the Company to John L. Threshie,
Jr. on June 1, 1995; 100,000 shares issued to each of Alan Crossley and Louis
Sanzaro on or about July 7, 1997. At the time the Directors Shares were
transferred or issued to the respective directors, such shares had no or only
very minimal market value and the potential market value of such shares, if any,
was, and remains, highly contingent upon, and subject to, extremely high risks
including but not limited to the following factors: (I) the very early stage of
development of the Company's business; (ii) the Company's lack of sufficient
funds to implement its business plan and the absence of any commitments from
potential investors to provide such funds; (iii) the absence of a reliable,
stable, or substantial trading market for such shares; and (iv) the restrictions
on transfer arising out of the absence of registration of such shares (See the
discussions included above, in "Business" and "Market for the Company's Common
Equity and Related Stockholder Matters").
Employment Contracts and Termination of Employment
and Change-in-Control Arrangements
Executive Agreements
And Special Compensation Agreements
1. Terms of the Executive Agreements
The Company has entered into employment agreements with all of its
executive officers and with its in-house corporate counsel, Frances Katz Levine
(the "Executive Agreements"). The respective commencement and termination dates
of the Executive Agreements, as amended are as follows: Mr Byrne, January 18,
1995 - December 31, 2003; Mr. Muro, January 1, 1996 - December 31, 2000; Mr.
Threshie, January 1, 1996 - December 31, 1998, Ms. Kachru - August 31, 1999, and
Ms. Levine, December 22, 1996 - December 21, 2000.(7) The Agreements provide for
annual salaries, of $250,000 to Mr. Byrne $150,000 to each of Mr. Muro and Ms.
Levine, $50,000 to Mr. Threshie, and $90,000 Canadian (approximately $65,000
U.S. at current exchange rates) to Ms. Kachru. Such agreements also provide for
the payment of bonuses at the sole discretion of the board of directors based
upon an evaluation of the executive's performance, with payment of any such
bonuses to be reviewed annually by a Compensation Committee, with the exception
that Ms. Kachru's agreement requires semi-annual review for eligibility for
bonuses and raises. As of the date hereof, the board of directors has not
established a Compensation Committee and it has no plans to do so until such
time as the financial position and prospects of the Company improve
significantly. The Executive Agreements also provide for the participation by
each of the foregoing persons in any pension plan, profit-sharing plan, life
insurance,
- ----------
(7) Ms. Levine was employed by the Company as its Secretary and General
Counsel from July 1, 1996 through December 21, 1996 under the terms of an
employment agreement dated January 18, 1995 (the "First Levine Employment
Agreement"). On December 22, 1996, resigned her positions as Secretary and as a
Director of the Company. Her resignation was not caused by any disagreement with
the Company on any matter relating to the Company's operations, policies, or
practices. Following her resignation from the foregoing positions, Ms. Levine
has continued to be employed by the Company as its in-house Corporate and
Securities Counsel pursuant to the terms of her employment agreement, dated
December 22, 1996 (the "Second Levine Employment Agreement"). The Principal
terms and conditions of the First and the Second Levine Employment Agreements,
other than the commencement and termination dates and the positions and exact
nature of duties and responsibilities, are essentially identical except also for
terms which were added in order to insure that benefits and rights earned under
the First Employment Agreement would not be lost to Ms. Levine perforce of the
foregoing changes.
59
<PAGE>
hospitalization or surgical program, or insurance program hereafter adopted by
the Company (there are no such programs in effect at the present time),
reimbursement of business related expenses, the non-disclosure of information
which the Company deems to be confidential to it, non-competition by the
executive with the Company for the two-year period following termination of
employment with the Company and for various other terms and conditions of
employment.
The Executive Agreements with Mr. Byrne, Mr. Muro, and Ms. Levine also
include severance provisions which provide among other things that in the event
that the employment of the executive is terminated by the Company other than for
cause, or by the executive for "good reason", as that term is defined in the
Executive Agreements, or pursuant to a change in control of the Company, the
terminated executive will be paid, as severance compensation, twice the amount
of his or her base salary for a period of twelve months.
Because of the early stage of development of the Company, its lack of
operations and insignificant cash flow, since January 18, 1995, the Company has
not had the resources to meet fully its financial obligations under the
Executive Agreement. As a result, the major portion of the compensation which
has been available to the Company's executive officers has consisted of
unregistered shares of the Company's common stock ("Compensation Shares"), which
such individuals accepted, in lieu of cash compensation, for a substantial
portion of salary and/or consulting fees due to them (see "Certain Relationships
and Related Transactions - Issuance of Stock in Lieu of Salaries and Consulting
Fees"). As at the various dates when Compensation Shares were issued to the
executive officers, such shares had either no, or only very minimal, actual
market value and the actual potential market value of such shares, if any, was,
and remains, highly contingent upon, and subject to, extremely high risks
including but not limited to the following factors: (I) the very early stage of
development of the Company's business; (ii) the Company's lack of sufficient
funds to implement its business plan and the absence of any commitments from
potential investors to provide such funds; (iii) the absence of a reliable,
stable, or substantial trading market for such shares; and (iv) the restrictions
on transfer arising out of the absence of registration of such shares (See the
discussions included above, in "Business" and "Market for the Company's Common
Equity and Related Stockholder Matters").
All of the Executive Agreements, as amended, provide that, as
compensation, and in lieu of payment in cash of salary, due thereunder, the
Company may issue and the respective executive officers will accept unregistered
shares of the Company's common stock, valued at fifty percent (50%) of the
average of the bid and ask prices of such stock, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, during part or all
of the period in which the salary was earned under the Executive Agreement. All
of the Compensation Shares issued to Mr. Byrne, Mr. Muro, and Ms. Levine are
also subject to the terms and conditions of certain stock restriction agreements
between each of them and the Company. Such stock restriction agreements, as
amended on May 30, 1996 and May 1, 1997 (the "Amended Stock Restriction
Agreements"), provide that shares subject to such agreements may be sold in
accordance with the Rules and Regulations of the Securities Act of 1933, as
amended, but limit the right to have any of the Compensation Shares included in
a registration statement on Form S-8 until after they have been issued and
outstanding for not less than eighteen months.
60
<PAGE>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners.
The following table sets forth information as of September 23, 1996, with
respect to the persons known to the Company to be the beneficial owners of more
than 5% of the common stock, $.001 par value of the Company and of more than 5%
of the Class A Common Stock of the Company's subsidiary, Tirex Canada. Neither
the Company nor Tirex Canada have any shares of any other class issued or
outstanding.
PRINCIPAL SHAREHOLDERS TABLE
- --------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of Percent of
Class Beneficial Beneficial Class (1)
Owner
- --------------------------------------------------------------------------------
Common Terence C. Byrne 8,306,428(2) 13.2%
The Tirex 489 Grosvner Street
Corporation Westmount, Quebec
H3Y 2S5
Class A
Common 34 (3) 34%
Tirex
Canada
Common CG TIRE, INC. 6,977,380 (4) 10%
The Tirex The Continental General
Corporation Tire Recycling Effort
1800 Continental Blvd.
Charlotte, NC 28273
Common Frances Katz Levine (8) 4,396,070 7%
The Tirex 621 Clove Road
Corporation Staten Island, NY 10310
Common Louis V. Muro (8) 6,065,421 9.7%
The Tirex 435 Roy Avenue
Corporation Dorval, Quebec H953E2
Canada
Class A
Common 17 (3) 17%
Tirex
Canada
Common The Nais Corporation 5,231,092(9) 13.5%
The Tirex 94 Washington Avenue
Corporation Lawrence, NY 11559
- ----------
* Percentages less than 1% not shown
Notes
61
<PAGE>
The footnotes to this table appear after the "Security Ownership of
Management Table" which is set forth on the following page.
Security Ownership of Management
The following table sets forth information as of October 10, 1996, with
respect to the beneficial ownership of the common stock, $.001 par value, of the
Company and the Class A common stock of the Company's subsidiary, Tirex Canada
by each of the executive officers and directors of the Company and by all
executive officers and directors as a group:
MANAGEMENT SHAREHOLDINGS TABLE
- --------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of Percent of
Class Beneficial Beneficial Class (1)
Owner Owner
- --------------------------------------------------------------------------------
Common Terence C. Byrne 8,306,428 (2) 13.2%
The Tirex 489 Grosvner Street
Corporation Westmount, Quebec
H3Y 2S5
Class A
Common 34 (3) 34%
Tirex
Canada
Common Alan Crossley 812,624 (5) 1.3%
The Tirex Gran Via de Hortaleza
Corporation 82A, 1B
Madrid, Spain 28043
Common John G. Hartley 20,000 (6) *
The Tirex 7/9 Boulevard D'Italie
Corporation Monte Carlo MC 98000
Monaco
Common Vijay Kachru 330,801 *
The Tirex 1598 Pine Ave. West
Corporation Montreal, Quebec H3B 1B4
62
<PAGE>
MANAGEMENT SHAREHOLDINGS TABLE (CONTINUED)
- --------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of Percent of
Class Beneficial Beneficial Class (1)
Owner Owner
- --------------------------------------------------------------------------------
Common Louis V. Muro 6,065,421 (8) 9.7%
The Tirex 435 Roy Avenue
Corporation Dorval, Quebec H953E2
Canada
Class A
Common 17 (3) 17%
Tirex
Canada
Common Louis V. Sanzaro 1,476,499 (7) 2.35%
The Tirex 1900 Vermont Avenue
Corporation Toms River, NJ 08755
Common John L. Threshie, Jr. 197,667 *
The Tirex 200 Lansdowne,
Corporation Westmount, Quebec
Canada, H3Z 3E1
Common All directors and 17,209,440 (2) 27.4%
The Tirex officers as a group
Corporation (7 persons)
Class A All directors and 51 (3) 51%
Common officers as a group
Tirex (7 Persons)
Canada
- ---------
* Percentages less than 1% not shown
Notes:
(1) The percentages listed in the tables are calculated on the basis of
62,796,426 shares of the common stock, $.001 par value, of the Company ("Common
Stock") outstanding as at May 18, 1998, with the following exceptions: (a) The
percentage deemed to be beneficially owned by CG TIRE, Inc. is calculated
63
<PAGE>
on the basis of 62,796,426 shares of Common Stock currently issued and
outstanding plus 6,977,380 shares of common stock which, CG Tire has the right
to acquire pursuant to its option within 60 days from the date of this
Prospectus (see note (4), below.
(2) Includes: 1,733,216 shares held of record by Mr. Byrne as of May 18, 1998
and 69,883 shares held of record by Mr. Byrne's wife, Darla Sapone Byrne, over
which shares Mr. Byrne has voting power pursuant to an irrevocable proxy granted
to him on September 27, 1996; and (iii) 6,503,329 shares held of record by
Bartholomew International Investments, Ltd, which holds such shares for the
benefit of Mr. Byrne, his spouse and Mr. Byrne's two sons.
(3) Messrs. Byrne and Muro hold all shares of Tirex Canada Class A Common Stock
pursuant to the terms of a Shareholders agreement among them and the Company
(the "Tirex Canada Shareholders Agreement"), pursuant to which they will be
obligated to transfer all such shares to the Company, for no consideration, on
May 2, 2001, unless the term of such Agreement is unilaterally extended by the
Company. The Company does not intend to take any actions of any kind with
respect to such shares which would be in violation of any Canadian government
regulations governing tax and other financial incentives which may be available
to Tirex Canada. The terms of the Tirex Canada Shareholders Agreement are
discussed in more detail, below, in "Certain Relationships and Related
Transactions", under the caption "Transfer of 17% of Tirex Canada Shares From
Mr. Forbes to Mr. Byrne."
(4) Includes 5,997,380 shares which CG TIRE, Inc. (CGT) has the right to acquire
upon the effectiveness of this Registration Statement pursuant to an option to
purchase at a per share price equal to fifty percent (50%) of the average of the
final bid and ask prices of the common stock of Tirex, as quoted in the OTC
Bulletin Board during the ten business days preceding the date of a notice of
exercise given by the CG TIRE, all, or any part of, the number of shares of the
common stock of Tirex which would constitute ten percent, upon their issuance
(10%) of the common stock of Tirex, issued and outstanding at the date of
exercise (the "Option"), on a fully diluted basis. The CGT Option was amended at
or around August 13, 1997 and again on May 18, 1998. The changes in the terms of
the CGT Option pursuant to such amendments are discussed below in "Selling
Securities Holders - Underlying Shares Issuable Upon Exercise of the CGT
Option." All of the shares subject to the CGT Option are being registered
hereunder (see below, "Selling Shareholders"). CGT is a wholly-owned subsidiary
of Continental General Tire Inc. ("General Tire"). General Tire has named CGT as
"The Continental General Tire Recycling Effort. The Option, which has a
three-year term, was granted to CGT on April 24, 1997, in consideration of CGT's
agreement to: (1) explore with the Company the possibility of the Company's: (a)
furnishing General Tire with all or part of its 80-mesh crumb rubber
requirements and (b) establishing local tire recycling centers for the purpose
of accepting for disintegration scrap tires from General Tire's network of
independent dealers; and (ii) advise the Company with respect to General Tire's
specifications for its crumb rubber requirements, any further development of
such specifications in the future, the suitability of the TCS-1 System for
meeting such specifications, and the further development of the Company's
technology in coordination with Continental Tire's product development
requirements. CGT has not, as of the date hereof, exercised any part of the
Option.
(5) Includes 812,624 shares held of record by Sinermad Comercio E Invest, Lda.
of Madeira, Portugal ("SCIL"). Mr. Crossley is a controlling person of SCIL and,
as such, has sole or shared voting and investment power over such shares.
(6) Mr. Hartley holds an option (the "Hartley Option") to purchase twenty
thousand (or, under certain circumstances, more) shares of the Company's Class A
Cumulative Convertible Preferred Stock (the "Preferred Stock"), which shares
will be convertible into up to two million shares of the Company's common stock.
Mr. Hartley has not exercised such option nor has he indicated to the Company
that he intends to do so in the foreseeable future. The figures shown in the
Table, above, do not give effect to the exercise of the Hartley Option and do
not include any of the shares of common stock which would
64
<PAGE>
be issuable upon conversion of the Preferred Stock. For a discussion in more
detail of the terms of the Hartley Option and Mr. Hartley's purchase thereof,
reference is made to "Certain Relationships and Related Transactions" under the
caption, "Extension of Exercise Period of Option Held by John G.
Hartley", below.
(7) Includes 376,499 shares held of record by Mr. Sanzaro's spouse, Sharon
Sanzaro, over which shares Mr. Sanzaro disclaims any beneficial ownership.
(8) Includes 1,300,000 shares held of record by Ms. Levine's spouse, Robert
Levine, over which shares Ms. Levine disclaims any beneficial ownership.
Changes in Control
The Company is not aware of any arrangements which may at a subsequent
date result in a change in control of the Company.
SELLING SECURITIES HOLDERS
1. Offers and Sale of The Outstanding Shares
A total of 11,710,000 shares of the Company's issued and outstanding
Common Stock (the "Outstanding Shares") are being registered hereunder for sale
by the fifty-seven holders thereof (the "Selling Shareholders") all of whom
acquired their shares in a private placement (the "Type C Private Placement")
effected by the Company through its officers from the later part of March,
through May 15, 1998. The Outstanding Shares may be offered and sold by the
Selling Shareholders, from time to time, as market conditions permit in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. Any and all sales of the Outstanding
Shares shall be made for the respective accounts of the holders thereof and the
Company will not receive any proceeds from such sales.
Acquisition of the Outstanding Shares
All of the Outstanding Shares were purchased from the Company in the Type
C Private Placement at a price $.10 per share (the "Type C Shares"). It was
conducted on a best efforts, no minimum basis, with all offers and sales made
directly by officers of the Company. The Type C Private Placement was effected
in reliance upon the availability of an exemption from the registration
provisions of the Securities Act by virtue of compliance with the provisions of
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereof ("Rule
506"). The Type C Shares were offered and sold to a limited number of persons,
who were known to the Company to be sophisticated investors who understood and
are economically capable of accepting the risks associated with a speculative
investment, including the complete loss of such investment, and who the Company
had reason to believe were, and who represented themselves to be, "Accredited
Investors" within the meaning prescribed by Regulation D and Rule 501 of the
Securities Act. The Type C Private Placement was completed and closed on May 15,
1998.
65
<PAGE>
Relationship of Selling Shareholders with the Company
None of the Selling Shareholders currently has, or within the past three
years has had, any position, office, or other material relationship with the
Company or any predecessor or affiliate of the Company.
Sales of the Outstanding Shares By Selling Shareholders
None of the Selling Shareholders have advised the Company, and the Company
is unable to predict, if, when, and the extent to which, they intend to sell the
Outstanding Shares being registered hereunder for their respective accounts.
Notwithstanding the foregoing, for purposes of the following Selling
Shareholders Table, all of the Outstanding Shares are deemed to be offered
hereby by the Selling Shareholders for sale to the public (for purposes of the
Selling Shareholders Table, the "Offering"). Based upon the foregoing
assumption, the following Table sets forth: (i) the number of shares of Common
Stock owned by each Selling Shareholder prior to the Offering; (ii) the number
of Outstanding Shares which it is deemed are being offered for the account of
each Selling Shareholder; (iii) the number of shares of Common Stock to be owned
by each Selling Shareholder after the completion of the Offering (assuming that
all of the Outstanding Shares are offered and sold in the Offering, and (iv)
based upon the foregoing assumptions, the percentage of the Company's common
stock to be owned by each Selling Shareholder after completion of the Offering.
<TABLE>
<CAPTION>
====================================================================================================================================
Selling Shareholder No. of Shares No. of No. of Shares % of Shares
Owned Prior Shares Owned After Owned After
to Offering Offered Offering Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Attunes, Steven 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Bull, Stuart 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Camp, Carolyn 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Champagne, Paul 150,000 150,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Cioffi, Robert & Maryann 125,000 125,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Costa, Dr. Frank W., Jr. 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Daly, Daniel J. 70,000 70,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
DeBeech, Leo 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Della-Rocca, Anthony 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Dreamers, The 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
DKB Trade Concepts, Inc. 586,750 500,000 86,750 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Fortgang, Jane & Steven 500,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Fortgang, Janet 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Gagne, Dr. Jocelyne, O.D. 800,000 800,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Selling Shareholder No. of Shares No. of No. of Shares % of Shares
Owned Prior Shares Owned After Owned After
to Offering Offered Offering Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gallegos, Philip A. 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Giordano, Anthony 430,000 430,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Goldstein, Rose 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Griffin, Carolyn, G. 20,000 20,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Horbachefsky, William S. 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Keller, Laurence D. 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Kohut, Charles 125,000 125,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Latendresse, Louise 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Letourneau, Danielle 35,000 35,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Levin, Minna 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Marquand, Robert F. 120,000 120,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
McCann, John L. 660,000 660,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
McKenzie, Ann Theresa 125,000 125,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Meier, Rita & Walter 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Meier, Henry P. 410,000 410,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Micliz, Richard 200,000 200,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Morcos, Mark 150,000 150,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Nerwinski, Keven P. 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Nerwinski, Frank P. 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Nimmo, Grainger 75,000 75,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Pepin, Me Elise, L.L.B 200,000 200,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Perry, James N. 40,000 40,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Perry, James N., Jr. 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Petursson, Petur 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Richichi, Joe 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Rosenberg, Marshall 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Siciliano, Carney 100,000 100,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Singer, Herbert & Eve 400,000 400,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Selling Shareholder No. of Shares No. of No. of Shares % of Shares
Owned Prior Shares Owned After Owned After
to Offering Offered Offering Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Somple, Charles R. 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Stark, Betty P. 50,000 50,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Stumpf, Evelyn J. 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Sullenberger, Jon 250,000 250,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Supple, Mike 80,000 80,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Teasdale, Investment 1,700,000 1,700,00 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Terlecki, Russell J. 30,000 30,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Tremblay, Manon 160,000 160,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Threshie, John L. Sr. 150,000 150,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Threshie, Charles F. 1,080,000 1,080,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Threshie, Philip & Justine 20,000 20,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Weeks, Robin 15,000 15,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Weeks, William J. 20,000 20,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Winter, Noel 80,000 80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Zingaro, Gilbert 125,000 125,000 -0- -0-
====================================================================================================================================
</TABLE>
- ------------
* Percentages less than 1% not shown
2. Offer and Sale of Underlying Shares by the Company
This Prospectus also relates to the sale by the Company of shares of its
Common Stock pursuant to:
(a) the exercise of:
(i) a currently outstanding common stock purchase option (the "CGT
Option"), held by CG TIRE, Inc., to purchase the number of shares
which shall constitute upon their issuance, on a fully diluted
basis, ten percent (10%) of the issued and outstanding Common Stock
of the Company (see "Description of Securities - The GCT Option");
(ii) currently outstanding common stock purchase warrants (the "Type A
Warrants"), held by two persons, to purchase an aggregate of
2,000,000 shares of common stock (see "Description of Securities -
The Type A Warrants"); and
68
<PAGE>
(iii) currently outstanding common stock purchase warrants (the "SCT
Warrants"), held by Security Capital Trading, Inc. ("SCT"), to
purchase an aggregate of 2,000,000 shares of common stock (see
"Description of Securities - The SCT Warrants").
(b) the conversion of:
(i) twenty currently outstanding 10% subordinated convertible
debentures, each in the principal amount of $25,000 (the "Type A
Debentures"), held by two persons (the "Type A Debentureholders")
(see "Description of Securities - The Type A Debentures"); and
(ii) 53.5 currently outstanding 10% subordinated convertible debentures,
each in the principal amount of $10,000 (the "Type B Debentures"),
held by 36 persons (see "Description of Securities - The Type B
Debentures").
The shares of common stock issuable pursuant to the exercise of the CGT
Option, the Type A Warrants, and the SCT Warrants, together with the shares
issuable upon conversion of the Type A and Type B Debentures, are referred to
herein, collectively, as the "Underlying Shares". The Company is unable to
determine with certainty, as at the date hereof, if, when, and the extent to
which, any of the Underlying Shares will be purchased from the Company pursuant
to such exercises and conversions. None of the holders of the above described
options, warrants, or debentures have advised the Company, and the Company is
unable to predict, whether, and to what extent, such persons will choose to
acquire the Underlying Shares. Moreover, where the option exercise price or the
debenture conversion ratio is dependent upon the market price of the Company's
common stock at the time of exercise or conversion, the Company is unable to
predict the number of shares of common stock which will actually be issuable in
respect of such exercises or conversions.
To the extent that the Underlying Shares are acquired from the Company,
they may be offered and resold by the holders (the "Underlying Share Holders")
thereof, from time to time, as market conditions permit in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices. To the extent that any of such offers or resales of the
Underlying Shares are made within days of their having been acquired from the
Company, they will be subject to prospectus delivery requirements. Any and all
resales of the Underlying Shares will be made for the accounts of the respective
Underlying Share Holders and the Company will not receive any proceeds from such
sales.
Relationship of Underlying Share Holders with the Company
None of the holders of the above-described options, warrants, or
convertible debentures which may be exercised for, or converted into, Common
Stock currently has, or within the past three years has had, any position,
office, or other material relationship with the Company or any predecessor or
affiliate of the Company.
Possible Resale of Underlying Shares
Should any of the Underlying Shares be acquired from the Company through
the exercise of the outstanding options or warrants or through the conversion of
the debentures, the Company is, as of the
69
<PAGE>
date hereof, unable to predict if, when, and the extent to which, such shares
will be offered for resale to the public by the Underlying Share Holders.
However, for purposes of the following Tables, it is assumed that all of the
Underlying Shares will be acquired from the Company and offered (the
"Reoffering") for resale to the public by the Underlying Share Holders. Based
upon the foregoing assumptions, the following Tables set forth: (i) the number
of shares of Common Stock owned by each Underlying Share Holder prior to the
Reoffering (including but not necessarily limited to all of the Underlying
Shares which such person is entitled to acquire); (ii) the number of Underlying
Shares which it is deemed will be acquired by each Underlying Shareholder and
reoffered for their respective accounts; (iii) the number of shares of Common
Stock to be owned by each Underlying Share Holder after the completion of the
Reoffering (assuming that all of the Underlying Shares are reoffered and resold
in the Reoffering), and (iv) based upon the foregoing assumptions, the
percentage of the Company's common stock to be owned by each Selling Shareholder
after completion of the Reoffering. Any and all resales of the Underlying
Shares, shall be made for the respective accounts of the holders thereof and the
Company will not receive any proceeds from such resales.
Underlying Shares Issuable
Upon Exercise of the CGT Option
The Company granted the CGT Option to CG TIRE, Inc. (referred to herein as
"CGT"), a wholly-owned subsidiary of Continental General Tire, Inc.
("Continental Tire"), on April 24, 1997 in consideration for CGT's agreement to
explore the possibility of the Company's, directly or indirectly, through one or
more subsidiaries: (i) furnishing Continental Tire with all or part of its
80-mesh crumb rubber requirements and (ii) establishing local tire recycling
centers for the purpose of accepting for disintegration scrap tires from
Continental Tire's network of independent dealers; and CGT's agreement to advise
the Company with respect to Continental Tire's specifications for its crumb
rubber requirements, any further development of such specifications in the
future, the suitability of the Company's Cryogenic tire disintegration
technology for meeting such specifications, and the further development of the
Company's technology in coordination with Continental Tire's product development
requirements.
969,365 of the CGT Option Shares are subject to an amendment (the "August
13, 1997 Amendment") which will allow CGT to exercise a portion of the CGT
Option at an exercise price related to the market price of the Common Stock as
at August 13, 1997. The exercise price for the balance of the CGT Option shares
is equal to fifty percent (50%) of the average of the final bid and ask prices
of the Common Stock, as quoted in the OTC Bulletin Board during the ten business
days preceding the Exercise Date. The number of CGT Option Shares is equal to
all, or any part of, the number of shares which shall constitute upon their
issuance, on a fully diluted basis, ten percent (10%) of the issued and
outstanding Common Stock of the Company. On May 18, 1998, CGT agreed to further
amend its option to provide that the original exercise period would terminate on
the day preceding the date of the filing with the SEC of the registration
statement, of which this Prospectus forms a part (the "Registration Statement"),
and that a new exercise period shall commence on the day following the effective
date of the Registration Statement and shall continue until April 23, 2000. CGT
has agreed to exercise, as soon as practicable following the date of this
Prospectus, that portion of the CGT Option subject to the August 13, 1997
Amendment at an exercise price of $.1195 per share for 969,365 of the CGT Option
Shares. CGT has not advised the Company with respect to whether, when, and to
what extent, it intends to further exercise its option. CGT has not advised the
Company with respect to whether, when, or to what extent, it intends to resell
any of the shares which it will purchase pursuant to any exercises of the CGT
Option, including but not limited to the partial exercise which it has agreed to
effect pursuant to the August 13th
70
<PAGE>
Amendment. Notwithstanding the foregoing, however, for purposes of this
discussion only and as set forth in the Table below, it is assumed that CGT will
exercise the CGT Option for all __________ shares subject to the Option as at
____________________, 1998 and, upon their issuance, will offer and sell all of
such shares for sale to the public.
<TABLE>
<CAPTION>
========================================================================================================
No. of Shares No. of No. of Shares % of Shares
Owned Prior to Underlying Owned After Owned After
Reoffering Shares Reoffering Reoffering
Underlying Share Reoffered
Holder
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CG TIRE, Inc. ------------ ------------- -0- -0-
========================================================================================================
</TABLE>
Underlying Shares Issuable
Upon Exercise of the Type A Warrants and the
Type A Debentures
An aggregate of 2,000,000 Type A Warrants and twenty Type A Debentures, in
the aggregate principal amount of $500,000 constituted the formed part of the
twenty Type A Units sold by the Company in the Type A Private Placement. Each
Type A Unit consisted of one 10% Convertible Subordinated Type A Debenture in
the principal amount of $25,000 and 100,000 Type A Warrants to purchase a like
number of shares of Common Stock. The 2,000,000 outstanding Type A Warrants are
exercisable at a price of $.001 per share, commencing on the day following the
Effective Date (see "The Company - The Type A Private Placement" and
"Description of Securities - The Type A Warrants"). The Type A Debentures are,
convertible at a ratio which will enable the debentureholder to exchange the
Type A Debenture for the number of shares of Common Stock, purchasable at 75% of
the average market price of the Company's common stock during the five-day
period preceding the date of conversion, for the principal amount of the
debenture plus all interest earned thereon. As noted above, the Company is
unable to predict with certainty, the number of shares which will be issuable
upon the conversion of the Type A Debentures. However, for purposes of the
following Table, it is assumed that all of the Type A Debentures will be
converted into Common Stock and none will be redeemed for cash and that the
Company will receive notices of conversion from the holders of all of the Type A
Debentures on ___________, 1998. Based upon the foregoing, the Conversion Price
would be $________ per share and the number of shares issuable upon conversion
of each Type A Debenture would be ___________ (see "The Company - Material
Financing Activities - The Type A Private Placement" and "Description of
Securities - The Type A Debentures").
71
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Underlying Share No. of Shares No. of No. of Shares % of Shares
Holder Owned Prior to Underlying Owned After Owned After
Reoffering Shares Reoffering Reoffering
Reoffered
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S.H. Developments (1) (1) -0- -0-
Ltd.
- ----------------------------------------------------------------------------------------------------------
Robert & Mary Jean (1) (1) -0- -0-
Colkitt
==========================================================================================================
</TABLE>
(1) To be estimated by Amendment
Underlying Shares Issuable Upon Conversion
of the Type B Debentures
53.5 Type B Debentures in the aggregate principal amount of $535,000
formed part of the 30.5 RPM Units sold by RPM Incorporated prior to its Merger
with and into Tirex Acquisition Corp. (see "The Company - Merger with RPM
Incorporated) and the 23 Type B Units sold by the Company after the RPM Merger.
Each Type B Unit consisted of one 10% Convertible Subordinated Type A Debenture
in the principal amount of $10,000 and 10,000 shares of Common Stock (the "Type
B Common Shares"). The Type B Debentures are, convertible at a ratio of one
share for every $.20 of the principal amount of the Debenture plus all interest
earned thereon from the date of issuance. The following table gives effect to
the number of Type B Common Shares which formed part of the Type B Units and the
number of shares of common stock issuable upon conversion of the principal
amount of the Debenture. The shares underlying the Debenture are subject to a
"lock-up" Agreement which prohibits their being resold until the earlier of: (i)
six months from the Effective Date or (ii) one year from the issuance date of
the Debenture (see "The Company - Material Financing Activities - The Type B
Private Placement" and "Description of Securities - The Type B Debentures").
<TABLE>
<CAPTION>
==================================================================================================================
Selling Shareholder No. of Shares No. of Shares No. of Shares % of Shares
Owned Prior to Offered Owned After Owned After
Offering Offering Offering
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Judith Paul 90,000 75,000 15,000 *
- ------------------------------------------------------------------------------------------------------------------
Robert W. Ross 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Naomi Selbst 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Sanford Jarashow 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Pamela & Howard 120,000 100,000 20,000 *
Salamon
- ------------------------------------------------------------------------------------------------------------------
Jack Basch 120,000 100,000 20,000 *
- ------------------------------------------------------------------------------------------------------------------
Roger Harvey 60,000 50,000 * *
- ------------------------------------------------------------------------------------------------------------------
Mark Bruce 600,000 500,000 100,000 *
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
Selling Shareholder No. of Shares No. of Shares No. of Shares % of Shares
Owned Prior to Offered Owned After Owned After
Offering Offering Offering
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benjamin Blech 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Susan Felton 150,000 25,000 50,000 *
- ------------------------------------------------------------------------------------------------------------------
Jeremy Weinstein 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
The Churchill Group 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Barry Novick and 60,000 50,000 10,000 *
Shelley Novick
- ------------------------------------------------------------------------------------------------------------------
Robert R. Felton, P.C. 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Howard N. Sarnoff 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Gloria Tempchin 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Yale M. Fishman 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Seth Roslyn 35,000 25,000 5,000 *
- ------------------------------------------------------------------------------------------------------------------
M. Michael Inzlicht 120,000 100,000 20,000 *
- ------------------------------------------------------------------------------------------------------------------
Harold Gelb 120,000 100,000 20,000 *
- ------------------------------------------------------------------------------------------------------------------
Sherry Hirschman 120,000 100,000 20,000 *
- ------------------------------------------------------------------------------------------------------------------
Lee First 35,000 25,000 5,000 *
- ------------------------------------------------------------------------------------------------------------------
Sheila Schwartzberg 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Ballards Bay LLC 180,000 150,000 130,000 *
- ------------------------------------------------------------------------------------------------------------------
Milton Ackerman 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Robert DeRochie 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Richard Gray 35,000 25,000 5,000 *
- ------------------------------------------------------------------------------------------------------------------
Shalom Maidenbaum 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Daniel Ehrlich 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Marcus Ehrlich 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Lenore Howard 120,000 100,000 20,000 *
- ------------------------------------------------------------------------------------------------------------------
Herbert Linn 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Ehab Coriaty 20,000 20,000 -0- *
- ------------------------------------------------------------------------------------------------------------------
David Gray 60,000 50,000 10,000 *
- ------------------------------------------------------------------------------------------------------------------
Marcia Eisenstein 60,000 50,000 10,000 *
Berman
==================================================================================================================
</TABLE>
73
<PAGE>
Underlying Shares Issuable Upon Exercise
of the SCT Warrants
The Company granted the SCT Warrants to Security Capital Trading, Inc.,
520 Madison Avenue, New York, NY (referred to herein as "SCT") on April 1, 1998,
in consideration for SCT's agreement to provide the Company with corporate
advisory and consulting a one-year consulting agreement between SCT and the
Company. The SCT Warrants give SCT the right to purchase a total of 2,000,000
shares of Common Stock at exercise prices of $.25 per share for the first
666,666 shares, $.40 per share for the second 666,666 shares, and $.50 per share
for the remaining 666,667 shares. The number of shares, if any, which will
actually be issued pursuant to the exercise of the SCT Warrants may differ
significantly from the amount shown for the following reasons: (i) SCT has not
advised the Company and the Company has no way of predicting whether, or to what
extent, SCT will exercise the SCT Warrants and (ii) the SCT Warrants provide for
cashless exercise whereby SCT Warrants may be exercised as follows: In lieu of
exercising any of the SCT Warrants for cash, SCT Warrants may be exercised by
surrendering them without payment of any other consideration, commission, or
remuneration and by execution of a "cashless exercise subscription form", in
connection with which, the number of shares to be issued in exchange for the
surrendered Warrant will be computed by subtracting the per share exercise price
of the surrendered Warrant from the closing bid prices of the Common Stock on
the date of receipt of the cashless exercise subscription form, multiplying that
amount by the number of shares represented by the surrendered warrant and
dividing by the closing bid price of the same date. It is assumed for purposes
of the following Table only, that SCT will exercise all 2,000,000 SCT Warrants
for cash. The exercise period of the SCT Warrants was terminated as of the day
proceeding the filing with the Securities and Exchange Commission of the
Registration Statement of which this Prospectus forms a part. A new exercise
period will commence on the date following the effective date of the said
Registration Statement (See "Description of Securities").
<TABLE>
<CAPTION>
===================================================================================================
Underlying Share No. of Shares No. of Shares No. of Shares % of Shares
Holder Owned Prior Offered Owned After Owned After
to Offering Offering Offering
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Security Capital 2,000,000 2,000,000 -0- -0-
Trading, Inc.
===================================================================================================
</TABLE>
PLAN OF DISTRIBUTION
As at the date hereof, none of the holders of the Outstanding Shares have
advised the Company if, when, and to what extent they intend to sell any of the
Outstanding Shares. In addition, none of the holders of the securities which may
be exercised for, or converted into, Underlying Shares have advised the Company
if, when, and to what extent they intend to acquire the Underlying Shares and,
if they do so, their intentions respecting to offer and resale of such
Underlying Shares to the public. For purposes of this discussion the Outstanding
Shares and the Underlying Shares are sometimes referred to hereinafter,
collectively, as the "Shares".
Commencing as at the date of this Prospectus, all of the Outstanding
Shares may be offered and sold by the Selling Shareholders and, with the
exception of the Underlying Shares issuable upon the conversion of the Type B
Debentures, which are subject to the lock-up provisions set forth above any of
the Underlying Shares which are acquired by the holders of the options,
warrants, or debentures described above may be offered and resold to the public
by the holders thereof immediately upon their acquisition
74
<PAGE>
from the Company. None of the proceeds from any sales of the Outstanding Shares
or resales of the Underlying Shares will be received by the Company. The Selling
Shareholders, and the Underlying Share Holders if they choose, may make such
sales or resales from time to time as market conditions permit in transactions
that may take place in the over-the-counter market, including block trades,
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more broker/dealers for resale of such securities as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. In connection with sales or
resales of Shares pursuant to the Registration Statement of which this
Prospectus is a part, a Selling Shareholder or an Underlying Shareholder
offering such Shares and brokers and dealers who participate in the offer and
sale of the Shares may be deemed "underwriters" as such term is defined in the
Securities Act. In addition, persons using this Prospectus in the offer and sale
of the Shares will be deemed to be engaged in a "distribution" of the Shares as
such term is defined in Regulation M under the Exchange Act, and will be
required to comply with Regulation M with respect to contemporaneous market
activity and other provisions of such Regulation.
As at the date of this Prospectus, none of the Selling Shareholders or
prospective Underlying Share Holders intends to utilize the services of an
underwriter in any distribution of the Shares, should such distribution occur,
except insofar as any securities dealer executing a sell order for either of
them may be deemed an underwriter as that term is defined or used in the
Securities Act. Further, it is intended that if and when any of the Shares are
sold through a dealer, no more than the ordinary and customary brokerage
commission will be paid. Shares purchased by dealers for their own accounts may
be re-offered from time to time at prices obtainable and satisfactory to such
dealers. The names of any participating brokers or dealers, any applicable
commissions or discounts and the net proceeds to the Selling Shareholders from
such sale will be set forth in an applicable Prospectus Supplement, as required.
The registration statement, of which this Prospectus forms a part, must be
current at any time during which a Selling Shareholder sells any of the
Outstanding Shares or the Company sells any of the Underlying Shares pursuant to
the exercise of any of the options or warrants or pursuant to the conversion of
any of the debentures. Any material changes which the Company, in its sole
discretion, determines should be disclosed prior to the sale of any of the
Shares will be set forth in an accompanying supplement to this Prospectus (the
"Prospectus Supplement"). The Company will bear all expenses (other than
underwriting discounts and selling commissions, state and local transfer taxes,
and fees and expenses of counsel or other advisors to the Selling Shareholders)
in connection with the registration of the Shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of any transactions during the last two
years, or presently proposed transactions, to which the Company was or is to be
a party, in which the amount involved in such transaction (or series of
transactions) was $60,000 or more and which any of the following persons had or
is to have a direct or indirect material interest: (i) any director or executive
officer of the Company; (ii) any person who owns or has the right to acquire 5%
or more of the issued and outstanding common stock of the Company; and (iii) any
member of the immediate family of any such persons.
75
<PAGE>
Issuance of stock in Lieu of Salaries and
Consulting Fees
During the years ended June 30, 1997 and 1996, the Company's executive
officers and, since December 22, 1996, its in-house corporate and securities
counsel, have waived substantial portions of their salaries and unreimbursed
expenses made by them on behalf, and for the account, of the Company, and have
accepted shares of the Company's common stock in lieu thereof. In connection
therewith:
Year ended June 30, 1996
For the one-month period which commenced on July 1, 1995 and ended on July
31, 1995, Mr. Byrne waived payment of $20,833.34 and Ms. Levine waived payment
of $12,500. In connection therewith, on July 25, 1995, the Company authorized
the issuance 138,888 shares to Mr. Byrne and 83,334 shares to Ms. Levine. The
number of shares issued to Mr. Byrne and Ms. Levine at such time was calculated
on the basis of 50% of the average of the bid and ask price for the Company's
stock (approximately $.30 per share) during the nine-day period preceding July
25, 1995.
For the three and one-half month period which commenced on August 1, 1995
and ended on November 15, 1995, Mr. Byrne waived payment of $66,971 and Ms.
Levine waived payment of $43,750. In connection therewith, on November 15, 1995,
the Company authorized the issuance 446,112 shares to Mr. Byrne and 291,667
shares to Ms. Levine. The number of shares issued to Mr. Byrne and Ms. Levine at
such time was calculated on the basis of 50% of the average of the bid and ask
price for the Company's stock (approximately $.30 per share) during the two-week
period preceding November 15, 1995.
For the three-month period which commenced on July 1, 1995 and ended on
September 30, 1995, Mr. Muro waived payment of $37,500 in unpaid consulting
fees. In connection therewith, on January 1, 1996, the Company authorized the
issuance 250,000 shares to Mr. Muro. The number of shares issued to Mr. Muro at
such time was calculated on the basis of 50% of the average of the bid and ask
price for the Company's stock (approximately $.30 per share) during the
three-month period ended September 30, 1995.
For the one and one-half month period which commenced on November 16, 1995
and ended on December 31, 1995, Mr. Byrne waived payment of $31,250 and Ms.
Levine waived payment of $18,750 In connection therewith, on January 1, 1996,
the Company authorized the issuance 284,091 shares to Mr. Byrne and 170,455
shares to Ms. Levine. The number of shares issued to Mr. Byrne and Ms. Levine at
such time was calculated on the basis of 50% of the average of the bid and ask
price for the Company's stock (approximately $.22 per share) during the
three-month period ended December 31, 1995.
For the three-month period which commenced on October 1, 1995 and ended on
December 31, 1995, Mr. Muro waived payment of $37,500 in unpaid consulting fees.
In connection therewith, on January 1, 1996, the Company authorized the issuance
340,910 shares to Mr. Muro. The number of shares issued to Mr. Muro at such time
was calculated on the basis of 50% of the average of the bid and ask price for
the Company's stock (approximately $.22 per share) during the three-month period
ended December 31, 1995.
For the three-month period which commenced on January 1, 1996 and ended on
March 31, 1996, Mr. Byrne waived payment of $57,864.50, Ms. Levine waived
payment of $37,500, and Mr. Muro waived payment of $35,457. In connection
therewith, on April 1, 1996, the Company authorized the issuance 526,041 shares
to Mr. Byrne, 340,910 shares to Ms. Levine, and 322,337 to Mr. Muro. The number
of
76
<PAGE>
shares issued at such time was calculated on the basis of 50% of the average of
the bid and ask price for the Company's stock (approximately $.22 per share)
during the three-month period ended March 31, 1996.
For the two and one-half month period which commenced on January 15, 1996
and ended on March 31, 1996, Mr. Threshie waived payment of $10,416 in unpaid
compensation. In connection therewith, on April 2, 1996, the Company authorized
the issuance 94,691 shares to Mr. Threshie. The number of shares issued to Mr.
Threshie at such time was calculated on the basis of 50% of the average of the
bid and ask price for the Company's stock (approximately $.22 per share) during
the three-month period ended March 31, 1996.
For the three-month period which commenced on April 1, 1996 and ended on
June 30, 1996, Mr. Byrne waived payment of $55,711, Ms. Levine waived payment of
$37,500, Mr. Muro waived payment of $31,952, and Mr. Threshie waived payment of
$11,898. In connection therewith, in the period subsequent to that covered by
this report, on July 12, 1996, the Company authorized the issuance 280,943
shares to Mr. Byrne, 189,170 shares to Ms. Levine, 161,120 to Mr. Muro, and
61,015 to Mr. Threshie. The number of shares issued at such time was calculated
on the basis of 50% of the average of the bid and ask price for the Company's
stock (approximately $.39 per share) during the three-month period ended June
30, 1996.
Year Ended June 30, 1997
For the fiscal quarter ended September 30, 1996, Mr. Byrne waived payment
of $51,769, Ms. Levine waived payment of $31,062, Mr. Muro waived payment of
$29,324, and Mr. Threshie waived payment of $9,945. In connection therewith, on
September 30, 1996, the Company authorized the issuance 329,738 shares to Mr.
Byrne, 197,847 shares to Ms. Levine, 186,777 to Mr. Muro, and 62,392 to Mr.
Threshie. The number of shares issued at such time was calculated on the basis
of 50% of the average of the bid and ask price for the Company's stock
(approximately $.314 per share) during the three-month period ended September
30, 1996. On April 28, 1997, The Company authorized the issuance to Ms. Kachru
of 32,396 shares in lieu of $5,475 in salary waived by her for services
performed during the month of September 1996. The number of shares issued to Ms.
Kachru was calculated on the basis of the price of the Company's common stock
during the quarter ended September 30, 1996.
For the fiscal quarter ended December 31, 1996, Mr. Byrne waived payment
of $40,966, Ms. Levine waived payment of $33,446, Mr. Muro waived payment of
$23,910, Mr. Threshie waived payment of $12,074, and Ms. Kachru waived payment
of $9,819. In connection therewith, on January 17, 1997, the Company authorized
the issuance 285,876 shares to Mr. Byrne, 233,402 shares to Ms. Levine, 166,853
to Mr. Muro, and 84,260 to Mr. Threshie. On April 28, 1997, The Company
authorized the issuance to Ms. Kachru of 68,520 shares in lieu of salary waived
by her for services performed during this quarter.The number of shares issued at
such time was calculated on the basis of 50% of the average of the bid and ask
price for the Company's stock (approximately $.314 per share) during the
three-month period ended December 31, 1996.
For the fiscal quarter ended March 31, 1997, Mr. Byrne waived payment of
$41,836, Ms. Levine waived payment of $30,554, Mr. Muro waived payment of
$22,732, Mr. Threshie waived payment of $1,934, and Ms. Kachru waived payment of
$6,715. In connection therewith, on April 28, 1997, the Company authorized the
issuance 195,495 shares to Mr. Byrne, 142,776 shares to Ms. Levine, 106,224 to
Mr. Muro, 9,037 to Mr. Threshie, and 31,383 to Ms. Kachru. The number of shares
issued at such time was calculated on the basis of 50% of the average of the bid
and ask price for the Company's stock (approximately $.314 per share) during the
three-month period ended March 31, 1997.
77
<PAGE>
For the fiscal quarter ended June 30, 1997, Mr. Byrne waived payment of
$52,972, Ms. Levine waived payment of $41,640, Mr. Muro waived payment of
$22,524, Mr. Threshie waived payment of $3,140, and Ms. Kachru waived payment of
$5,905. In connection therewith, on April 28, 1997, the Company authorized the
issuance 319,108 shares to Mr. Byrne, 250,843 shares to Ms. Levine, 135,686 to
Mr. Muro, 18,915 to Mr. Threshie, and 35,572 to Ms. Kachru. The number of shares
issued at such time was calculated on the basis of 50% of the average of the bid
and ask price for the Company's stock (approximately $.314 per share) during the
three-month period ended June 30, 1997.
Subsequent Period
During the more than ten months since the end of the last fiscal year, the
Company's executive officers and in-house corporate and securities counsel, have
continued to waive substantial portions of their salaries and unreimbursed
expenses made by them on behalf, and for the account, of the Company. To date,
the Company has authorized the issuance of shares in lieu of cash salaries and
reimbursements for the five-month period which commenced on July 1, 1997 and
ended on November 30, 1997, as follows:
For the five-month period ended November 30, 1997, Mr. Byrne waived
payment of $92,497, Ms. Levine waived payment of $56,574, Mr. Muro waived
payment of $41,610, Mr. Threshie waived payment of $5,433, and Ms. Kachru waived
payment of $13,111. In connection therewith, on December 15, 1997, the Company
authorized the issuance of 336,353 shares to Mr. Byrne, 206,379 shares to Ms.
Levine, 151,309 to Mr. Muro, 24,000 to Mr. Threshie, and 47,692 to Ms. Kachru.
The number of shares issued at such time was calculated on the basis of 100% of
the average of the bid and ask price for the Company's stock (approximately
$.275 per share) during the five-month period ended November 30, 1997. The
issuance of these shares at such price constituted an error because the
executive committee of the board of directors had authorized and directed that
shares issued in lieu of cash compensations for such period be issued at 50% of
the average market price of the Company's common stock. In correction of the
foregoing error, on April 15, 1998, the Company authorized the issuance of
additional shares, as follows: 336,352 to Mr. Byrne, 151,309 to Mr. Muro, 15,512
to Mr. Threshie, 47,690 to Ms. Kachru, and 206,379 to Ms. Levine.
For the four-month period ended March 31, 1998, Mr. Byrne waived payment
of $59,183, Ms. Levine waived payment of $45,191, Mr. Muro waived payment of
$33,200, Mr. Threshie waived payment of $6,167, and Ms. Kachru waived payment of
$9,450. In connection therewith, On April 15, 1998, the Company authorized the
issuance of 423,038 shares to Mr. Byrne, 323,023 shares to Ms. Levine, 237,312
to Mr. Muro, 44,081 to Mr. Threshie, and 67,548 to Ms. Kachru. The number of
shares issued at such time was calculated on basis of 50% of the average of the
bid and ask price for the Company's stock (approximately $.14, or 50% of $.28
per shares) during the four-month period ended March 31, 1998.
On April 20, 1998, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of his employment agreements and
paid by him for the account and on behalf of Tirex, during the six and one
half-month period which commenced on June 15, 1997 and ended on December 31,
1997, Tirex issued 597,966 shares of its Common Stock to Alan Crossley, Tirex's
Managing Director of European Market Development. For purposes of such issuance,
the shares were valued at $0.1475 per share, which value was equal to 50% of the
average of the bid and ask price for the Common Stock during the period when
such unpaid salary and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
78
<PAGE>
Agreements with Customers Controlled by Louis Sanzaro
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III, Inc.("O/V III")
of Toms River, New Jersey ("O/V III") for the purchase and lease of the various
components which will comprise eight TCS-1 Systems. Also on that same date, the
Company entered into an Equipment Lease and Purchase Agreement (the "Oceans Tire
L&P Agreement") with Oceans Tire Recycling & Processing Co., Inc. ("Oceans
Tire") for the purchase and lease of the various components which will comprise
the first production model of the TCS-1 System. Louis Sanzaro, a member of the
Company's Board of Directors is a controlling person of both O/V III and Oceans
Tire. The O/V III L&P Agreement modified the terms of, and replaced, a prior
agreement between the parties dated June 6, 1995 (the "Prior O/V III
Agreement"). Mr. Sanzaro was appointed a director of the Company in January
1997. For details of the terms and provisions of the O/V III L&P Agreement and
the Oceans Tire L&P Agreement, as well as certain ancillary agreements executed
or agreed to in connection therewith, reference is made to the discussions
contained under the captions, "The O/V III Agreements" and "Agreements with
Oceans Tire Recycling & Processing Co., Inc" in the Subtopic "Sales" of
"Business" above.
Agreement to appoint Louis Sanzaro As
Exclusive Sales Representative in North America
Louis Sanzaro and the Company have agreed, in principal that Mr. Sanzaro
will be appointed as the Company's exclusive sales distributor in the United
States and Puerto Rico. The terms of the under which Mr. Sanzaro will serve as
such have not yet been finalized, but the Company intends that such terms will
be as beneficial, or better, to the Company than could be obtained in an arms
length transaction with a person with Mr. Sanzaro's qualifications.
Negotiations With Louis Sanzaro to Organize and Operate Service Provider For
Company
As Discussed in detail in the Subtopic, "Proposed Services" which is
included above in "Business", the Company is presently negotiating with Louis
Sanzaro ("Sanzaro"), to organize and operate a maintenance company capable of
serving as the Company's authorized service provider and meeting all of the
services described which the Company will be obligated to provide under its
Proposed Maintenance Agreements (See the Subtopic, "Proposed Services" which is
included above in "Business". Mr. Sanzaro has worked closely with the Company on
the development of the TCS-1 System and the proposed maintenance and technical
support program. Mr. Sanzaro is a highly respected, knowledgeable, and
experienced operator of recycling organizations in New Jersey and the Company
believes that he is eminently qualified to organize and head its maintenance and
technical support effort. The parties have not yet entered into an agreement
respecting the terms under which Mr. Sanzaro, or an organization under his
control, will direct the Company's maintenance services. Currently, however, the
Company expects that the service provider to be organized and operated by Mr.
Sanzaro will be paid a flat fee of $4,000 per month to cover all of the services
described, above, under "Business". The service provider is also expected to
furnish, at no additional cost, all equipment necessary to effect the provision
of such services.
Consulting Agreement with Louis Sanzaro
On January 28, 1998, the Company entered into a consulting agreement with
Louis Sanzaro. The Agreement was made effective as of January 1, 1997. Mr.
Sanzaro had actually been providing consulting services to the Company prior to
January 1, 1997, but the parties had agreed at that time to enter into a formal
consulting agreement with respect to such services. The Agreement is for a
three-year term ending
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December 31, 1999 and provides for Mr. Sanzaro to render advice, opinions,
"hands-on" assistance with respect to, and, in some cases, effectuation of, the
following:
(a) Developing pro-forma financial projections respecting the operations
of a TCS-1 Plant ("Plant") and marketing of rubber crumb generated
thereby;
(b) Designing and developing a complete maintenance program for the
TCS-1 System to insure continuous operation in compliance with
specifications;
(c) Developing specialized accounting software to be used with all TCS-1
Systems for the purpose on monitoring all financial aspects of
operations and for calculation of sales-based royalties due and
payable to the Corporation;
(d) Designing and developing logistics respecting Plant configuration
necessary for safe and efficient operations-flow and providing
technical and mechanical adjustments to plant setups throughout the
United States during the Engagement Period;
(e) Testing new equipment at construction and assembly site, adjusting,
and designing modifications to new equipment as required by test
results;
(f) Site-planning and installation at operators' sites throughout the
United States during the Engagement Period, including providing
personnel to "trouble-shoot" and or adjust all newly installed
equipment, as required during the Engagement Period.
(g) Pertinent changes and developments respecting new emerging
technologies in tire recycling industry;
(h) Developing and establishing a training program for the instruction
of operators and their personnel with respect to all aspects of
Plant operations.
Compensation for all consulting services rendered by Mr. Sanzaro under the
terms of this Agreement, consists of the issuance to Mr. Sanzaro of one million
shares of the Company's Common Stock, 600,000 of which were issued to Mr.
Sanzaro on January 30, 1998 and 400,000 of which were issued on or about April
30, 1998. The bulk of the services performed by Mr. Sanzaro in connection with
the foregoing were rendered after July 1, 1997.
Extension of Exercise Period of Option Held by John G. Hartley
On May 19, 1995, the Company sold to John G. Hartley, a director of the
Company, an option to purchase twenty thousand (20,000) shares of the Cumulative
Convertible Preferred Stock of the Company ("Preferred Stock") at an exercise
price of $10 per share, during a two-year exercise period which commenced on May
19, 1995 and will terminate on May 18, 1997. Mr. Hartley paid the Company twenty
thousand dollars ($20,000) for the said Option. Notwithstanding the foregoing,
since the Preferred Stock is convertible into Common Stock at a decreasing
ratio, should the total number of shares of the Preferred Stock which can be
purchased pursuant to the Option, be convertible into fewer than two million
(2,000,000) shares of the Company's Common Stock, the number of shares of
Preferred Stock purchasable under the Option, at the exercise price of ten
dollars per preferred share, will be increased to such number as is convertible
to 2,000,000 shares of Common Stock. The terms of the Preferred Stock
purchasable under the Option provide, among other things, for cumulative annual
cash dividends at the
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rate of $1.20 per share and conversion into shares of the Company's Common Stock
at the following ratios:
(a) From May 19, 1995 through November 19, 1995, one share of Preferred
Stock and each $10 of accumulated and unpaid dividends thereon, for
91 shares of Common Stock;
(b) From November 19, 1995 through February 18, 1996, one share of
Preferred Stock and each $10 of accumulated and unpaid dividends
thereon, for 50 shares of Common Stock;
(c) From February 19, 1996 through May 18, 1996, one share of Preferred
Stock and each $10 of accumulated and unpaid dividends thereon, for
33 shares of Common Stock; (d) From May 19, 1996 through May 18,
1997, one share of Preferred Stock and each $10 of accumulated and
unpaid dividends thereon, for the number of shares of the Company's
Common Stock purchasable for ten dollars at a per share price equal
to 30% of the then current Market Price of such Common Stock.
To date, Mr. Hartley has not exercised any part of the Option and the
Company has not issued any shares of the Preferred Stock. On May 29, 1997, the
Company acknowledged that (i) delivery of the first TCS-1 System and the
commencement of business operations by the Company had taken substantially more
time than was estimated by the Company in the Spring of 1995 when Mr. Hartley
purchased the Option. In recognition of this and other factors, the Board of
Directors agreed to extend the Option exercise period until May 18, 1999,
convertible under the terms set forth in subparagraph (d) above, with such
conversion period extended to May 18, 1999.
Transfer of 17% of Tirex Canada Shares From Mr. Forbes to Mr. Byrne.
As discussed above, in "Business", under the caption "Tirex Canada", in
May of 1995, in an effort to take advantage of such certain financial
incentives, the Company formed a Canadian corporation, 3143619 Canada Inc.
(referred to herein as "Tirex Canada") in the Province of Quebec, Canada, for
the purpose of completing all research and development work on the first
production model of the TCS-1 System and thereafter serving as the Company's
manufacturing arm.
There are a total of one hundred shares of Tirex Canada stock issued and
outstanding. These shares are held of record as follows: (i) 49% by the company;
(ii) 34% by Terence Byrne; (iii) 17% by Louis V. Muro. Messrs. Byrne and Muro
are Canadian residents and, therefore, Tirex Canada has been deemed to be
eligible for Canadian government sponsored financial incentives. All of the
Tirex Canada Shareholders hold their shares pursuant to the terms and provisions
of a Shareholders Agreement, dated July 3, 1995, as amended February 8, 1996 and
August 21, 1997 (the "Tirex Canada Shareholders Agreement") which provides,
among other things, for: (i) each Shareholder to retain complete voting control
over all shares held of record by such Shareholder; (ii) Tirex Canada's right to
redeem the shares held by Mr. Byrne or Mr. Muro in amounts equal to any number
of shares of Tirex Canada which may be sold to private investors who are also
Canadian residents; (iii) the Company's right to direct the transfer of all or
any part of such shares to other individuals who are officers and directors of
the Company, so long as such other individuals are also Canadian Residents who
will hold such shares in accordance with the terms of the Tirex Shareholders
Agreement; (iv) the return of all Tirex Canada shares held by Messrs. Byrne and
Muro upon the expiration of the Shareholders Agreement (May 2, 2001) unless such
agreement is unilaterally extended by the Company. The Company does not intend
to become the record holder of the shares held by Messrs. Byrne and Muro until
such time as its record ownership of such shares will not contravene any
Canadian regulations respecting financial aid and assistance to Tirex Canada.
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Employment Agreement With Ms. Levine
From January 18, 1995 through and including December 21, 1996, Frances
Katz Levine was employed by the Company as its Secretary and General Counsel
under the terms of an employment agreement dated January 18, 1995 (the "First
Levine Employment Agreement"). On December 22, 1996, Ms. Levine resigned her
positions as Secretary, General Counsel, and as a Director of the Company. Her
resignation was not caused by any disagreement with the Company on any matter
relating to the Company's operations, policies, or practices. Following her
resignation from the foregoing positions, Ms. Levine has continued to be
employed by the Company as its in-house Corporate and United States Securities
Counsel pursuant to the terms of her employment agreement, dated December 22,
1996 (the "Second Levine Employment Agreement"). The Principal terms and
conditions of the First and the Second Levine Employment Agreements, other than
the commencement and termination dates and the positions and exact nature of
duties and responsibilities, are essentially identical, except also for terms
which were added in order to insure that benefits and rights earned under the
First Employment Agreement would not be lost to Ms. Levine perforce of the
foregoing changes. On May 1, 1997, the Second Levine Employment Agreement was
amended to explicitly state the original intent of the parties that Ms. Levine
would remain eligible to receive a discretionary bonus for each year (or portion
thereof) during which Ms. Levine had served as Secretary and General Counsel
under the First Levine Employment Agreement. For a discussion in more detail of
the terms and conditions of both the First and the Second Levine Employment
Agreements, reference is made to the information contained above in "Executive
Compensation Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
Extension of Employment Agreements With Mr. Byrne and Mr. Muro
The Company is a party to employment agreements with Terence C. Byrne, its
President and CEO and with Louis V. Muro, its Vice President in Charge of
Engineering. On May 1, 1997, the parties amended these employment agreements so
as to extend the term of Mr. Byrne's agreement until December 31, 2003 and Mr.
Muro's agreement until December 31, 2000. No other changes were made pursuant to
these amendments. For a discussion in more detail of the terms and conditions of
the Company's employment agreements with Mr. Byrne and Mr. Muro, reference is
made to the information contained above in "Executive Compensation - Employment
Contracts and Termination of Employment and Change-in-Control Arrangements."
Executive Agreement With John L. Threshie, Jr.
On February 20, 1997, the Company entered into an employment agreement
with John L. Threshie, Jr., pursuant to which Mr. Threshie is employed as the
Company's Vice President of Operations. The agreement was made effective as of
January 1, 1996, the date when Mr. Threshie began serving in such capacity.
Since December 22, 1996, pursuant to the terms of the agreement, he has also
served as Secretary of the Company. The agreement is for a three-year term
ending December 31, 1998 and calls for compensation at the annual rate of
$50,000. For a discussion in more detail of the Executive Agreements, reference
is made to the information contained above in "Executive Compensation Employment
Contracts and Termination of Employment and Change-in-Control Arrangements".
Executive Agreement With V.J. Kashru
On April 29, 1997, the Company entered into an employment agreement with
Vijay Kachru, pursuant to which Ms. Kachru is employed an Director of Market
Development. The Agreement was made effective as of September 1, 1996, the date
when Ms. Kachru began serving in such capacity. The
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Agreement is for a three-year term ending August 31, 1999 and calls for
compensation during the term of the agreement, in the following amounts: (i)
through and until March 31, 1998, ninety thousand Canadian dollars (CAN $90,000)
per year; (ii) Commencing as of February 1, 1998, ninety thousand United States
dollars (US $90,000) per year. For a discussion in more detail of the Executive
Agreements, reference is made to the information contained above in "Executive
Compensation - Employment Contracts and Termination of Employment and
Change-in-Control Arrangements".
Issuance of Stock to Mr. Muro as Compensation for Past Services
Mr. Muro served as Secretary of the Company from December 29, 1992 until
March 1994 and as the Company's president from March 1994 until January 18,
1995. Mr. Muro received no compensation for any of the foregoing services, but
served on the basis of an understanding that he would be fairly and equitably
compensated. On January 17, 1997, the Board of Directors authorized the issuance
of a total of 1,113,636 shares of the Common Stock of the Company pursuant to
Mr. Muro's agreement to accept as compensation in for all services rendered
prior to January 18, 1995 at the same rate as he has been entitled to receive
for his services since such date. Based upon the foregoing, Mr. Muro was
entitled to payment of three hundred and six thousand, two hundred fifty dollars
($306,250) in respect of his pre-1995 services. The number of shares so issued
was calculated on the basis of one hundred and fifty percent (150%) of the
average of the bid and ask prices of the Company's common stock, as traded in
the over-the-counter market and reported in the electronic bulletin board of the
NASD, during the calendar years of 1993 and 1994. The Company's stock was traded
only sporadically during such time. Therefore, calculations were based upon the
fifteen months during 1993 and 1994 when actual trading took place and for which
it was possible to obtain information. The average of the high and low closing
prices of the common stock of this corporation, as traded in the
over-the-counter market during such fifteen month period, which the Company was
able to obtain, was approximately $.18333 per share.
Amendment of Stock Option held by CG TIRE, Inc.
On April 24, 1997, the Company granted to CG TIRE, Inc. (CGT) an option to
purchase at a per share price equal to fifty percent (50%) of the average of the
final bid and ask prices of the common stock of Tirex, as quoted in the OTC
Bulletin Board during the ten business days preceding the date of a notice of
exercise given by the CG TIRE, all, or any part of, the number of shares of the
common stock of Tirex which would constitute, upon their issuance, ten percent
(10%) of the common stock of Tirex, issued and outstanding, on a fully diluted
basis (the "CGT Option"). As of August 13, 1997, the Company agreed to amend the
CGT Option with respect to the purchase price for a certain portion of the CGT
Option. On February 18, 1997, CGT agreed to further amend its Option to make it
unexercisable prior to the effective date of the registration statement. For a
discussion in detail of the terms of the CGT Option and the consideration
received by the Company therefor, see footnote (4) to the Principal Shareholders
Table, included, above in "Security Ownership of Certain Beneficial Owners and
Management".
Amendment of Stock Restriction Agreements.
All shares issued or transferred, either as Directors Shares or
Compensation Shares to Mr. Byrne, Mr. Muro, and Ms. Levine so issued or
transferred subject to the terms of certain stock restriction agreements (the
"Stock Restriction Agreements") between the Company and each of such persons.
Such Agreements were amended on May 30, 1996 and on May 1, 1997. Prior to the
amendments described below, the Stock Restriction Agreements subjected all of
the Directors and Compensation Shares to restrictions on transfer for a period
of three years, except for a limited number of shares which were allowed to be
sold pursuant to Rule 144 after two years, and to forfeiture in the event that
employment
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with the Company was terminated prior to the expiration of the three-year terms
of the respective Executive Agreements.
On May 30, 1996, an the Company and each of the executive officers entered
into amendments to their respective Stock Restriction Agreements (hereinafter,
the "Amended Stock Restriction Agreements"), which acknowledged the amendments
made concomitantly therewith to the Executive Agreements respecting the issuance
of Compensation Shares in lieu of cash compensation under the Executive
Agreements and the possibility of the registration of all or part of such shares
pursuant to a registration statement on Form S-8. On May 1, 1997, the Amended
Stock Restriction Agreements were further amended so as to reflect certain
changes in Rule 144 of the Securities Act of 1933, as amended (the "Securities
Act"), and to shorten the period required before Compensation Shares of the
Company's common stock, are permitted to be included in a registration statement
on Form S-8. The Amended Stock Restriction Agreements provide, among other
things, that: (i) all Compensation Shares will be issued and held pursuant to
the terms of one single stock restriction agreement rather than one stock
restriction agreement for each stock issuance, as had been the case prior to
such amendment; (ii) under certain circumstances, and within the limitations of
Rule 144, the Directors Shares and the Compensation Shares held by affiliates
are eligible for sale by the holders thereof one year after they were acquired
from the Company and (ii) to the extent that they are eligible, commencing
eighteen months after their issuance, such shares can registered for sale to the
public pursuant to a registration statement on Form S-8 which includes a Reoffer
Prospectus.(8)
Employment Agreement with Alan Crossley
On May 29, 1997, the Company entered into an employment agreement with
Alan Crossley, a director of the Company, pursuant to which, Mr. Crossley was
appointed as the Company's Managing Director of European Market Development. The
Agreement, which is for a two-year term, was made effective as of January 1,
1997 in acknowledgement of Registrant's and Mr. Crossley's agreement of such
date. The agreement provides for Mr. Crossley to render consulting services
consisting of advice and opinions to Registrant concerning, and the undertaking
and effectuation of activities necessary to, establishing and developing in
Europe and in India, markets for the TCS-1 System and for the rubber crumb which
will be produced by the operation of the TCS-1 System and the immediate
preparation of a market development study for the Iberian Peninsular and India.
The agreement provides for Mr. Crossley to receive compensation at the annual
rate of $75,000 (Canadian) commencing as of July 1, 1997 plus an expense
allowance for the entire term of the agreement of up to $115,000 (Canadian). The
agreement
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(8) Form S-8 provides special and simplified registration procedures for
employee benefit plans and/or the employer's securities that can be purchased
pursuant to the plan. A Form S-8 registration statement becomes automatically
effective upon filing with the Securities and Exchange Commission. Form S-8 can
be utilized by a company, which files annual, quarterly, and certain other
reports pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, to be offered to, or which have been acquired by, its
employees pursuant to any written option, purchase savings, bonus, appreciation,
profit sharing, thrift, incentive, pension, or similar plan, or a written
compensation contract. For purposes of registration under Form S-8, "written
compensation contracts" include individually negotiated contractual agreements
and the term, "employee" includes, (in addition to employees), officers,
directors, consultants, and advisors, provided they render services not
connected with offers or sales of securities in a capital raising transaction.
For purposes of eligibility for registration under a Form S-8. The employment
agreements which the Company has entered into with each of its executive
officers, as well as the directors compensation agreements with Messrs. Sanzaro
and Crossley and the employment agreement with Ms. Levine are individually
negotiated written compensation contracts constituting Employee Benefit Plans,
as defined in Rule 405 of the Securities Act of 1933.
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also provided for the issuance of 84,658 shares of Common Stock to Mr. Crossley,
at a price of $.001 per share, upon completion and delivery of a market
development study for the Iberian Peninsular prepared by a Spanish corporation
under the control of Mr. Crossley.
Bonuses to Employees
On May 30, 1997, Registrant authorized the issuance of shares of its
Common Stock pursuant to the exercise of options (the "Bonus Options") which had
been granted to Terence C. Byrne, Louis V. Muro, and Frances Katz Levine as
bonuses for the fiscal years ended June 30, 1995 and 1996 pursuant to the terms
of their respective employment agreements. The Bonus Options permitted such
persons to purchase shares Common Stock, at a per share exercise price of $.001
per share, as follows: Terence C. Byrne - 1,413,382, Louis V. Muro - 1,115,093,
and Frances Katz Levine - 811,684. The respective employment agreements,
pursuant to which such options were granted, provide for discretionary bonuses
for each year (or portion thereof) during the term of such agreements, with the
actual amount of any such bonus to be determined in the sole discretion of the
Board of Directors based upon its evaluation of the Executive's performance
during such year. Such bonuses were unanimously approved by Registrant's six
member Board of Directors, which includes Mr. Byrne and Mr. Muro. All of the
said Options were exercised by the option holders immediately upon the grants
thereof.
On January 28, 1998, Registrant authorized the issuance of an aggregate of
4,000,000 shares to two of its executive officers and to its corporate attorney,
at a price of $.001 per share, as follows: Terence C. Byrne - 2,000,000, Louis
V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000. Such sales were made
pursuant to the exercise of options granted to such persons and subsequently
amended, as follows: On September 3, 1997, Registrant granted to the foregoing
individuals options to purchase the respective number of shares set forth above
at an exercise price equal to the full market price of the Common Stock at such
date, as follows: Terence C. Byrne - 2,000,000, Louis V. Muro - 1,000,000, and
Frances Katz Levine - 1,000,000 (the "1997 Options"). Such bonuses were granted
for the fiscal year ended June 30, 1997 pursuant to the terms of their
respective employment agreements with Registrant, which provide for
discretionary bonuses for each year (or portion thereof) during the term of such
agreements, with the actual amount of any such bonus to be determined in the
sole discretion of the Board of Directors based upon its evaluation of the
Executive's performance during such year. On January 13, 1998, Registrant
granted to each of these persons a bonus (the "1998 Bonus"), under the terms of
their respective employment agreements, for the fiscal year which will end on
June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of amendments to
the terms of the 1997 Options, reducing the option exercise price $.001 per
share. Both the 1997 and the 1998 bonuses were unanimously approved by
Registrant's full six member Board of Directors, which includes Mr. Byrne and
Mr. Muro.
DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock of the Company consists of seventy million
shares (70,000,000) shares, par value $.001 per share, of which sixty-nine
million, nine hundred thousand (69,900,000) shares are designated Common Stock
par value $.001 per share, and one hundred thousand (100,000) shares are
designated Open Stock, par value $.001 per share. There are presently sixty-two
million, seven hundred ninety-six thousand, four hundred twenty-six (62,796,426)
shares of Common Stock issued and outstanding. The Open Stock may be issued,
from time to time, in one or more classes, or one or more series within any
class thereof, in any manner permitted by law, as determined from time to time
by the Company's board of directors, and stated in the resolution or resolutions
providing for the issuance of such
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shares adopted by the Company's board of directors pursuant to authority vested
in it in the Company's Certificate of Incorporation, each class or series to be
appropriately designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number designation, or title. All shares of stock in such
classes or series may be issued for such consideration and have such voting
powers, full or limited, or no voting powers, and shall have such designations,
preferences and relative, participating, optional, or other special rights, and
qualifications, limitations or restrictions thereof, permitted by law, as shall
be stated and expressed in the resolution or resolutions providing for the
issuance of such shares adopted by the Company's board of directors pursuant to
authority vested in the Company's Certificate of Incorporation. The number of
shares of stock of any class or series within any class, so set forth in such
resolution or resolutions may be increased (but not above the total number of
authorized shares) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the Company's board
of directors pursuant to authority vested in it in the Company's Certificate of
Incorporation.
The Company's board of directors may determine the times when, the terms
under which and the consideration for which the Company shall issue, dispose of
or receive subscriptions for its shares, including treasury shares, or acquire
its own shares. The consideration for the issuance of the shares shall be paid
in full before their issuance and shall not be less than the par value per
share. Upon payment of such consideration, such shares shall be deemed to be
fully paid and nonassessable by the Company.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote for each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of the Company.
The Type A Warrants
Outstanding Type A Warrants - Exercise Price. There are currently
outstanding two million warrants (the "Type A Warrants") to purchase a like
number of shares, commencing on the day following the effective date (the
"Effective Date") of the registration statement of which this Prospectus forms a
part (the "Registration Statement"), at an exercise price of $.001 per share.
The Type A Warrants, which are held by two persons, formed part of the Type A
Units, discussed in more detail, above, in "The Company - Material Financing
Transactions - The Type A Private Placement".
Registration Rights. In accordance with the terms of the Type A Warrants,
sales by the Company of the Common Stock made pursuant to the exercise of the
Type A Warrants are being registered in the Registration Statement and
therefore, upon exercise of the Type A Warrants, the warrantholders will receive
registered shares of the Company's Common Stock. More specifically, the
registration rights of the Type A Warrants require that the Company file with
the Securities and Exchange Commission ("SEC") a registration statement under
the Securities Act covering the shares of Common Stock issuable upon exercise of
the Type A Warrants (the "Type A Warrant Shares") as promptly as practicable
after the expiration of the Offering Period and that it use its best efforts to
cause such registration statement to be
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declared effective by the SEC within 120 days after the expiration of the
Offering Period and to keep such registration statement effective at all times
until all of the Warrants have been exercised and the delivery of a prospectus
is no longer required in connection with resale of any of the Type A Warrant
Shares. In addition, the Company is further obligated to include the Type A
Warrant Shares in any registration statement pertaining to the Common Stock
issuable upon conversion of the Type A Debentures (see below, "The Type A
Debentures - Registration Rights").
Voting Rights. The Type A Warrants have no voting rights. The shares of
Common Stock issuable upon exercise of the Type A Warrants will have one vote
per share.
Limitations on Transfer. The Type A Warrants are transferable, but no
public market exists for them and it is not anticipated that any such market
will develop.
Anti-Dilution Provisions. The number of shares issuable upon the exercise
of the Type A Warrants and the effective per share exercise price under the Type
A Warrants are governed by standard anti-dilution provisions and may therefore
be increased in proportion to any increase in the number of shares of the Common
Stock which are outstanding or, likewise, decreased in proportion to any
decrease in the number of shares outstanding.
The Type A Debentures
Outstanding Type A Debentures. On April 9, 1998, the Company issued two
10% convertible, subordinated debentures, each in in the principal amount of
$250,000 (the "Type A Debentures"). The Type A Debentures, which are held by two
persons, formed part of the Type A Units, discussed in more detail, above, in
"The Company - Material Financing Transactions - The Type A Private Placement".
Maturity. The Type A Debentures are due and payable on the first to occur
of: (i) the completion and closing of an underwritten public offering of the
securities of the Company, yielding gross proceeds to the Company of not less
than $8,000,000 (the "Proposed Public Offering"); (ii) the completion and
closing of any debt or equity financing of the Company in excess of $4,500,000;
or (iii) one year from the issuance of the Debenture.
Interest. The Type A Debentures bear interest at an annual rate of 10%,
payable upon maturity.
Conversion Rights. Commencing as of the day next following the Effective
Date of the Registration Statement, The Type A Debentures are convertible, in
whole or in part, at any time prior to maturity at a conversion ratio equal to
75%, of the average of the closing bid prices of the Common Stock, as traded in
the over-the-counter ("OTC") market and quoted in the OTC Electronic Bulletin
Board of the NASD, during the five-day period preceding the Company's receipt of
a notice of conversion from a Debenture holder. (In the event that the Company's
Common Stock shall then be included in the Automated Quotation Small Cap Market
System of the National Association of Securities Dealers ("NASDAQ"), then the
conversion ratio shall reflect prices reported therein.)
Redemption Rights. If a Type A Debenture is not converted, it may be
redeemed by the holder any time after maturity at a premium of 125% of the
principal amount of the Debenture plus all interest accrued thereon.
Registration Rights. In accordance with the terms of the Type A
Debentures, sales by the Company of the Common Stock pursuant to the exercise of
the Type A Debentures are being registered in the Registration Statement and
therefore, upon conversion of the Type A Debentures, the
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debentureholders will receive registered shares of the Company's Common Stock.
More specifically, the registration rights of the Type A Debentures require that
the Company file with the Securities and Exchange Commission ("SEC") a
registration statement under the Securities Act covering the shares of Common
Stock issuable upon conversion of the Type A Debentures (the "Type A Conversion
Shares") as promptly as practicable after the expiration of the Offering Period
and that it use its best efforts to cause such registration statement to be
declared effective by the SEC within 120 days after the expiration of the
Offering Period and to keep such registration statement effective at all times
until all of the Type A Debentures, which are eligible for conversion, are
converted, and the delivery of a prospectus is no longer required in connection
with any resale of any of the Type A Conversion Shares and there are no unpaid,
unconverted debentures outstanding, If such registration statement is not
declared effective by the SEC within 120 days after the termination of the
offering Period of the Type A Private Placement (May 11, 1998), the Company is
obligated to pay the holders of the Type A Debentures liquidated damages in the
amount of 1% of the principal face value of the Type A Debenture for the first
30 day-period, commencing on the 121st day following May 31, 1998, that such
registration statement is not declared effective and 2% of the principal face
value of the Debenture for each subsequent 30 day-period.
Voting Rights. The Type A Debentures have no voting rights. Each of the
shares of Common Stock issuable upon conversion of the Debentures will have one
vote.
Limitations on Transfer. The Type A Debentures are transferable, but no
public market exists for them and it is not anticipated that any such market
will develop.
Anti-Dilution Provisions. The number of shares issuable upon the
conversion of the Type A Debentures and the effective conversion ratio per share
are governed by standard anti-dilution provisions and may therefore be increased
in proportion to any increase in the number of shares of the Common Stock which
are outstanding or, likewise, decreased in proportion to any decrease in the
number of shares outstanding.
The Type B Debentures
Outstanding Type B Debentures. There are outstanding 53.5 10% convertible,
subordinated debentures (the "Type B Debentures") having an aggregate principal
amount of $535,000. 30.5 of the Type B Debentures are RPM Debentures which were
assumed by the Company in the RPM Merger and 23 of the Type B Debentures formed
part of the Type B Units sold by the Company after the RPM Merger, as discussed
in more detail, above, in "The Company - Material Financing Transactions - The
Type B Private Placement" "and Merger with RPM Incorporated".
Maturity. The Type B Debentures are due and payable on the first to occur
of: (i) (i) two years from the issue date or (ii) the completion and closing of
a public offering of its securities by the Company.
Interest. The Type B Debentures bear interest at an annual rate of 10%,
from the date of their issue, payable semi-annually commencing six months from
the issuance date of the Debenture.
Conversion Rights. Commencing as of the day next following the Effective
Date of the Registration Statement, The Type B Debentures are convertible, in
whole or in part, at any time prior to maturity at a conversion ratio of one
share of Common Stock for every $.20 of the principal amount to be converted
plus unpaid interest earned thereon from the date of issuance.
Redemption Rights. If a Type B Debenture is not converted, it may be
redeemed by the holder any time after maturity for the principal amount of the
Debenture plus all unpaid interest accrued thereon.
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<PAGE>
Registration Rights and Limitations on Transfer . All of the Type B
Debentures were amended prior to the filing of the Registration Statement to
provide that any rights which the holders had to convert the Type B Debentures
would be terminated prior to the filing of the Registration Statement and that a
new Conversion period would commence on the day next following the Effective
Date. In consideration of the debenture holders' making this accommodation, all
sales of Common Stock, which may be made by the Company pursuant to the exercise
of the Type A Debentures, are being registered in the Registration Statement and
therefore, upon conversion of the Type B Debentures, the debenture holders will
receive registered shares of the Company's Common Stock.
Voting Rights. The Type B Debentures have no voting rights. Each of the
shares of Common Stock issuable upon conversion of the Debentures will have one
vote.
Limitations on Transfer. The Type B Debentures are transferable, but no
public market exists for them and it is not anticipated that any such market
will develop.
Anti-Dilution Provisions. The number of shares issuable upon the
conversion of the Type B Debentures and the effective conversion ratio per share
are governed by standard anti-dilution provisions and may therefore be increased
in proportion to any increase in the number of shares of the Common Stock which
are outstanding or, likewise, decreased in proportion to any decrease in the
number of shares outstanding.
The SCT Warrants
Outstanding SCT Warrants - Exercise Price. There are currently outstanding
two million warrants (the "TSC Warrants") to purchase a like number of shares,
commencing on the day following the effective date (the "Effective Date") of the
Registration Statement, at exercise prices of $.25 per share for the first
666,666 shares, $.40 per share for the second 666,666 shares, and $.50 per share
for the remaining 666,667 shares. The Company granted the SCT Warrants to
Security Capital Trading, Inc., 520 Madison Avenue, New York, NY (referred to
herein as "SCT") on April 1, 1998, as total compensation under a one-year
consulting agreement, dated April 1, 1998, between the SCT and the Company.
Registration Rights. In accordance with the terms of the SCT Warrants,
sales by the Company of the Common Stock made pursuant to the exercise of the
SCT Warrants are being registered in the Registration Statement and therefore,
upon exercise of the SCT Warrants, the warrant holders will receive registered
shares of the Company's Common Stock.
Cashless Exercise the SCT Warrants provide for cashless exercise whereby
SCT Warrants may be exercised as follows: In lieu of exercising any of the SCT
Warrants for cash, SCT Warrants may be exercised by surrendering them without
payment of any other consideration, commission, or remuneration and by execution
of a "cashless exercise subscription form", in connection with which, the number
of shares to be issued in exchange for the surrendered Warrant will be computed
by subtracting the per share exercise price of the surrendered Warrant from the
closing bid prices of the Common Stock on the date of receipt of the cashless
exercise subscription form, multiplying that amount by the number of shares
represented by the surrendered warrant and dividing by the closing bid price of
the same date.
Voting Rights. The Type A Warrants have no voting rights. The shares of
Common Stock issuable upon exercise of the Type A Warrants will have one vote
per share.
Limitations on Transfer. The SCT Warrants are transferable, but no public
market exists for them and it is not anticipated that any such market will
develop.
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<PAGE>
Anti-Dilution Provisions. The number of shares issuable upon the
conversion of the Type B Debentures and the effective conversion ratio per share
are governed by standard anti-dilution provisions and may therefore be increased
in proportion to any increase in the number of shares of the Common Stock which
are outstanding or, likewise, decreased in proportion to any decrease in the
number of shares outstanding.
The CGT Option
On April 24, 1997, the Company granted a common stock purchase option (the
"CGT Option") to CG TIRE, Inc. (CGT), a wholly-owned subsidiary of Continental
General Tire, Inc. ("Continental Tire"), on April 24, 1997 in consideration for
CGT's agreement to explore the possibility of the Company's, directly or
indirectly, through one or more subsidiaries: (i) furnishing Continental Tire
with all or part of its 80-mesh crumb rubber requirements and (ii) establishing
local tire recycling centers for the purpose of accepting for disintegration
scrap tires from Continental Tire's network of independent dealers; and CGT's
agreement to advise the Company with respect to Continental Tire's
specifications for its crumb rubber requirements, any further development of
such specifications in the future, the suitability of the Company's Cryogenic
tire disintegration technology for meeting such specifications, and the further
development of the Company's technology in coordination with Continental Tire's
product development requirements.
Optioned Shares and Term of Option. The CGT Option gives CGT the right to
purchase all, or any part of, the number of shares which shall constitute upon
their issuance, on a fully diluted basis, ten percent (10%) of the issued and
outstanding Common Stock of the Company at any time, and from time to time,
prior to April 23, 2000. On May 18, 1998, CGT agreed to amend its Option to
provide that the original exercise period would terminate on the day preceding
the date of the filing with the SEC of the registration statement, of which this
Prospectus forms a part (the "Registration Statement"), and that a new exercise
period shall commence on the day following the effective date of the
Registration Statement and shall continue until April 23, 2000.
Exercise Price. The CGT Option is exercisable at a per share price equal
to fifty percent (50%) of the average of the final bid and ask prices of the
Common Stock, as quoted in the OTC Bulletin Board during the ten business days
preceding the Exercise Date. Notwithstanding the foregoing, 969,365 shares
purchasable under the CGT Option are subject to an amendment which will allow
CGT to exercise a portion of the CGT Option at an exercise price of $.1195 per
share, which price represents (50%) of the average of the final bid and ask
prices of the common stock of the Corporation, as quoted in the OTC Bulletin
Board during the ten business days preceding August 13, 1997.
Registration Rights. In accordance with the terms of the CGT Option, sales
by the Company of the Common Stock made pursuant to the exercise of the CGT
Option are being registered in the Registration Statement and therefore, upon
exercise of the CGT Option, CGT will receive registered shares of the Company's
Common Stock.
Voting Rights. The CGT Option has no voting rights. The shares of Common
Stock issuable upon exercise of the CGT Option will have one vote per share.
Limitations on Transfer. The CGT Option is, by its terms, deemed to be
personal to CGT and may not be assigned by it without the consent of the
Company.
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<PAGE>
Anti-Dilution Provisions. The number of shares issuable upon the exercise
of the CGT Option constitutes a percentage of the number of shares of the
Company's Common Stock issued and outstanding as at the time of conversion and
will therefore be increased in proportion to any increase in the number of
shares of the Common Stock which are outstanding or, likewise, decreased in
proportion to any decrease in the number of shares outstanding.
LEGAL PROCEEDINGS
The Company is the defendant in an action, commenced on June 18, 1997, in
the United States District Court for the District of New Jersey, entitled Great
American Commercial Funding Corp. vs. Tirex America Inc. The action arises out
of a certain "placement fee agreement", executed by the Company in February of
1996, under which the Company, among other things, undertook to pay the
plaintiff a "placement fee" in the amount of $250,000 and to grant to the
plaintiff an option to acquire 400,000 shares of the company's common stock, at
a price of $0.01 per share, in the event, and only in the event, that plaintiff
succeeded in obtaining financing acceptable to the Company. Although the amount
and terms of the "financing" were not mentioned in the documents, it was clearly
understood by the parties that the Company was then seeking to obtain, and that
the agreement contemplated, financing in an amount (assumed necessarily to be in
the multi-million dollar range), adequate to fund the design and development of
the TCS-1 System and to enable the Company to initiate manufacturing such
Systems on a commercial basis. Under the Agreement: (i) the plaintiff did not
undertake to do anything other than "attempt" to secure financing acceptable to
the Company and (ii) the Company had absolute discretion whether or not to
accept any and all "financing" proposals.
Several months elapsed after the Company signed the Agreement without
plaintiff ever introducing the Company to any third party which was ready,
willing, and able to produce the kind and type of financing which the plaintiff
knew the defendant was seeking and needed. However, plaintiff did recommend a
firm in Long Island which was engaged in the business of equipment lease
financing. The Company then introduced one of its customers to the such lease
financing firm. The customer ultimately entered into a lease financing
arrangement with such firm, pursuant to which the Company was able to obtain
some limited amounts of pre-delivery funds, but only because the customer agreed
to do so, and the customer's principals fully collateralized any and all advance
payments/loans made by or through the lease financing firm. Because the advances
made to the Company pursuant to that lease-financing arrangement clearly did not
in any way constitute the type of financing contemplated by the parties or the
Agreement, the Company believes it has no financial obligation to the plaintiff
pursuant to said "placement fee agreement".
The Company has filed an Answer denying any liability to the plaintiff in
light, among other things, of the foregoing facts, and asserting, among other
things, that: (i) the agreement was induced by plaintiff's material
misrepresentations; (ii) enforcement thereof would be clearly unconscionable in
the circumstances; (iii) plaintiff never introduced the Company to any third
party which was ready, willing, and able to produce the type of financing which
the plaintiff knew the Company was seeking and needed; and (iv) the so-called
"placement fee agreement" was merely an offer for a unilateral contract which
was terminated or revoked, and notice of such revocation was timely communicated
to plaintiff before it rendered any substantial performance in reliance upon the
offer. The Company and its litigation counsel, Sheldon A. Weiss, believe that
the plaintiffs complaint is without merit and that the Company ultimately will
prevail in this litigation.
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
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<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Company of each director, officer and employee of the
Company to the fullest extent permitted by the Delaware General Corporation Law,
as the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may otherwise
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Company's Certificate of Incorporation also provides that a director
of the Company shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, to the greatest
extent permitted by the Delaware General Corporation Law. Section 102(b)(7) of
the Delaware General Corporation Law provides that a provision so limiting the
personal liability of a director shall not eliminate or limit the liability of a
director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based upon any action or inaction
which he or she may commit, omit or suffer while acting in his or her capacity
as a director and/or officer of the Company or its subsidiaries, provided,
however, that Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or
92
<PAGE>
not opposed to the best interests of the Company and, with respect to any
criminal action, had no reasonable cause to believe Indemnitee's conduct was
unlawful.
At the present time, there is no pending litigation or proceedings
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceedings which may result in a claim for such
indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
LEGAL MATTERS
Legal matters in connection with the resale of the Shares offered hereby
will be passed upon for the Company by Frances Katz Levine, 621 Clove Road,
Staten Island, NY 10310. Ms. Levine serves as in-house corporate and securities
counsel to the Company and, as at May 18, 1998, owned, together with her spouse,
a total of 4,396,070 shares, constituting 7% of the Company's issued and
outstanding common stock.
EXPERTS
The consolidated financial statements for the fiscal years ending June 30,
1996 and 1997 included in this Prospectus have been audited by Nevoso,
Pivirotto, Pinkham & Foster, Certified Public Accountants, LLC, 710 Route 46
East, Suite 201, Fairfield, NJ 07004 to the extent and for the periods set forth
in their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
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<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
I N D E X
Page
----
Report of Independent Auditors 78
Consolidated Balance Sheet - June 30, 1997 79
Consolidated Statements of Operations for the years ended
June 30, 1996 and 1997, and cumulative
for the period from inception (July 15, 1987) to
June 30, 1997 80
Consolidated Statements of Owners' Equity (Deficit) as at
July 15, 1987 and June 30, 1988 - 1997 81-82
Consolidated Statements of Cash Flows for the years
ended June 30, 1996 and 1997 and cumulative for the
period from inception (July 15,1987) to June 30, 1997 83
Consolidated Balance Sheets as at
December 31, 1997 and 1996 (Unaudited) --
Consolidated Statements of Operations
for the six-month periods
ended December 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows
for the six-month periods
ended December 31, 1997 and 1996 (Unaudited)
Notes to Financial Statements 6
The financial statements for the six-month period ended December 31, 1997 are
unaudited. However, the management of registrant believes that all necessary
adjustments (which include only normal recurring adjustments) have been
reflected to present fairly the financial position of registrant at December 31,
1997 and the results of its operations and changes in its financial position for
the six-month periods ended December 31, 1996 and 1997 and for the period from
inception (July 15, 1987).
94
<PAGE>
[LETTERHEAD OF NEVOSO, PIVIROTTO, PINKHAM & FOSTER]
Report of Independent Auditors
Board of Directors
Tirex America, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Tirex America,
Inc. and subsidiary (a development stage company) as of June 30, 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended June 30, 1997 and 1996, and for the
cumulative period from July 15, 1987, (date of inception) to June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tirex America, Inc.
and subsidiary (a development stage company) at June 30, 1997, and the results
of their operations, and their cash flows for the years ended June 30, 1997 and
1996, and for the cumulative period from July 15, 1987 (date of inception) to
June 30, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements the Company is still in the development stage and it cannot
be determined at this time that the technology acquired will be developed to a
productive stage. The Company's uncertainty as to its productivity and its
ability to raise sufficient capital raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Nevoso, Pivirotto, Pinkham & Foster
Nevoso, Pivirotto, Pinkham & Foster
Certified Public Accountants, PA
May 18, 1998
Fairfield, New Jersey
95
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Balance Sheet June 30, 1997
Assets
Current assets
Cash and cash equivalents (Note 1) $ 155,037
Note receivable (Note 5) 9,729
Employee advances (Note 5) 185,942
Sales tax receivable 50,284
R&D Investment tax credit receivable (Note 1) 269,918
Loan - director (Note 5) 10,881
----------
$ 681,791
Equipment, at cost, net of accumulated
depreciation of $5,160 (Note 1) 14,794
Other assets
Equipment development costs (Notes 1 and 9) 783,451
Deferred start-up costs (Note 1) 74,683
Organization costs, net of accumulated
amortization of $641 (Note 1) 901
----------
859,035
-----------
$ 1,555,620
===========
Liability and Stockholders' Equity (Deficit)
Current liabilities
Notes payable (Note 3) $ 122,551
Accrued expenses (Note 5) 892,254
Loan payable (Note 4) 200,545
Deposit payable (Note 5) 480.000
----------
$ 1,695,350
Commitments and contingencies
Stockholders' equity (deficit) (Notes 1,3,4 and 5)
Common stock, $.001 par value, authorized
50,000,000 shares, issued and
outstanding, 37,449,972 shares 37,450
Additional paid-in capital 3,584,097
Deficit accumulated during the development stage (3,761,277)
----------
(139,730)
-----------
$ 1,555,620
===========
See Notes to Consolidated Financial Statements
96
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Statements of Operations
Cumulative
Period from
July 15, 1987
Year Ended June 30, (Date of
------------------- Inception) to
1997 1996 June 30, 1997
---- ---- -------------
Revenues $-- $ 10,000 $ 55,976
Cost of sales -- 4,500 14,352
Gross profit -- 5,500 41,624
General and administrative expenses:
Costs expended in connection with
securing "Certificate of Need" -- -- 309,000
Officers' salary (Notes 5 & 7) 160,025 652,935 1,212,410
Consulting services 896,591 43,021 1,002,886
Other salaries -- -- 42,528
Professional services 82,427 34,533 428,476
Rent (Note 10) 7,946 9,100 159,981
Automobile -- -- 47,801
Travel and entertainment 167,758 22,412 251,871
Telephone 6,582 7,399 37,148
Depreciation and amortization
(Note 1) 4,299 3,637 20,600
Utilities -- -- 21,888
Office expenses 13,877 6,487 86,312
Advertising -- 1,680 6,482
Miscellaneous 327 2,189 27,214
Franchise and other tax 1,232 443 23,932
Interest and bank charges
(Notes 3 and 4) 8,531 2,088 79,143
Investor relations 2,657 4,754 9,514
Repairs and maintenance -- -- 6,375
Contributions -- -- 1,680
Insurance -- -- 5,018
Abandonment loss -- -- 10,000
Transfer agent 6,515 3,270 21,104
------------ ----------- -----------
Total general and administrative
expenses 1,358,767 793,948 3,811,363
------------ ----------- -----------
Operating loss (1,358,767) (788,448) (3,769,739)
------------ ----------- -----------
Other income (expenses)
Income from stock options -- -- 10,855
Loss on disposal of equipment (2,240) -- (2,240)
Gain on foreign exchange (Note 1) 1,027 (1,180) 153)
------------ ----------- -----------
(1,213) (1,180) 8,462
Net loss $ (1,359,980) $ (789,628) $(3,761,277)
============ =========== ===========
Net loss per common share $ (.05) $ (.04) $ (.25)
============ =========== ===========
Weighted average shares of common
stock outstanding (Note 1) 27,992,502 19,647,590 15,304,512
============ =========== ===========
See Notes to Consolidated Financial Statements
97
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Subscriptions Developmental
Shares Amount Capital Receivable Stage Total
------ ------ ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at July 15, 1987 -- $ -- $ -- $-- $-- $-
Issuance of common stock 500 5,000 -- (1,750) -- 3,250
Net loss for period -- -- -- (82,286) (82,286)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1988 500 5,000 -- (1,750) (82,286) (79,036)
5,200 for 1 stock split and
change in par value 2,599,500 (2,400) 2,400 -- -- --
Merger with Concord
Enterprises, Inc 682,228 682 111,869 -- -- 112,551
Net loss for year -- -- -- -- (464,284) (464,284)
Payment received on common
stock subscribed -- -- -- 1,750 -- 1,750
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1989 3,282,228 3,282 114,269 -- (546,570) (429,019)
Exercise of 80,792 warrants
at $1 per share 80,792 81 80,711 -- -- 80,792
Stock issued for late pay 20,000 20 -- -- -- 20
Net loss for year -- -- -- -- (359,444) (359,444)
Balance at June 30, 1990 3,383,020 3,383 194,980 -- (906,014) (707,651)
Net loss for year -- -- -- -- (132,782) (132,782)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1991 3,383,020 3,383 194,980 -- (1,038,796) (840,433)
Net loss for year -- -- -- -- (18,560) (18,560)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1992 3,383,020 3,383 194,980 -- (1,057,356) (858,993)
Stock issued for reor-
ganization 18,650,000 18,650 76,155---- -- 94,805
Stock issued for services 100,000 100 (100) -- -- --
Stock issued in exchange
for warrants 363,656 364 (364) -- -- --
Forgiveness of debt -- -- 728,023 -- -- 728,023
Net loss for year -- -- -- -- (165,296) (165,296)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
98
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 22,496,676 22,497 998,694 -- (1,222,652) (201,461)
Stock issued 2,000 2 (2) -- -- --
Forgiveness of debt -- -- 149,170 -- -- 149,170
Payments received for stock
previously issued -- -- 237,430 -- -- 237,430
Net loss for year -- -- -- -- (179,296) (179,296)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
99
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Subscriptions Developmental
Total Shares Amount Capital Receivable Stage Total
- ----- ------ ------ ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 22,498,676 22,499 1,385,292 -- (1,401,948) 5,843
Revision of common stock (11,900,000) (11,900) 11,900 -- -- --
Stock issued for
Services 5,592,857 5,592 147,858 -- -- 153,450
Forgiveness of Debt 200,000 200 24,300 -- -- 24,500
Issuance of Common
Stock 402,857 401 21,915 -- -- 22,316
Net loss for year -- -- -- -- (209,721) (209,721)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1995 16,794,390 16,792 1,591,265 -- (1,611,669) (3,612)
Stock issued for
Services 3,975,662 3,976 509,196 -- -- 513,172
Forgiveness of Debt 391,857 392 29,008 -- -- 29,400
Issuance of Common
Stock 710,833 710 80,161 -- -- 80,871
Net loss for year -- -- -- -- (789,628) (789,628)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1996 21,872,742 21,870 2,209,630 -- (2,401,297) (169,797)
Stock issued for
Services 5,067,912 5,069 995,370 -- -- 1,000,439
Forgiveness and
Assumption of Debt 251,382 252 43,965 -- -- 44,217
Issuance of Common
Stock 10,257,936 10,259 355,132 -- -- 345,391
Net loss for year -- -- -- -- (1,359,980) (1,359,980)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 $ 37,449,972 $ 37,450 $3,584,097 $-- $ (3,761,277) $ (139,730)
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
100
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
July 15, 1987
(Date of
Year Ended June 30, Inception) to
1997 1996 June 30, 1997
---- ---- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,359,980) $ (789,628) $(3,761,277)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,299 3,637 20,600
Loss on disposal and abandonment of assets 2,240 -- 15,559
Stock issued in exchange for interest 4,217 -- 4,217
Stock issued in exchange for services 1,000,441 513,172 1,696,463
Change in assets and liabilities:
Increase in employee advances (185,942) -- (185,942)
Increase in sales tax receivable (50,284) -- (50,284)
Increase in R&D investment tax credit receivable (269,918) -- (269,918)
Increase in other assets -- -- (6,700)
Increase in accrued expenses 656,325 212,171 1,235,243
Increase in due to stockholders -- -- 473,191
----------- ----------- -----------
Net cash used in operating activities (198,602) (60,648) (828,848)
----------- ----------- -----------
Cash flows from investing activities:
Increase in note receivable (8,571) -- (9,729)
Equipment (5,924) (14,030) (53,012)
Equipment assembly costs (606,028) (116,023) (783,252)
Reduction of security deposit -- 1,600 6,700
Organization cost -- -- (1,542)
Deferred start-up costs (74,683) -- (74,683)
----------- ----------- -----------
Net cash used in investing activities (695,206) (128,453) (915,518)
----------- ----------- -----------
Cash flows from financing activities:
Loan granted to director (10,881) -- (10,881)
Proceeds from deposit 415,000 15,000 480,000
Proceeds from note payable 98,551 -- 122,551
Proceeds from loan payable 200,545 35,000 235,545
Proceeds from loan payable- stockholders -- -- 73,013
Proceeds from issuance of stock options -- -- 20,000
----------- ----------- -----------
Sub-total $ 703,215 $ 50,000 $ 920,228
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
101
<PAGE>
TIREX AMERICA, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Cumulative
Period from
July 15, 1987
(Date of
Year Ended June 30, Inception) to
1997 1996 June 30, 1997
---- ---- -------------
<S> <C> <C> <C>
Sub-total from prior page $ 703,215 $ 50,000 $ 920,228
Proceeds from issuance of common stock 10,258 711 35,803
Proceeds from additional paid-in capital 335,132 80,160 943,372
---------- ---------- ----------
Net cash provided by financing activities 1,048,605 130,871 1,899,403
---------- ---------- ----------
Net increase (decrease) in cash 154,797 (58,230) 155,037
Cash and cash equivalents - beginning of year 240 58,470 --
---------- ---------- ----------
Cash and cash equivalents - end of year $155, 037 $ 240 $ 155,037
========== ========== ==========
</TABLE>
Supplemental Disclosure of Non-Cash Activities:
In 1997 and 1996, the Company recorded an increase in common stock and in
additional paid-in capital of $44,217 and $29,400, respectively, which was in
recognition of the forgiveness and assumption of debt. In 1997 and 1996, stock
was issued in exchange for services performed in the amount of $1,000,441 and
$513,172 respectively
In 1997 the Company exchanged a piece of equipment for forgiveness of a debt
in the amount of $2,500
Supplemental Disclosure of Cash Flow Information:
Interest paid $ -- $ 2,088 $70,612
======== ======= =======
Income taxes paid $ -- $ -- $ --
======== ======= =======
102
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
(Unaudited)
March 31
1998 1997
ASSETS
Current Assets $ 305,243 $ 10,697
Accounts receivable 115,000 --
Notes receivable 39,729 1,158
Prepared expenses 1,558 --
Employee advances 93,199 --
Sales tax receivable 46,058 --
Income taxes receivable 639,762 --
Total current assets 1,240,549 11,855
Fixed Assets, at cost, net of accumulated
depreciation of $12,625 36,285 17,681
Other assets
Equipment development costs 919,118 549,116
Deferred start-up costs 96,634 --
Organization costs, net of accumulated
amortization of $795 747 984
1,016,499 550,100
Total Assets 2,293,333 579,636
Liabilities and Stockholders= Equity (Deficit)
Current liabilities
Bank indebtedness $ 504,689 $ --
Note payable 24,000 24,000
Accrued expenses 976,050 230,603
Loans Payable 479,138 45,796
Deposits payable 663,500 190,000
Total current liabilities 2,647,377 490,399
Convertible subordinated debentures 445,000 --
Total liabilities 3,092,377 490,399
Commitments and contingencies
Stockholders equity (deficit)
Common stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
47,644,182 shares 47,644 28,029
Additional paid-in capital 4,116,802 3,082,938
Deficit accumulated during the development stage (4,963,490) (3,021,730)
(799,044) 89,237
Total Liabilities and Stockholders Equity $ 2,293,333 $ 579,636
103
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ending Three months
March 31 ending March 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 415,000 $ -- $ 415,000
Costs of sales 248,082 -- 248,082
Gross profit 166,918 -- 166,918
General and administrative expenses
Officers= salaries 579,144 382,592 181,923
Consulting services 79,571 70,771 9,385
Professional services 211,447 58,761 91,443
Rent 29,270 5,056 13,096
Light, heat and power 3,313 -- 3,313
Travel and entertainment 332,784 65,672 143,239
Telephone 12,775 6,031 4,012
Depreciation and amortization 7,619 2,085 2,833
Office expenses 46,545 13,599 12,684
Miscellaneous 12,889 2,793 12,889
Franchise and other tax 4,152 -- 1,300
Interest and bank charges 10,243 6,270 6,545
Investor relations
756 1,794 (2,073)
Transfer agent 7,089 5,009 5,394
Financing fee 65,719 -- 65,719
Foreign exchange
(34,185) -- (18,833)
Total general and administrative expenses
1,369,131 620,433 532,896
Net loss
$ (1,202,213) $ (620,433) $ (365,951)
Net loss per common share $ (0.03) $ (0.02) $ (0.01)
Weighted average shares of common
stock outstanding $ 40,866,990 $ 23,907,069 $ 40,866,990
</TABLE>
104
<PAGE>
THE TIREX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated statement of cash flows
(Unaudited)
March 31
1998 1997
---- ----
Cash flows from operating activities:
Net loss $(1,202,213) $ (620,433)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 7,619 2,085
Stocks issued in exchange for services 403,049
Change in assets and liabilities
Increase in accounts receivable (315,000) --
Decrease in employee advances 92,743 --
Decrease in sales tax receivable 4,226 --
Increase in prepaid expenses (1,558) --
Increase in notes receivable (30,000) --
Decrease in loan-director 10,881 --
Increase (decrease) in accrued expenses 83,796 (7,826)
Decrease in due to shareholder -- (5,000)
Increase in income taxes receivable (369,844) --
Net cash used in operating activities (1,316,301) (99,216)
Cash flows from investing activities:
Fixed assets (28,956) (1,740)
Equipment development costs (135,667) (371,892)
Deferred start up costs (21,951) --
Net cash used in investing activities (186,574) (373,,632)
Cash flows from financing activities:
Repayment of notes payable (98,551) --
Proceeds form loans payable 278,593 10,796
Proceeds form deposits payable 383,500 125,000
Proceeds from issuance of common stocks 139,850 347,509
Proceeds from issuance of convertible debentures 445,000 --
Net cash provided by financing activities 1,148,392 483,305
Net increase (decrease) in cash (354,483) 10,457
Cash and cash equivalents-beginning of period 155,037 240
Cash and cash equivalents-end of period $ (199,446) $ 10,697
105
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
Assets
December 31
1997 1996
---- ----
Current Assets
Cash $ -- $ 9,309
Notes receivable 39,729 1,158
Prepaid expenses 18,972 --
Employee advances 157,096 --
Sales tax receivable 29,092 --
Income taxes receivable 494,918 --
----------- -----------
Total current assets 739,807 10,467
----------- -----------
Equipment, at cost, net of accumulated
depreciation of $ 9,792 16,853 16,561
----------- -----------
Other assets
Equipment development costs 1,032,920 184,482
Deferred start-up costs 74,683 --
Organization costs, net of accumulated
amortization of $ 795 747 1,059
----------- -----------
1,108,350 185,541
----------- -----------
Total Assets $ 1,865,010 $ 212,569
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Bank indebtedness $ 64,210 $ --
Note payable 24,000 24,000
Accrued expenses 948,616 212,576
Due to shareholders -- 5,000
Loans payable 437,626 80,796
Deposits payable 963,500 65,000
----------- -----------
Total current liabilities 2,437,952 387,372
----------- -----------
Commitments and contingencies
Stockholders' equity(deficit)
Common stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
39,599,182 shares 39,599 23,664
Additional paid-in capital 3,984,997 2,563,049
Deficit accumulated during the development
stage (4,597,538) (2,761,516)
----------- -----------
(572,942) (174,803)
----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) $ 1,865,010 $ 212,569
=========== ===========
106
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
December 31
1997 1996
---- ----
Revenues $ -- $ --
Cost of sales -- --
------------ ------------
Gross profit -- --
------------ ------------
General and administrative expenses
Officers' salaries 397,221 263,524
Consulting services 70,186 30,973
Professional services 120,004 24,627
Rent 16,174 4,114
Travel and entertainment 189,545 24,310
Telephone 8,763 2,476
Depreciation and amortization 4,786 1,390
Office expenses 33,861 2,867
Miscellaneous -- 1,056
Franchise and other tax 2,852 --
Interest and bank charges 3,698 1,656
Investor relations 2,829 --
Transfer agent 1,695 3,226
Foreign exchange (15,353) --
------------ ------------
Total general and administrative expenses 836,261 360,219
------------ ------------
Net loss $ (836,261) $ (360,219)
============ ============
Net loss per common share $ (0.02) $ (0.02)
============ ============
Weighted average shares of common
stock outstanding 38,607,926 22,533,003
============
See Notes to Consolidated Financial Statements
107
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated statement of cash flows
(Unaudited)
December 31
1997 1996
---- ----
Cash flows from operating activities:
Net loss $(836,261) $(360,219)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 4,786 1,390
Stocks issued in exchange for services 403,049 286,898
Change in assets and liabilities
Decrease in employee advances 28,846 --
Decrease in sales tax receivable 21,192 --
Increase in prepaid expenses (18,972) --
Increase in notes receivable (30,000) --
Decrease in loan-director 10,881 --
Increase in accrued expenses 56,362 (25,853)
---------
Increase in income taxes receivable (225,000)
--------- ---------
Net cash used in operating activities (585,117) (97,784)
--------- ---------
Cash flows from investing activities:
Equipment (6,691) --
Equipment assembly costs (249,469) (7,258)
--------- ---------
Net cash used in investing activities (256,160) (7,258)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable (98,551) --
Proceeds from loans payable 237,081 45,796
Proceeds from deposits payable 483,500 --
Proceeds from issuance of common stocks -- 68,315
--------- ---------
Net cash provided by financing activities 622,030 114,111
--------- ---------
Net increase (decrease) in cash (219,247) 9,069
Cash and cash equivalents-beginning of period 155,037 240
--------- ---------
Cash and cash equivalents-end of period $ (64,210) $ 9,309
========= =========
See Notes to Consolidated Financial Statements
108
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
Nature of Business
The Tirex Corporation (the "Company") was incorporated under the
laws of the State of Delaware on August 19, 1987. The Company
originally planned to provide comprehensive health care services to
persons with Acquired Immune Deficiency Syndrome, however due to its
inability to raise sufficient capital it was unable to implement its
business plan. The Company had been inactive since it ceased
operations in November 1990.
In the Fall of 1992, a group of shareholders lead by Edward Mihal
and including 16 other shareholders acting in concert with Mr. Mihal
along with Patrick McLaren and George Fattell, individuals without
any prior affiliation with the Company, became interested in the
Company as an entity potentially suitable for merger or similar
transaction with an operating private company seeking to become
public in this manner. This group approached the Company's incumbent
management with a proposal whereby they agreed to assume management
control, make all delinquent filings with the Securities and
Exchange Commission, restore service by transfer agent and pay all
other expenses required to enable the Company to begin trading its
stock and completing a merger or similar transaction.
In furtherance of the foregoing, on November 5, 1992, J. Richard
Goldstein, MD, Peter R. Stratton and Robert Kopsack resigned from
their positions as officers and directors of the Company. From June
1989 until the date of such resignations, Dr. Goldstein was the
Company's President and Chief Executive Officer, Mr. Stratton was
Vice-President, Chief Operating Officer, Secretary and Treasurer,
and Mr. Kopsack was the Company's Vice President. In resigning their
positions, Dr. Goldstein and Messrs. Stratton and Kopsack
acknowledged that they acceded to their respective positions and had
received compensation in consideration of their representations that
they would, and their best efforts to, implement a business plan for
the Company which would encompass, among other things, the
establishment and operating of skilled nursing care facilities for
patients with Acquired Immune Deficiency Syndrome. Compensation
received by Dr. Goldstein and Messrs. Stratton and Kopsack consisted
of cash payments, stock issuances, and the grants of stock options
and/or stock purchase warrants. As part of their resignations, Dr.
Goldstein and Messrs. Stratton and Kopsack each executed releases
whereby the Company was released and forever discharged from all
debts, obligations, covenants, agreements, contracts, claims or
demands in law or in equity, including but not limited to any stock
options or stock purchase warrants granted or promised to them,
which against the Company, each ever had, or thereafter may have for
or by reason of any matter, cause or thing up to and through
November 5, 1992. Each of Dr. Goldstein and Messrs. Stratton and
Kopsack also acknowledged the termination and rescission of their
respective employment agreements with the Company to such persons as
the Company should direct for the purpose of satisfying certain of
the Company's obligations to third parties. In consideration of the
resignations and releases executed by Dr. Goldstein and Messrs.
Stratton and Kopsack, Edward Mihal and each of the sixteen
shareholders of the Company acting in concert with Mr. Mihal
executed and delivered reciprocal personal releases to and on behalf
of Dr. Goldstein and Messrs. Stratton and Kopsack. In connection
with the foregoing resignations, Dr. Goldstein and Messrs. Stratton
and Kopsack appointed, as an interim board of directors, Patrick
McLaren, George Fattell, and Edward Mihal (the "Interim
Management"). It was the goal of the Interim Management to find
suitable acquisition and/or development by the Company. On December
29, 1992, Edward Mihal resigned his position as an officer and a
director of the Company and Louis V. Muro was appointed as an
officer and director of the Company to fill the vacancy created
thereby.
109
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Reorganization
On March 26, 1993, the Company entered into an acquisition agreement (the
"Acquisition Agreement") with Louis V. Muro, Patrick McLaren and George Fattell,
officers and directors of the Company (collectively the "Sellers"), for the
purchase of certain technology owned and developed by the Sellers (the
"Technology") and extensive and detailed plans (the "Business Plan") for a
business which will engage in the exploitation of the Technology. The Technology
will be used to design, develop and construct a prototype machine and thereafter
a production quality machine for the cryogenic disintegration of used tires.
Pursuant to the Acquisition Agreement, Sellers agreed to assign, transfer and
sell to the Company all of their right, title and interest in the Technology and
Business Plan in exchange for fifteen million nine hundred thousand (15,900,000)
shares of the Company's common stock, $.001 par value per share (the "Sellers'
Stock") of which eleven million nine hundred thousand (11,900,000) shares were
put into escrow. The Business Plan and Technology were developed by the Sellers
prior to their affiliation or association with the Company. The Sellers were
engaged as the Company's officers and directors for the purpose of implementing
the Business Plan with the Technology or such other technology which they
believed could reasonably satisfy the requirements of the Business Plan.
Effective with the March 26, 1993, closing date of the Acquisition
Agreement (the "Closing Date"), the Company authorized an increase
in the number of directors of the Company from three to six.
Pursuant thereto, the Company appointed Messrs. Kenneth Forbes,
Nicholas Campagna, and Alfred J. Viscido to fill the vacancies
created in the size of the board. As an inducement to Messrs.
Forbes, Campagna and Viscido to join the board of directors, the
Company issued 250,000 shares of its common stock, $.001 par value
to each of them. The Acquisition Agreement also provided for stock
issuances in the form of finders fees. Pursuant thereto, the Company
issued 300,000 and 1,700,000 shares of its common stock, $.001 par
value, to Joseph Territo and Edward Mihal, respectively.
Effective March 24, 1994, George Fattell resigned as an officer and
director of the Company. Per the terms of his resignation any future
shares of the Company's common stock issued to Mr. Fattell are to be
equally distributed to Louis V. Muro and Patrick McLaren.
Effective January 18, 1995, Louis V. Muro and Patrick McLaren resign
their positions as officers and directors of the Company. In
addition to their resignations they acknowledged that none of the
requisite performance levels for the release of any of the
11,900,000 escrow shares had been met and renounced all rights to
such shares.
In May of 1995, in order to take advantage of various research and
development incentives, the Company and officers of the Company
formed a Canadian corporation named 3143619 Canada, Inc. (Tirex
Canada). All of the research and development work on the first
production model of the TCS-1 System is being completed by Tirex
Canada and after the completion of the model, they will manufacture
the product.
On July 11, 1997 the Company's name was changed to The Tirex
Corporation.
Basis of Consolidation
The consolidated financial statements include the accounts of Tirex
America, Inc. and its subsidiary Tirex Canada. All intercompany
transactions and accounts have been eliminated in consolidation.
110
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of
deposit with maturities of 90 days or less, were deemed to be cash
and cash equivalents.
Equipment Development Costs
Deferred development costs are stated at cost net of any investment
tax credits when there is reasonable assurance that the credits will
be realized. Amortization will begin once commercial production of
the product has commenced and will be computed based upon the
estimated useful life of related products as determined from
management's future sales estimates and will not exceed five years
from the date of the product's market launching.
Deferred Start-Up Costs
Deferred start-up costs represent pre-operating expenses and will be
amortized on a straight-line basis over a three year period once
commercial operations have commenced.
Equipment
Equipment is recorded at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the
assets by using the straight-line method of depreciation.
Repairs and maintenance costs are expenses as incurred while
additions and betterments are capitalized. The cost and related
accumulated depreciation of assets sold or retired are eliminated
from the accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Organization Costs Organization costs are being amortized on a
straight-line basis over a sixty month period.
Per Share Data
The primary income (loss) per share was computed on the weighted
number of shares of common stock outstanding during the period.
Common share equivalents were not included as their inclusion would
have been anti-dilutive.
Income Taxes
The Company has net operating loss carryovers of approximately $4
million as of June 30, 1997, expiring in the years 2004 through
2011. However, based upon present Internal Revenue regulations
governing the utilization of net operating loss carryovers where the
corporation has issued substantial additional stock, most of this
loss carryover may not be available to the Company.
111
<PAGE>
THE TIREX CORPORATION, INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, effective July 1993.
SFAS No.109 requires the establishment of a deferred tax asset for
all deductible temporary differences and operating loss
carryforwards. Because of the uncertainties discussed in Note 2,
however, any deferred tax asset established for utilization of the
Company's tax loss carryforwards would correspondingly require a
valuation allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial
statements.
The Company has research and development investment tax credits
receivable from Canada and Quebec amounting to $269,918.
Foreign Exchange
Assets and liabilities of the Company which are denominated in
foreign currencies are translated at exchange rates prevailing at
the balance sheet date. Revenues and expenses are translated at
average rates throughout the year.
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company
incurred a net loss of $1,359,980 during the year ended June 30,
1997 and as of that date, the Company's current liabilities exceeded
its current assets by $1,013,559 and its total liabilities exceeded
its total assets by $139,730.
In March 1993, the Company, which was still in the development
stage, developed a new Business Plan. The Company is in the process
of constructing a production quality machine for the cryogenic
disintegration of used tires. The Company also plans to recycle used
tires using ambient temperature disintegration equipment. At June
30, 1997, the Company is still in the development stage. Fees
generated from tipping and culling were insufficient to fund the
current operations of the Company. All of these factors create an
uncertainty about the Company's ability to continue as a going
concern.
The Company is currently in the process of trying to obtain funding
needed through a private placement of its securities in an amount of
not less than $700,000, which will provide working capital while the
Company constructs its cryogenic disintegration machine. The ability
of the Company to continue as going concern is dependent on the
success of the plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 3 - Notes Payable
The Company has available a line of credit which bears interest at
prime plus 3%. Under this line of credit the Company may borrow a
maximum of 80% of their receivable balance from FORD-Q and the
related Rev Canada receivable. At June 30, 1997, $98,551 was
outstanding against this line of credit. The note is collateralized
by the receivable from FORD-Q. The prime rate of interest at June
30, 1997 was 4.5%. This line was paid in full in July, 1997.
The Company also had a note payable in the amount of $24,000
outstanding as of June 30, 1997. The repayment terms were being
negotiated as of that time.
112
<PAGE>
THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 4 - Loan Payable
1997 1996
---- ----
FORD-Q $178,806 $ --
IDEA-SME 14,493 --
IDEA-SME 7,246 --
-------- --------
$200,545 $ --
======== ========
On April 11, 1996 the Company entered into a loan agreement with the
Federal Office of Regional Development - Quebec (FORD-Q) which will
be repayable annually over a period of forty-eight months following
the completion of the project. The loan is being contributed under
the Industrial Recovery Program for South-West Montreal and will be
calculated as the lesser of $362,319 or 20% of the eligible costs
incurred for the construction of a commercial scale prototype of the
cryogenic scrap tire disintegration system. The loan is
non-interesting bearing and unsecured. The Company received $178,806
under this program in fiscal 1997.
On April 30, 1997 the Company received a refundable contribution
awarded under the terms of the Program for the Development of
Quebec's SME'S (IDEA-SME). The contribution is repayable in amounts
equal to 1% of the annual gross sales in Spain and Portugal
occurring after June 1, 1997. $14,493 was received under this
program in fiscal 1997.
On March 26, 1997, the Company received a refundable contribution
for the preparation of market development studies for India under
the Quebec SME development assistance program (IDEA-SME). The
maximum contribution is $14,493 based on 50% of the approved
eligible costs. The contribution is repayable in amounts equal to 1%
of the annual gross sales in India occurring after June 1, 1997. As
of June 30, 1997, the Company had received $7,246 under this
program.
On June 6, 1997, the Company entered into an agreement under the
Quebec SME development assistance program (IDEA-SME) to receive a
refundable contribution for market development activities for the
Iberian Peninsula. The maximum contribution is $68,841 , based on
50% of approved eligible costs. The contribution is repayable in
amounts equal to 1.5% of the annual gross sales in Spain and in
Portugal occurring after June 1, 1998 less amounts repaid through
the amounts noted in the April 30, 1997 agreement.
Note 5 - Related Party Transactions
In 1994, a stockholder loaned the Company $5,000. This loan was
converted to common stock and additional paid-in capital during the
year ended June 30, 1997.
On July 22, 1994, 3,000,000 shares of Tirex America, Inc. were
released from escrow and issued to Louis V. Muro and Patrick McLaren
(1,500,000 shares each) in accordance with the terms and provisions
of the Acquisition Agreement dated March 26, 1993.
The Company has entered into employment agreements with all of its
executive officers and with its in-house corporate counsel. In
addition to the employment services, the officers agree not to
compete with the Company for the two year period following the
termination of employment. If an officer is terminated other than
for cause or for "good reason", the terminated officer will be paid
twice the amount of their base salary for twelve months.
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THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 5 - Related Party Transactions (continued)
Included in accrued expenses at June 30, 1997 is $366,462 of salary
to officers which the company subsequently issued common stock for.
The Company advanced funds to its officers and directors during the
year ended June 30, 1997 in the amount of $185,942. These will be
repaid during the year ending June 30, 1998.
At June 30, 1997 and 1996, the Company had notes receivable from
various officers in the amount of $9,729 and $1,158, respectively.
At June 30, 1997 the Company had a loan receivable from a director
for $10,881. All of these notes and loans are non-interest bearing
and will be repaid during the year ending June 30, 1998.
During the year ended June 30, 1997, a director of the Company paid
a debt of $39,217 on behalf of the Company in exchange for stock and
additional paid-in-capital.
Deposits payable include an amount of $455,000 which are payable to
companies which are owned by a director of the Company.
Note 6 - Forgiveness of Debt
In 1997 and 1996, the Company recorded increases in common stock and
additional paid-in capital of $5,000 and $29,400, respectively,
which was in recognition of the forgiveness of debt by certain
related parties of the Company.
Note 7 - Common Stock
During the years ended June 30, 1997 and 1996, the Company issued
common stock to individuals for services performed and forgiveness
of debt totaling $1,044,657 and $542,572, respectively. Included in
these amounts are payments to officers of the Company in exchange
for salary in the amount of $786,526 and $502,756, respectively. The
dollar amounts assigned to such transactions have been recorded at
the fair value of the services received, because the fair value of
the services received was more evident than the fair value of the
stock surrendered.
Note 8 - Stock Option
On May 19, 1995, the Company sold to a director of the Company an
option to purchase 20,000 shares of Cumulative Convertible Preferred
Stock at an exercise price of $10 per share, exercisable during the
two year period beginning May 19, 1995, and ending May 18, 1999. The
director paid $20,000 for the option. The terms of the Preferred
Stock purchasable under the option call for cumulative cash
dividends at a rate of $1.20 per share and conversion into shares of
common stock. The conversion to common stock ratio varies depending
on when the conversion is made. At June 30, 1997, the option has not
been exercised.
Note 9 - Government Assistance
The Company has entered into an agreement with Recyc-Quebec for
financial assistance covering 50% of certain defined costs incurred
in developing the cryogenic scrap tire disintegration system to a
maximum of $54,348. $36,500 has been received during the year and
this amount has reduced the equipment development costs on the
balance sheet.
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THE TIREX CORPORATION AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 10 - Commitments
The Company has entered into a property lease agreement, with a term
from July 1, 1997 to June 30, 2000. The Company has an option to
renew this lease for an additional three years. Minimum rentals in
each of the next three years is as follows:
1998 $ 18,967
1999 18,967
2000 18,967
--------
$ 56,901
========
Note 11 - Contingency
The Company is a defendant in an action which commenced on June 18,
1997 entitled Great American Commercial Funding Corp. vs. Tirex
America, Inc. The Company agreed to pay the plaintiff a placement
fee of $250,000 and to grant them an option to acquire 400,000
shares of the company's common stock at a price of $.01 per share in
the event that the plaintiff succeeded in obtaining financing
acceptable to the Company. The amount and terms of the financing are
not mentioned in the documents. The plaintiff recommended an
equipment lease financing company who in turned introduced the
Company to one of their customers. The customer ultimately entered
into a lease financing arrangement with Tirex America, Inc. Because
the advances made to the Company pursuant to that lease financing
arrangement did not constitute the type of financing originally
contemplated, the Company believes it has no financial obligation to
the plaintiff. The Company and its litigation counsel believe that
the plaintiffs complaint is without merit and that the Company will
prevail in this litigation.
Note 12 - Subsequent Event
Subsequent to the year end, the Company received an additional
$99,888 under the FORD-Q Industrial Recovery Program and $41,304
under the Program for the Development of Quebec SME'S.
115
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and its Bylaws provide for
the indemnification by the Registrant of each director, officer and employee of
the Registrant to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended. Section 145 of
the Delaware General Corporation Law provides in relevant part that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
The Registrant has entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director of the Registrant and
certain officers of the Registrant (the "Indemnitees"). Pursuant to the terms
and conditions of the Indemnity Agreements, the Registrant indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to pay
in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided, however, that Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action, had no reasonable cause
to believe Indemnitee's Conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
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Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee, the NASD filing fee and the American Stock
Exchange fee:
Registration fee-Securities and Exchange Commission ........... $ 2,532.11
Blue sky fees and expenses, including legal fees .............. 7,000
Printing and Photocopying ..................................... 10,000
---------
Total ....................................................... 19,532.11
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period preceding the date of this Prospectus,
Registrant made the following sales of its common stock, $.001 par value, per
share ("Common Stock") without registration under the Securities Act of 1933, as
amended (the "Securities Act"). The following sets forth information respecting
the dates, class of purchasers, and consideration involved in such sales and the
bases for Registrant's claim that all such sales were exempt from the
registration provisions of Section 5 of the Securities Act.
All sales of unregistered securities made by Registrant since February 16,
1995 are described below. In addition, of these sales, those which were made
between July 1, 1996 and December 31, 1997 have also been reported in Item 2 of
Part 2 of Registrant's quarterly reports on Forms 10-QSB for the fiscal quarters
ended September 30, 1996, March 31, 1997, and December 31, 1997; Item 5 of
Registrant's annual report on Form 10-KSB, for the fiscal year ended June 30,
1997; and Item 9 of Registrant's current reports on Forms 8-K, dated (i) January
10, 1997, filed with the Commission (on paper) on January 24, 1997 (with a
confirming copy filed electronically on February , 1997) and (ii) February 5,
1997, filed with the Commission on February 20, 1997.
Registrant believes that the following stock issuances do not constitute a
single financing plan of the Registrant because they were issued for purposes
and for different types of consideration, as follows:
1. Shares Issued Pursuant to Written Employment Agreements in Lieu of Unpaid
Cash Compensation Due Thereunder
The following sales consisted of stock issuances made for no cash
compensation at various times to a total of five individuals, who were or are
officers and employees of Registrant, under the terms of their respective
employment agreements, in lieu of cash compensation. Such stock issuances were
necessitated by Registrant's inability to meet its financial obligations under
its employment agreements with such persons. All such employment agreements
constituted "Employee Benefit Plans" as that term is defined in Rule 405 of the
Securities Act. With respect to such issuances, the shares, at the time they
were issued, had no or only very minimal actual market value and the actual
potential market value of such shares, if any, was at such dates, and as at the
date hereof remains, highly contingent upon, and subject to, extremely high
risks including but not limited to the following factors: (I) the very early
stage of development of Registrant's business; (ii) Registrant's lack of
sufficient funds to implement its business plan and the absence of any
commitments from potential investors to provide such funds; (iii) the absence of
a reliable, stable, or substantial trading market for such shares; (iv) the
restrictions on transfer arising out of the absence of registration of such
shares; and (v) the uncertainty respecting Registrant's ability to continue as a
going concern. With respect to certain of the following stock issuances, because
of the extremely limited resources of Registrant in terms of personnel as well
as funds, the recipients of the shares were members of the board of directors or
the executive committee of the board of directors which approved the issuances.
Such circumstances notwithstanding, Registrant believes that, in light of the
highly contingent value, if any, of Registrant's shares and the fair market
value of the services provided by such persons as consideration for the said
shares, the terms of such issuances were better than
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<PAGE>
Registrant could have obtained in arm's length transactions. These sales are
claimed to have been exempt from registration under the Securities Act pursuant
to Section 4(2) thereof, as more fully described below.
Such issuances consisted of the following:
1.1 On June 1, 1995, In consideration of unpaid executive services in the
respective amounts of $93,750 and $56,250, rendered under the terms of their
respective employment agreements during the four and one-half month period which
commenced on January 18, 1995 and ended on May 31, 1995, Registrant issued
1,339,286 shares of Common Stock to Terence C. Byrne and 803,571 shares to
Frances Katz Levine valued at $.07 per share, which value was equal to 50% of
the average of the bid and ask price for the Common Stock during the sixty-day
period preceding June 1, 1995, as traded in the over-the-counter market and
quoted in the OTC Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (the "OTC Bulletin Board").
1.2 On July 25, 1995, In consideration of unpaid executive services in the
respective amounts of $41,666.67 and $25,000, rendered under the terms of their
respective employment agreements during two-month period which commenced on June
1, 1995 and ended on July 31, 1995, Registrant issued 277,778 shares of Common
Stock to Terence C. Byrne and 166,667 shares to Frances Katz Levine at a per
share price of $.15 per share, which value was equal to 50% of the average of
the bid and ask price for the Common Stock during the nine-day period preceding
July 25, 1995, as traded in the over-the-counter market and quoted in the OTC
Bulletin Board.
1.3 On November 15, 1995, in consideration of unpaid executive services
and unreimbursed expenses rendered under their respective employment agreements
and paid by such persons for the account and on behalf of Registrant, during the
three and one-half month period which commenced on August 1, 1995 and ended on
November 15, 1995, Registrant issued shares of its Common Stock to Terence C.
Byrne, who was then, as currently, Registrant's president, and to Frances Katz
Levine, who was at that time, an officer and director of Registrant. These
issuances were valued at $.15 per share, which value was equal to 50% of the
average of the bid and ask price for the Common Stock during the two weeks
preceding November 15, 1995, as traded in the over-the-counter market and quoted
in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $66,917 446,112
Frances Katz Levine 43,750 291,667
1.4 On January 1, 1996, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements paid by such persons for the account and on behalf of Registrant,
during the one and one-half month period which commenced on November 16, 1995
and ended on December 31, 1995, Registrant issued shares of its Common Stock to
Terence C. Byrne, who was then, as currently, Registrant's president, and to
Frances Katz Levine, who was at that time, an officer and director of
Registrant. These issuances were valued at $.11 per share, which value was equal
to 50% of the average of the bid and ask price for the Common Stock during the
period when such unpaid salaries and expenses were incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $31,250 284,091
Frances Katz Levine 18,750 170,455
1.5 On April 2, 1996, in consideration of unpaid executive services
rendered under the terms of his employment agreement by John L. Threshie, Jr.
during the two and one-half month period which commenced on January 1, 1996, and
ended on March 31, 1996, Registrant issued shares of its Common
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<PAGE>
Stock to Mr. Threshie valued at $.11 per share, which value was equal to 50% of
the average of the bid and ask price for the Common Stock during the period when
such services were rendered, as traded in the over-the-counter market and quoted
in the OTC Bulletin Board.
1.6. On July 12, 1996, in consideration of unpaid executive services
and unreimbursed expenses rendered under the terms of their respective
employment agreements and paid by such persons for the account and on behalf of
Registrant, during the three month period which commenced on April 1, 1996 and
ended on June 30, 1996, Registrant issued shares of its Common Stock to Terence
C. Byrne, who was then, as currently, Registrant's president, Louis V. Muro, who
was then, as currently, Registrant's vice-president of Engineering, and to
Frances Katz Levine, who was at that time, an officer and director of
Registrant. These issuances were valued at $.1983 per share, which value was
equal to 50% of the average of the bid and ask price for the Common Stock during
the period when such unpaid salaries and expenses were earned and incurred, as
traded in the over-the-counter market and quoted in the OTC Bulletin Board, as
follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $55,711 280,943
Frances Katz Levine 37,500 189,107
Louis V. Muro 31,592 161,120
1.7 On September 30, 1996, in consideration of unpaid executive services
and unreimbursed expenses rendered under the terms of their respective
employment agreements and paid by such persons for the account and on behalf of
Registrant, during the three-month period which commenced on July 1, 1996 and
ended on September 30, 1996, Registrant issued shares of its Common Stock to
Terence C. Byrne, who was then, as currently, Registrant's president, Louis V.
Muro, who was then, as currently, Registrant's vice-president of Engineering,
and to Frances Katz Levine, who was at that time, an officer and director of
Registrant. These issuances were valued at $.157 per share, which value was
equal to 50% of the average of the bid and ask price for the Common Stock during
the period when such unpaid salaries and expenses were earned and incurred, as
traded in the over-the-counter market and quoted in the OTC Bulletin Board, as
follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $51,769 329,738
Frances Katz Levine 31,062 197,847
Louis V. Muro 29,324 186,777
1.8 On September 30, 1996, in consideration of unpaid executive services
and unreimbursed expenses, in the aggregate amount of $21,843, rendered under
the terms of his employment agreement and paid by John L. Threshie, Jr. for the
account and on behalf of Registrant, during the six-month period which commenced
on April 1, 1996 and ended on September 30, 1996, Registrant issued 123,407
shares of its Common Stock to Mr. Threshie, who was then, as currently,
Registrant's vice-president of Operations, at a value of $.177 per share, which
value was equal to 50% of the average of the bid and ask price for the Common
Stock during the period when such unpaid salaries and expenses were earned and
incurred, as traded in the over-the-counter market and quoted in the OTC
Bulletin Board.
1.9 On January 17, 1997, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements and paid by such persons for the account and on behalf of Registrant,
during the three-month period which commenced on October 1, 1996 and ended on
December 31, 1996, Registrant issued shares of its Common Stock to Terence C.
Byrne, who was then, as currently, Registrant's president, Louis V. Muro, who
was then, as currently, Registrant's vice-president of Engineering, Frances Katz
Levine, who had served as an officer and director of Registrant until December
22, 1996, when she resigned from such positions and was appointed as
Registrant's corporate and securities counsel, and to John L. Threshie, Jr., who
was then, as currently, Registrant's vice-president of Operations,. These
issuances were valued at $.1433 per share, which value was equal to 50% of the
average of the bid and ask price for the Common Stock during the period when
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<PAGE>
such unpaid salaries and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $40,966 285,876
Frances Katz Levine 33,466.55 233,402
Louis V. Muro 23,910 166,853
John L. Threshie, Jr. 12,074.46 84,260
1.10 On April 28, 1997, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements and paid by such persons for the account and on behalf of Registrant,
during the three-month period which commenced on January 1, 1997 and ended on
March 31, 1997, Registrant issued shares of its Common Stock to Terence C.
Byrne, who was then, as currently, Registrant's president, Louis V. Muro, who
was then, as currently, Registrant's vice-president of Engineering, Frances Katz
Levine, Registrant's corporate and securities counsel, and to John L. Threshie,
Jr., who was then, as currently, Registrant's vice-president of Operations,.
These issuances were valued at $.214 per share, which value was equal to 50% of
the average of the bid and ask price for the Common Stock during the period when
such unpaid salaries and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $41,836 195,495
Frances Katz Levine 30,554 142,776
Louis V. Muro 22,732 106,224
John L. Threshie, Jr. 1,934 9,037
1.11 On April 28, 1997, in consideration of unpaid executive services
rendered under the terms of her employment agreement by Vijay Kachru during the
seven-month period which commenced on September 1, 1996, and ended on March 31,
1997, Registrant issued shares of its Common Stock to Vijay Kachru at values
equal to 50% of the average of the bid and ask price for the Common Stock during
the periods when such services were rendered, as traded in the over-the-counter
market and quoted in the OTC Bulletin Board, as follows:
Period for
Which Shares Price Per No. Of
are Issued Share Shares
---------- ----- ------
Sept 1, 1996
through
Sept 30, 1996 US $0.169 32,396
Quarter ended
Dec 31, 1996 US $0.1433 68,520
Quarter ended
March 31, 1997 US $0.214 31,383
1.12 On July 7, 1997, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements and paid by such persons for the account and on behalf of Registrant,
during the three-month period which commenced on April 1, 1997 and ended on June
30, 1997, Registrant issued shares of its Common Stock to Terence C. Byrne, who
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was then, as currently, Registrant's president, Louis V. Muro, who was then, as
currently, Registrant's vice-president of Engineering, Frances Katz Levine,
Registrant's corporate and securities counsel, John L. Threshie, Jr., who was
then, as currently, Registrant's vice-president of Operations, and Vijay Kachru,
Registrant's vice-president of Market Development. These issuances were valued
at $.166 per share, which value was equal to 50% of the average of the bid and
ask price for the Common Stock during the period when such unpaid salaries and
expenses were earned and incurred, as traded in the over-the-counter market and
quoted in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $92,497 319,108
Frances Katz Levine 56,754 250,843
Louis V. Muro 41,610 135,686
John L. Threshie, Jr. 5,433 19,915
Vijay Kachru 13,115 35,572
1.13 On December 15, 1997, in consideration of unpaid executive services
and unreimbursed expenses rendered under the terms of their respective
employment agreements and paid by such persons for the account and on behalf of
Registrant, during the five-month period which commenced on July 1, 1997 and
ended on November 30, 1997, Registrant issued shares of its Common Stock to
Terence C. Byrne, who was then, as currently, Registrant's president, Louis V.
Muro, who was then, as currently, Registrant's vice-president of Engineering,
Frances Katz Levine, Registrant's corporate and securities counsel, John L.
Threshie, Jr., who was then, as currently, Registrant's vice-president of
Operations, and Vijay Kachru, Registrant's vice-president of Market Development.
These issuances were valued at $.275 per share, which value was equal to 100% of
the average of the bid and ask price for the Common Stock during the period when
such unpaid salaries and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $52,972 336,353
Frances Katz Levine 41,640 206,379
Louis V. Muro 22,524 151,309
John L. Threshie, Jr. 3,140 24,000
Vijay Kachru 5,905 47,692
1.14 On April 15, 1998, in consideration of unpaid executive services and
unreimbursed expenses rendered under the terms of their respective employment
agreements and paid by such persons for the account and on behalf of Tirex,
during the four-month period which commenced on December 1, 1997 and ended on
March 31, 1998, Tirex issued shares of its Common Stock to its four executive
officers and its corporate counsel. These issuances were valued at $0.1399 per
share, which value was equal to 50% of the average of the bid and ask price for
the Common Stock during the period when such unpaid salaries and expenses were
earned and incurred, as traded in the over-the-counter market and quoted in the
OTC Bulletin Board, as follows:
Amount of No. of
Salary & Expenses Shares
Name Owed Issued
---- ---- ------
Terence C. Byrne $59,183 423,038
Frances Katz Levine 45,191 323,023
Louis V. Muro 33,200 237,312
John L. Threshie, Jr. 6,167 44,081
Vijay Kachru 9,450 67,548
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1.15 On April 15, 1998, Tirex issued shares of its common stock in order
to correct an error, made on December 15, 1997 in the price at which shares were
issued to four of its executive officers and its corporate counsel in
consideration of unpaid executive services and unreimbursed for the five-month
period which commenced on July 1, 1997 and ended on November 30, 1997. The
December 15, 1997 error consisted of issuing shares at a value of $.275 per
share, which value was equal to the average of the bid and ask price for the
Common Stock during the period when such unpaid salaries and expenses were
earned and incurred. It is the policy of Tirex, and the board of directors had
approved, that shares issued for such purposes should be valued of 50% of market
value. Therefore the shares should have been issued at a value of $.1375 per
share instead of $.275 per share. Accordingly, on April 15, 1998, Tirex
authorized the issuance of additional shares to correct such error, as follows:
<TABLE>
<CAPTION>
======================================================================================================
No. Of Shares No. of Shares Which No. of Shares Issued
Erroneously Issued Would Have Been On April 15, 1998 to
Name at $.275 per Correctly Issued at Correct Dec. 15,
Share $0.1375 1997 Error
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Terence C. Byrne 336,353 672,705 336,352
- ------------------------------------------------------------------------------------------------------
Louis V. Muro 151,309 302,618 151,309
- ------------------------------------------------------------------------------------------------------
John L. Threshie, Jr. 19,756 39,512 15,512
- ------------------------------------------------------------------------------------------------------
Vijay Kachru 47,691 95,382 47,690
- ------------------------------------------------------------------------------------------------------
Frances Katz Levine 206,379 412,758 206,379
======================================================================================================
</TABLE>
1.16 On April 20, 1998, in consideration of unpaid executive services an
unreimbursed expenses rendered under the terms of his employment agreements and
paid by him for the account and on behalf of Tirex, during the six and one
half-month period which commenced on June 15, 1997 and ended on December 31,
1997, Tirex issued 597,966 shares of its Common Stock to Alan Crossley, Tirex's
Managing Director of European Market Development. For purposes of such issuance,
the shares were valued at $0.1475 per share, which value was equal to 50% of the
average of the bid and ask price for the Common Stock during the period when
such unpaid salary and expenses were earned and incurred, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, as follows:
2. Shares Issued Under Written Consulting Agreements In Lieu of Unpaid Cash
Compensation Due Thereunder
Two sales consisted of stock issuances made on two occasions to Louis V.
Muro, who served as an engineering consultant to Registrant between January 18,
1995 and December 31, 1995, under the terms of a consulting agreement, in lieu
of cash compensation due thereunder. Such stock issuances were necessitated by
Registrant's inability to meet its financial obligations under such employment
agreements. These sales are claimed to have been exempt from registration under
the Securities Act pursuant to Section 4(2) thereof, as more fully described
below.
Such Issuances consisted of:
2.1 On November 15, 1995, in consideration of unpaid consulting services
and unreimbursed expenses rendered under the terms of his consulting agreement
and paid by Louis V. Muro for the account and on behalf of Registrant, during
the five and one-half month period which commenced on January 18, 1995, and
ended on June 30, 1995, Registrant issued shares of its Common Stock to Louis V.
Muro, who was at that time, a consultant to Registrant. This issuance was valued
at $.15 per share, which value was equal to 50% of the average of the bid and
ask price for the Common Stock during the two weeks preceding November 15, 1995,
as traded in the over-the-counter market and quoted in the OTC Bulletin Board.
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2.2 On January 1, 1996, in consideration of unpaid consulting services and
unreimbursed expenses rendered and paid by Louis V. Muro for the account and on
behalf of Registrant, during the six month period which commenced on July 1,
1995, and ended on December 31, 1995, Registrant issued shares of its Common
Stock to Louis V. Muro, who was at that time, a consultant to Registrant. This
sale was made at the following values: $.15 per share for consulting fees due to
Mr. Muro for the three month period ended September 30, 1995 and $.11 per share
for consulting fees due to Mr. Muro for the three month period ended December
31, 1995, as follows:
Amount of
Consulting Fees No. of
and Expenses owed Shares to
Quarter Ended for Quarter Be Issued
------------- ----------- ---------
September 30, 1995 $37,500 250,000
December 31, 1995 37,500 340,910
-------
3. Shares Issued As Sole Compensation For Previously Rendered Services
The following sale consisted of a stock issuance made for no cash
consideration Louis V. Muro, for previously rendered and uncompensated services
and unreimbursed disbursements. This sale is claimed to have been exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, as more
fully described below.
On January 17, 1997, in consideration of unpaid consulting services and
unreimbursed expenses rendered and paid by Louis V. Muro for the account and on
behalf of Registrant, during the approximately two years and three months when
Mr. Muro had served as secretary of Registrant (from December 29, 1992 until
March 1994) and as president of Registrant (from March 1994 until January 18,
1995),(9) Registrant issued 1,113,636 shares of Common Stock to Mr. Muro at a
negotiated value of $.275 per share, which value was equal to 150% of the
average of the high and low bid prices of such stock, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board during the calendar
years of 1993 and 1994.(10) Determination of the value of the consideration paid
by Mr. Muro was made on the following basis: Mr. Muro received no compensation
for any of the above described services, but served on the basis of an
understanding that he would be fairly and equitably compensated. On January 17,
1997, Registrant's board of directors, through its executive committee, of which
Mr. Muro is a member, resolved that it would be fair and equitable for Mr. Muro
to be compensated for services rendered prior to January 18, 1995 at the same
rate as he had been entitled to receive for his services since such date.
Calculated on the foregoing basis, Mr. Muro would have been entitled to payment
of three hundred and six thousand, two hundred fifty dollars ($306,250) in
respect of his pre-1995 services, which funds were not available to Registrant.
Mr. Muro agreed to accept as compensation in full for all services rendered by
him to Registrant and for all unreimbursed disbursements made by him for or on
behalf of Registrant prior to January 18, 1995, shares of Common Stock valued,
as noted above, at 150% of market prices of the Common Stock during the period
in which such services were performed.
- --------
(9) Mr. Muro resigned his positions as an officer and director of Registrant
on January 18, 1995 and served as a consultant to Registrant until January
1, 1996 when he was appointed as vice president of engineering and a
director.
(10) Registrant's stock was traded only sporadically during such time,
calculations were therefore based upon the fifteen months during 1993 and
1994 when actual trading took place and for which it was possible to
obtain information.
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4. Directors Shares Issued In Consideration of Agreements to Join Registrant's
Board of Directors
Two sales consisted of stock issuances made on two occasions to directors
of Registrant in consideration of their agreeing to join Registrant's board of
directors. These sales are claimed to have been exempt from registration under
the Securities Act pursuant to Section 4(2) thereof, as more fully described
below. They consisted of the following:
4.1. On February 16, 1995, in consideration for his agreeing to serve as a
member of Registrant's Board of Directors, Registrant issued one hundred
thousand (100,000) shares of its common stock, .$001, par value per share
("Common Stock") to John Hartley, at par.
4.2. On June 1, 1995, in consideration for his agreeing to serve as a
member of Registrant's Board of Directors and as vice president of operations of
Registrant, and to serve as such without cash compensation until such time as
this corporation shall have sufficient cash flow to pay such compensation, and
for services rendered during to Registrant prior to June 1, 1995, Registrant
issued two hundred fifty thousand (250,000) shares of Common Stock, to John L.
Threshie, Jr., at par.
5. Shares Issued In Settlement of Previously Outstanding Debts For Services
Rendered
Eight sales consisted of stock issuances made for no cash consideration in
settlement of previously outstanding debts billed to Registrant for services
rendered. These sales are claimed to have been exempt from registration under
the Securities Act pursuant to Section 4(2) thereof, as more fully described
below. They consisted of the following:
5.1 On July 1, 1995, Registrant made the following issuances in settlement
of unpaid debts to unrelated vendors of various services, at individually
negotiated values, as follows:
(a) for engineering consulting services, in the amount of $3,000.00,
Registrant issued 20,000 shares of its Common Stock to Nicholas
Campagna at a value of $.15 per share.
(b) for transportation and waste disposal services, in the amount of
$6,000.00, Registrant issued 20,000 shares of its Common Stock to
John Haydu at a value of $.30 per share.
(c) for rubber crumb sales brokerage services, in the amount of $500.00,
Registrant issued 3,000 shares of its Common Stock to Burton Klein
at a value of $.1667 per share.
(d) for rubber crumb sales brokerage services, in the amount of $500.00,
Registrant issued 3,000 shares of its Common Stock to Burton Klein
at a value of $.1667 per share.
(e) for mechanical services in the amount of $6,000.00, Registrant
issued 80,000 shares of its Common Stock to Rudolph Miller at a
value of $.075 per share.
5.2 On August 3, 1995, in settlement of an unpaid debt in the amount of
$5,400 for transportation and disposal services, Registrant issued 18,000 shares
of Common Stock to Paul Masser at a negotiated value of $.30 per share.
5.3 On October 20, 1995, in settlement of an unpaid debt in the amount of
$25,000 for accounting services, Registrant issued 200,000 shares of Common
Stock to Nathan Berkowitz at a negotiated value of $.125 per share.
5.4 On May 10, 1996, Registrant issued 175,000 shares of Common Stock to
Bernard D'Andrea, in settlement of a dispute respecting unreimbursed expenses
and uncompensated services, incurred and performed on behalf of Registrant by
Mr. D'Andrea from August, 1992 through September, 1993, when he served as an
officer and director Registrant. Under the terms of the settlement agreement,
Registrant and Mr. D'Andrea acknowledged and agreed that the unreimbursed
expenses incurred by Mr. D'Andrea during such period aggregated to not less than
$8,000 and that Registrant's former management had agreed to issue to Mr.
D'Andrea an aggregate of $300,000 shares as consideration for such services and
unreimbursed expenses, but that such shares had never been issued.
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6. Shares Issued In Settlement of Previously Outstanding Debts For Loans To
Registrant
Two sales consisted of stock issuances made in settlement of previously
outstanding debts. These sales are claimed to have been exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, as more fully
described below. They consisted of the following:
6.1 On July 3, 1995, in consideration of an unpaid debt owed to its
president, Terence C. Byrne, incurred in connection with the formation and
initial capitalization of 3143619 Canada Inc. ("Tirex Canada"), Registrant
issued to Mr. Byrne 142,857 shares of Common Stock at a value of $.07 per share,
which value was equal to 50% of the average of the bid and ask price for the
Common Stock during the 45 day period preceding July 3, 1995, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board.
6.2 On January 17, 1997, Registrant issued 41,667 shares of its Common
Stock to Alfred Viscido at an individually negotiated aggregate purchase value
of $5,000 in settlement of a previously outstanding loan in such amount, on
which Registrant had defaulted. Mr. Viscido had made such loan to Registrant in
May of 1994. Pursuant to the aforesaid settlement, Mr. Viscido agreed to forego
all interest on such loan and to accept in full satisfaction of such debt 41,667
shares of Common Stock.
7. Securities Issued As Compensation Under Written Consulting Agreements
Ten sales consisted of stock issuances made to nine persons for no or
nominal cash consideration of $.001 per share as compensation under written
consulting agreements. These sales are claimed to have been exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, as more
fully described below. They consisted of the following:
7.1 On October 5, 1995, Registrant issued stock purchase options under
consulting agreements, dated as at such date, with Ms. Sharon Sanzaro (the "S.
Sanzaro Consulting Agreement"), vice-president of operations of Ocean/Venture
III, Inc. ("OVIII") and Mr. Terry Bentley (the "Bentley Consulting Agreement"),
a principal of OVIII. The S. Sanzaro Consulting Agreement was for a term of
one-year and provided for Ms. Sanzaro to render consulting services to
Registrant consisting of reviewing, and advising and assisting Registrant with
respect to the development of plans for materials handling equipment and
procedures and other technical advice and assistance respecting the development
of plans and procedures respecting transportation and storage of input and
output products and other related recycling procedures and methodologies.
Compensation for services rendered under the Sanzaro Consulting Agreement
consisted of the grant to Ms. Sanzaro of an option (the "Sanzaro Option") to
purchase five hundred sixty thousand (560,000) shares of Common Stock (the
"Sanzaro Option Shares") for a per share exercise price equal to the average of
the closing bid and ask prices for this corporation, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board as at October 5,
1995 (US $0.187). The Bentley Consulting Agreement was for a term of one-year
and provided for Mr. Bentley to render consulting services to Registrant
consisting of (i) developing and reviewing design parameters and implementation
schedules related to the TCS-1 System; (ii) developing plans for the
coordination of site conditions and layout; and (iii) development of procedures
for providing information regarding availability of on-site utilities.
Compensation for services rendered under the Bentley Consulting Agreement
consisted of the grant to Mr. Bentley of an option (the "Bentley Option") to
purchase one hundred thousand (100,000) shares of Common Stock for a per share
exercise price equal to the average of the closing bid and ask prices for this
corporation, as traded in the over-the-counter market and quoted in the OTC
Bulletin Board as at October 5, 1995 (US $0.187). The Bentley and Sanzaro
Consulting Agreements were individually, written compensation agreements and
constituted "Employee Benefit Plans" as defined in Rule 405 of the Securities
Act, pursuant to which Mr. Bentley and Ms. Sanzaro rendered bona fide services.
All of the shares issuable upon the exercise of the Sanzaro and Bentley Options
were included, prior to their issuance, in a Registration Statement on Form S-8,
filed with the Commission on June 20, 1996 (SEC File No. 333-5090).
7.2 On September 5, 1996 Registrant authorized the issuance of 100,000
shares of Common Stock, at a value of $.001 per share, to a Canadian corporation
(the "Canadian Corporate Consultant"), the controlling persons of which were
expert in business management, financing, and promotion and were in a position
to assist Registrant to establish itself, and to introduce Registrant to
potential investors, in
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the Province of Quebec, Canada and especially in the City of Montreal. On July
7, 1997, Registrant authorized the issuance of an additional 100,000 shares of
Common Stock to an assignee of the Canadian Corporate Consultant under common
control with it, on the same terms. Such issuances were made pursuant to the
terms of a consulting agreement between Registrant and the Canadian Corporate
Consultant, dated as of February 29, 1996, as amended and extended September 1,
1996 (the "CCC Agreement"). These issuances were made pursuant to the terms of
the CCC Agreement, which provided for the Canadian Corporate Consultant to
receive as total compensation for all services rendered thereunder 200,000
shares of Common Stock issuable as follows: (i) 100,000 shares, at par, issuable
upon completion of the initial six-month term of the agreement as compensation
or all services rendered during such six-month period, and (ii) 100,000 shares,
at par, issuable upon completion of the ten-month extension period of the
agreement, which commenced on September 1, 1996 and ended on June 30, 1997, as
compensation or all services rendered during such ten-month period.
7.3 On January 17, 1997, Registrant issued 300,000 shares of Common Stock
at a value of $.001 per share to Fairway Beech Corporation, a New Jersey
financial consulting and financial public relations firm, pursuant to the terms
of its consulting agreement, effective as of November 5, 1996 (the "Fairway
Beech Agreement). The Fairway Beech Agreement was for a term of two years and
provided for Fairway Beech to provide Registrant with financial consulting and
financial public relations services. Compensation under the Agreement consisted
of the issuance of 300,000 shares of Common Stock at par and options to purchase
an additional 150,000 shares at $.20 per share and 150,000 shares at $.40 per
share. Unless Registrant determines that such options should be cancelled for
nonperformance by Fairway Beech, they will be exercisable until July 1, 1999.
7.4 On April 28, 1997, Registrant issued 79,462 shares of Common Stock
valued at $.186 per share to The Axim Group, Inc., a Montreal financial
consulting firm, pursuant to the terms of its consulting agreement, dated as of
April 3, 1996 (the "Axim Agreement). The Axim Agreement provided for total
compensation to be paid to The Axim Group of the number of unregistered shares
of the common stock of this corporation (the "Axim Shares") purchasable for
twenty thousand Canadian dollars (approximately, US $14,780) at exchange rates
in effect as at such date) at a per share price equal to the average of the high
and low prices of this Corporation's common stock as traded in the
over-the-counter market and quoted in the OTC Bulletin Board, during the ten
(10) days of trading immediately preceding April 3, 1996, which price is
reflected above.
7.5 On April 28, 1997, Registrant issued 99,502 shares of Common Stock
valued at $.201 per share to John Lefebvre, pursuant to the terms of a public
relations agreement, dated as of March 11, 1997 between Registrant and Mr.
Lefebvre, d/b/a "Shareholder Relations" (the "PR Agreement). The PR Agreement
provided for compensation to be paid to Mr. Lefebvre consisting of a retainer of
$2,000 paid at the signing of the said Agreement, expense reimbursements on a
monthly basis, and the number of unregistered shares of Common Stock purchasable
for twenty thousand United States dollars at a per share price equal to fifty
percent (50%) of the average of the high and low prices of this Corporation's
common stock as traded in the over-the-counter market and quoted in the OTC
Bulletin Board, during the ten (10) days of trading immediately preceding March
11, 1997, which price is reflected above.
7.6 On May 29, 1997, Registrant authorized the issuance of 5,321,092
shares of Common Stock at a price of $.001 per share to The Nais Corp.("Nais"),
a business consulting firm, as compensation under the terms of a consulting
agreement, dated May 3, 1997, as amended July 1, 1997 (the "Nais Agreement").
The Nais Agreement provided for Mr. Jack Ehrenhaus to all consulting services on
behalf of Nais. Total compensation under the Nais Agreement consists of the said
5,321,092.
7.7 On May 29, 1997, Registrant authorized the issuance of 84,658 shares
of Common Stock at a price of $.001 per share to Sinermad Comericio E Invest,
Lda., a marketing firm controlled by Alan Crossley, a director of Registrant.
Such issuance was made pursuant to the terms of a consulting agreement, dated
January 15, 1997, between Registrant and Mr. Crossley (the "Crossley
Agreement"). Under the terms of the Crossley Agreement, Mr. Crossley was
retained by Registrant as its European Market Development Consultant.
Compensation under the Crossley Agreement included, in addition to cash
compensation, the issuance to Mr. Crossley of the above described 84,658 shares
of Common Stock, at par.
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7.8 On July 7, 1997, Registrant authorized the issuance of 263,529 shares
of Common Stock at a price of $.001 per share to Laura Gabiger, a business
consultant. Such issuance was made pursuant to the terms of a consulting
agreement, dated June 18, 1997, between Registrant and Ms. Gabiger (the "Gabiger
Consulting Agreement"). The terms of the Gabiger Consulting Agreement call for
Ms. Gabiger to provide consulting services focus on promoting Registrant's
activities in the area of research and development, public and special interface
activities, forging strategic alliances, and promoting and assisting in
financing Registrant's business activities and public image. In connection with
the foregoing, Ms. Gabiger's duties include: (i) investigating the availability
of federal, state, local or municipal government support in the form of grants,
tax relief, or other public programs which may facilitate Registrant's research
and development activities and/or its promotional efforts and/or the successful
use of Registrant's products by its clients; (ii) serving as a liaison to
federal, state, and local or municipal government agencies in the United States
for the purpose of securing available appropriate government support for
Registrant and/or its clients; and (iii) assisting Registrant in writing
proposals or applications to secure available and appropriate grant funding for
Registrant, its subcontractors, or its clients; In connection with the
foregoing, the Ms. Gabiger has agreed to prepare materials and make available to
Registrant, its subcontractors, or its clients, a final version of the proposal
for review before submission. The term of the Gabiger Consulting Agreement is
three years. The Agreement provides for compensation at the annual rates of
$96,000 for the first two years and $58,000 for the third year. Such
compensation is to be paid 30% in cash and 70% in shares of Common Stock, with
the stock portion thereof to be valued and issued as follows: (i) For services
rendered during the one-year period commencing on July 1, 1997 and ending on
June 30, 1998, Registrant must issue on or before July 15, 1997, the number of
shares of Common Stock purchasable for a total of US $67,200 at a per share
price equal to the average of the high and low bid prices of such stock, as
traded in the over-the-counter market and quoted in the OTC Bulletin Board, on
June 17, 1997. The 263,529 shares reported above were issued on July 7, 1997 in
accordance with this provision of the Gabiger Consulting Agreement; (ii) For
services rendered during the one-year period commencing on July 1, 1998 and
ending on June 30, 1999, Registrant must issue on or before July 15, 1998, the
number of shares of Common Stock purchasable for a total of US $67,200 at a per
share price equal to the average of the high and low bid prices of such stock,
as traded in the over-the-counter market and quoted in the OTC Bulletin Board,
during the five (5) business days preceding July 1, 1998; and (iii) For services
rendered during the one-year period commencing on July 1, 1999 and ending on
June 30, 2000, Registrant must issue, on or before July 15, 1999, the number of
shares of Common Stock purchasable for a total of US $40,600 at a per share
price equal to the average of the high and low bid prices of such stock, as
traded in the over-the-counter market and quoted in the OTC Bulletin Board,
during the five (5) business days preceding July 1, 1999.
7.9 On January 28, 1998 Registrant authorized the issuance of 600,000
shares of Common Stock to Louis V. Sanzaro pursuant to the terms of his
consulting agreement (the "L. Sanzaro Consulting Agreement"), executed at such
date and deemed by the parties to be effective as of January 1, 1997. The
retroactive effectiveness of the L. Sanzaro Consulting Agreement was agreed to
and acknowledged by the parties in recognition of Mr. Sanzaro's having provided
valuable consulting services to Registrant on a continuous basis since October
of 1995 without receiving any compensation, but on the understanding that he
would be fairly and equitably compensated for such services beginning not later
than January 1, 1997. The L. Sanzaro Consulting Agreement provides for Mr.
Sanzaro to render advice, opinions, "hands-on" assistance, and, in some cases,
effectuation of, the following: (i) developing pro-forma financial projections
respecting the operations of a TCS-1 Plant ("Plant") and marketing of rubber
crumb generated thereby; (ii) designing and developing a complete maintenance
program for the TCS-1 System to insure continuous operation in compliance with
specifications; (iii) developing specialized accounting software to be used with
all TCS-1 Systems for the purpose on monitoring all financial aspects of
operations and for calculation of sales-based royalties due and payable to the
Corporation; (iv) designing and developing logistics respecting Plant
configuration necessary for safe and efficient operations-flow and providing
technical and mechanical adjustments to plant set-ups throughout the United
States during the Engagement Period; (v) testing new equipment at construction
and assembly site, adjusting, and designing modifications to new equipment as
required by test results; (vi) assisting Registrant with respect to TCS-1 System
site-planning and installation at operators' sites throughout the United States
during the Engagement Period, including providing personnel to "trouble-shoot"
and or adjust all newly installed equipment, as required during the Engagement
Period; (vii) advising Registrant's management of pertinent changes and
developments respecting new emerging technologies in tire recycling industry;
and (viii) developing and establishing a training program for the instruction of
operators and their personnel with respect to all aspects of Plant operations.
Total compensation under the L. Sanzaro Consulting Agreement consists of the
said 1,000,000 shares of Common Stock, 600,000 of which have been issued, as
described above, and the balance of 400,000 of which will be issued at such time
as the parties agree.
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7.10 On April 13, 1998, Tirex issued to Alan Epstein an option to purchase
1,500,000 shares of Tirex Common Stock at a price of $.001 per share, as total
compensation under the terms of a Puerto Rican Market Development and Business
Consulting Agreement, dated April 13, 1998 between Tirex and Mr. Epstein (the
"Epstein Consulting Agreement"), which agreement was made retroactively
effective as of November 1, 1997, the approximate date when Mr. Epstein began
his market development activities in Puerto Rico . On April 14, Mr. Epstein
exercised the said option and Tirex authorized the issuance thereof on April 15,
1998.
8. Shares Issued Pursuant to Written Directors Compensation Agreements
Two sales consisted of stock issuances made for no cash consideration as
compensation under written Directors Compensation Agreements between Registrant
two of its directors. These sales are claimed to have been exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, as more
fully described below. They consisted of the following:
On July 7, 1997, Registrant authorized the issuance of 100,000 shares to
each of Alan Crossley and Louis V. Sanzaro pursuant to Directors Compensation
Agreements, of even date therewith, between Registrant and each of them (the
"Directors Compensation Agreements"). Messrs. Crossley and Sanzaro were
appointed as directors of Registrant on January 20, 1997. On July 7, 1997,
Registrant entered into the foregoing written compensation agreements in
confirmation of the understanding of the parties, which provided that each of
Messrs. Crossley and Sanzaro would be compensated for all services rendered by
him, in his capacity as a director, during his period of service as such, which
commenced on January 20, 1997 and will end at such time as his successor is
appointed and qualified, by the issuance to him of 100,000 shares of Common
Stock.
9. Sales Made Pursuant to the Exercise of Options or Rights Granted as
Compensation Under Written Consulting Agreements
Three sales consisted of stock issuances made pursuant to the exercise of
options or rights to purchase Common Stock at a discount from the market price,
which had been granted as compensation for services to be rendered under written
Consulting Agreements. These sales are claimed to have been exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, as more
fully described below. They consisted of the following:
9.1 On July 23, 1996, Registrant sold 60,000 shares of Common Stock to
each of Nathan Berkowitz, an accounting and business consultant and Bernard
D'Andrea, a business and marketing consultant, at a price of $.05 per share
pursuant to their exercise of options which had been granted to each of them
under the terms of their respective two-year consulting agreements, dated July
22, 1995, between each of them and the Registrant. Pursuant to the terms of the
D'Andrea and Berkowitz consulting agreement, Messrs. D'Andrea and Berkowitz
rendered, business, financial, and accounting consulting services to Registrant.
Compensation under both such consulting agreements consisted solely of
Registrant's grant to each of Messrs. D'Andrea and Berkowitz of an option to
purchase up to sixty thousand (60,000) shares of Common Stock during the
six-month period following, and as compensation for, the first year of the term
of their respective agreements, with Messrs. D'Andrea and Berkowitz performing
their duties during the second year without additional compensation other than
the enhancement of the value of the shares purchased by them under the options.
9.2 On November 12, 1997, Registrant sold 58,824 shares of Common Stock to
Lenford L. Robins, an equipment lease financing consultant, at a price of $.17
per share pursuant to his partial exercise of an option which had been granted
to him under the terms of his one-year consulting agreement, dated October 1,
1997 (the "Robins Consulting Agreement"). Pursuant to the terms of such
agreement, Mr. Robins has agreed to render consulting services to Registrant
consisting of assisting Registrant and its potential and existing customers to
structure, locate, and obtain appropriate equipment financing by way of sale and
lease-back arrangements, or otherwise. The Robins Consulting Agreement provides
that the sole compensation for such services consists of an option to purchase a
total of 294,118 shares of Common Stock at a per share price of $.17, from time
to time, but only if and when Registrant
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shall agree that such compensation has been earned by way of Mr. Robins's
satisfactory performance of his duties under the Robins Consulting Agreement.
The above described sale of 58,824 was a partial exercise of such option which
was authorized by Registrant in recognition of services satisfactorily performed
by Mr. Robins under the terms of the said Agreement.
10. Issuances Made In Payment For Design, Engineering, and Construction Services
Two sales consisted of stock issuances made for no cash consideration in
partial payment for design, engineering, and mechanical construction services.
These sales are claimed to have been exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, as more fully described below.
They consisted of the following:
10.1 On January 17, Registrant issued 340,1660 shares of Common Stock to
Lefebvre Freres Limitee ("Lefebvre") pursuant to a subcontracting agreement,
effective as of July 23, 1996 (the "Lefebvre Agreement") which provided, among
other things, for Lefebvre to design and construct a prototype disintegration
mechanism for the TCS-1 System at competitive rates, with eighty thousand
Canadian Dollars (CA $80,000) of such price to consist of unregistered shares of
Common Stock of this corporation at a value of twenty United States cents (US
$0.20) per share and the balance of the price to be paid in cash. The number of
shares issued under the terms of the Lefebvre Agreement was calculated on the
basis of currency exchange rates in effect at and around January 17, 1997. Prior
to that date, Lefebvre had completed the initial design specifications for the
TCS-1 System's Disintegration Unit, which constituted that part of the design
and engineering work on the disintegration mechanism which was allocated to the
stock portion of Lefebvre's total price.
10.2 On January 17, Registrant sold 255,010 shares of Common Stock to
Plasti-Systemes Inc. ("Plasti-Systemes") pursuant to a subcontracting agreement,
effective as of October 16, 1996 (the "Plasti-Systemes Agreement") which
provided, among other things, for Plasti-Systemes to be responsible for: (i)
designing (including rendering of all necessary engineering drawings), (ii)
constructing, and; (iii) installing the first TCS-1 Front End System, with total
compensation for the mechanical work and equipment to be furnished by them at
competitive rates and with sixty thousand Canadian Dollars (CA $60,000) of such
price to consist of unregistered shares of Common Stock of this corporation at a
value of twenty United States cents (US $0.20) per share and the balance of the
price to be paid in cash. The number of shares issued under the terms of the
Plasti-Systemes Agreement was calculated on the basis of currency exchange rates
in effect at and around January 17, 1997. Prior to that date, Plasti-Systemes
had completed that part of the design and engineering work on the front-end
system, which was allocated to the stock portion.
11. Issuances Made Pursuant to the Terms of Exclusive Sales Representation
Agreement
One sale consisted of stock issuance for nominal cash consideration
pursuant to the terms of an exclusive sales distribution agreement. This sale is
claimed to have been exempt from registration under the Securities Act pursuant
to Section 4(2) thereof, as more fully described below. It consisted of the
following:
On March 22, 1996 Registrant sold 100,000 shares of Common Stock to
William Epstein at a negotiated aggregate sales price of $100 pursuant to the
terms of a sales distribution agreement between Registrant and a New Jersey
corporation controlled by Mr. Epstein, pursuant to the terms of which, among
other things, Registrant granted certain exclusive and non-exclusive
distribution rights for the TCS-1 System, Epstein paid a distribution rights fee
in the amount of $25,000, and Registrant and Mr. Epstein agreed to effect the
above described stock sale.
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12. Issuances Made Pursuant to Stock Bonuses Granted Under Written Employment
Agreements
Six sales consisted of stock issuance for nominal cash consideration
pursuant to the exercise of options granted as bonuses to two of Registrant's
executive officers and to its corporate counsel pursuant to the terms of their
respective employment agreements with Registrant. These sales are claimed to
have been exempt from registration under the Securities Act pursuant to Section
4(2) thereof, as more fully described below. They consisted of the following:
12.1 On May 30, 1997, Registrant authorized the issuance of shares of its
Common Stock pursuant to the exercise of options (the "Bonus Options") which had
been granted to Terence C. Byrne, Louis V. Muro, and Frances Katz Levine as
bonuses for the fiscal years ended June 30, 1995 and 1996 pursuant to the terms
of their respective employment agreements. The Bonus Options permitted such
persons to purchase shares Common Stock, at a per share exercise price of $.001
per share, as follows: Terence C. Byrne - 1,413,382, Louis V. Muro - 1,115,093,
and Frances Katz Levine - 811,684. The respective employment agreements,
pursuant to which such options were granted, provide for discretionary bonuses
for each year (or portion thereof) during the term of such agreements, with the
actual amount of any such bonus to be determined in the sole discretion of the
Board of Directors based upon its evaluation of the Executive's performance
during such year. Such bonuses were unanimously approved by Registrant's six
member Board of Directors, which includes Mr. Byrne and Mr. Muro. All of the
said Options were exercised by the option holders immediately upon the grants
thereof.
12.2 On January 28, 1998, Registrant authorized the issuance of an
aggregate of 4,000,000 shares to two of its executive officers and to its
corporate attorney, at a price of $.001 per share, as follows: Terence C. Byrne
- - 2,000,000, Louis V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000.
Such sales were made pursuant to the exercise of options granted to such persons
and subsequently amended, as follows: On September 3, 1997, Registrant granted
to the foregoing individuals options to purchase the respective number of shares
set forth above at an exercise price equal to the full market price of the
Common Stock at such date, as follows: Terence C. Byrne - 2,000,000, Louis V.
Muro - 1,000,000, and Frances Katz Levine - 1,000,000 (the "1997 Options"). Such
bonuses were granted for the fiscal year ended June 30, 1997 pursuant to the
terms of their respective employment agreements with Registrant, which provide
for discretionary bonuses for each year (or portion thereof) during the term of
such agreements, with the actual amount of any such bonus to be determined in
the sole discretion of the Board of Directors based upon its evaluation of the
Executive's performance during such year. On January 13, 1998, Registrant
granted to each of these persons a bonus (the "1998 Bonus"), under the terms of
their respective employment agreements, for the fiscal year which will end on
June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of amendments to
the terms of the 1997 Options, reducing the option exercise price $.001 per
share. Both the 1997 and the 1998 bonuses were unanimously approved by
Registrant's full six member Board of Directors, which includes Mr. Byrne and
Mr. Muro.
13. Stock Issuances Made to Affiliate In Respect of Previously Paid Purchases At
50% of Current Market Prices
On January 17, 1997, Registrant authorized the issuances of a total of
150,232 share of Common Stock, previously subscribed and paid for by Louis V.
Muro, an officer and director of Registrant. Such subscriptions and payments had
been submitted to and accepted by Registrant between July 7, 1995 and May 31,
1996. These sales are claimed to have been exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, as more fully described below.
They consisted of the following:
13.1 On July 7, and July 11, 1995, Mr. Muro offered to purchase an
aggregate of 28,579, shares at a per share purchase price of $.3125. On such
dates, Mr. Muro made payments to Registrant which aggregated to $8,931 for such
shares. Such price was equal to 50% of the average of the high and low bid
prices of such stock, as traded in the over-the-counter market and quoted in the
OTC Bulletin Board, on July 7, 1995.
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13.2 On April 15, and April 18, 1996, Mr. Muro offered to purchase an
aggregate of 94,616 shares of its Common Stock at a per share price of $.18. On
such dates, Mr. Muro made payments to Registrant which aggregated to $17,031 for
such shares. Such price was equal to fifty percent (50%) of the average of the
daily bid and ask prices of Registrant's Common Stock as traded in the
over-the-counter market and quoted in the OTC Bulletin Board during the month of
April through the 15th thereof.
13.3 On May 31, 1996, Mr. Muro offered to purchase an aggregate of 27,037
shares at a per share price of $.135. On such date, Mr. Muro made payment to
Registrant of $3,650 for such shares. Such price was equal to fifty percent
(50%) of the average of the daily bid and ask prices of Registrant's Common
Stock as traded in the over-the-counter market and quoted in the NASDAQ
Electronic Bulletin Board during the month of May through the 31st thereof.
14. Private Sales Made For Cash At Individually Negotiated Prices
Between April 19, 1995 and March 11, 1997, Registrant private sales of
Common Stock to ten private investors at negotiated cash prices. These sales are
claimed to have been exempt from registration under the Securities Act pursuant
to Section 4(2) thereof, as more fully described below. They consisted of the
following:
14.1 On April 19, 1995 and May 9, 1995, Registrant sold an aggregate of
42,300 shares of Common Stock at a negotiated cash price of $.2222 per share to
a sophisticated private investor, Mrs Geraldine Van Winkle, who was at that time
a shareholder of Registrant and who was, as a member of the family of an
affiliate of Registrant, fully knowledgeable with respect to the financial
condition and developmental status of the Registrant. At the time of the sales,
the price paid represented more than fifty percent of the average of the bid and
ask prices of this corporation's common stock, as traded in the over-the-counter
market and quoted in the NASDAQ Electronic Bulletin Board, during the months of
April and May 1995 (through and until May 9, 1995).
14.2 On July 7, 1995, Registrant sold 17,200 shares at a negotiated cash
price of $.25 per share to a sophisticated private investor, Ms. Marcia Lacerre,
who was at that time a shareholder of Registrant and who was at that time a
shareholder of Registrant and who was, as a member of the family of an affiliate
of Registrant, fully knowledgeable with respect to the financial condition and
developmental status of the Registrant.
14.3 On March 22, 1996, Registrant sold 132,727 shares at a negotiated
cash price of $.15 per share and 278,727 shares at a negotiated cash price of
$.11 per share to Trident Educational Services, Inc., a sophisticated private
investor, which, as an independent consultant had previously conducted certain
feasibility studies of Registrant's proposed business and which was, as a result
thereof, fully knowledgeable with respect to the financial condition and
developmental status of the Registrant.
14.4 On July 12, 1996, Registrant sold 10,000 shares at a negotiated cash
price of $.20 per share to Mr. Henry Troutman, a sophisticated private investor
who was fully knowledgeable with respect to the financial condition and
developmental status of the Registrant.
14.5 On July 23, 1996, Registrant sold 250,000 shares of Common Stock at a
negotiated cash price of $.14 per share to Mr. John Stanley, a sophisticated
private investor, who as a former employee of Registrant was fully knowledgeable
with respect to the financial condition and developmental status of the
Registrant.
14.6 On August 22, 1996, Registrant sold an aggregate of 97,213 shares of
Common Stock at a negotiated cash price of $.10 per share to Mr. David Bishop
and to D.K.B. Trade Concepts, a Canadian corporation under Mr. Bishop's Control.
Mr. Bishop is a sophisticated private investor who was fully knowledgeable with
respect to the financial condition and developmental status of the Registrant.
On March 7, 1997, Registrant sold an additional 52,787 shares of Common Stock to
such persons at a negotiated cash price of $.27 per share. Mr. Bishop had
submitted his offer to purchase 52,787 shares
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in December of 1996, and the purchase price paid was equal to 50% of the average
of the bid and ask price for the Common Stock at such time, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board.
14.7 On February 4, 1997, Registrant sold 43,478 shares of Common Stock at
a negotiated cash price of $.23 per share to Mr. Alfred D. Sapone, a
sophisticated private investors who was fully knowledgeable with respect to the
financial condition and developmental status of the Registrant.
14.8 On March 11, 1997, Registrant sold 30,000 shares of Common Stock at a
negotiated cash price of $.25 per share to Alan Crossley, a director of
Registrant. Mr. Crossley had submitted his offer to buy such shares on February
4, 1997, and the purchase price paid was equal to 50% of the average of the bid
and ask price for the Common Stock at such date, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board.
14.9 On March 11, 1997, Registrant sold 9,000 shares of Common Stock at a
negotiated cash price of $.24 per share to Thomas Braccia, a private investor.
Mr. Braccia had submitted his offer to buy such shares on January 31, 1997, and
the purchase price paid was equal to 50% of the average of the bid and ask price
for the Common Stock at such date, as traded in the over-the-counter market and
quoted in the OTC Bulletin Board.
14.10 On March 11, 1997, Registrant sold 10,000 shares of Common Stock at
a negotiated cash price of $.25 per share to Carole A. Thoma, a private
investor. Ms. Thoma had submitted her offer to buy such shares on February 8,
1997, and the purchase price paid was equal to 50% of the average of the bid and
ask price for the Common Stock at such date, as traded in the over-the-counter
market and quoted in the OTC Bulletin Board.
15. Private Sales Made At Negotiated Cash Prices In Consideration For Services
Rendered To Registrant
On March 11, 1997, Registrant sold 250,000 shares and 60,000 shares of
Common Stock to Louis Block and Stuart N. Kaplan, respectively, at a negotiated
cash price of $.17 per share, which price was equal to 50% of the average of the
bid and ask price for the Common Stock on January 15, 1997, as traded in the
over-the-counter market and quoted in the OTC Bulletin Board. These sales were
made to Messrs. Block and Kalplan at the aforesaid price in consideration for
consulting services rendered by them in connection with structuring, locating,
and obtaining lease financing arrangements for Registrant's customers. These
sales are claimed to have been exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, as more fully described below.
16. Preferred Stock Option Sold For Cash
On May 19, 1995, the Company sold to John G. Hartley, a director of the
Company, an option to purchase twenty thousand (20,000) shares of the Cumulative
Convertible Preferred Stock of the Company ("Preferred Stock") at an exercise
price of $10 per share, during a two-year exercise period which commenced on May
19, 1995 and will terminate on May 18, 1997. Mr. Hartley paid the Company twenty
thousand dollars ($20,000) for the said Option. Notwithstanding the foregoing,
since the Preferred Stock is convertible into Common Stock at a decreasing
ratio, should the total number of shares of the Preferred Stock which can be
purchased pursuant to the Option, be convertible into fewer than two million
(2,000,000) shares of the Company's Common Stock, the number of shares of
Preferred Stock purchasable under the Option, at the exercise price of ten
dollars per preferred share, will be increased to such number as is convertible
to 2,000,000 shares of Common Stock. The terms of the Preferred Stock
purchasable under the Option provided, among other things, for cumulative annual
cash dividends at the rate of $1.20 per share and conversion into shares of the
Company's Common Stock at decreasing ratios over a two-year period, which
commenced on May 19, 1995 and which ranged from 91 shares of Common Stock for
every one share of Preferred Stock (and each $10 of accumulated and unpaid
dividends thereon) to the number of shares of the Company's Common Stock
purchasable for ten dollars at a per share price equal to 30% of the then
current Market Price of such Common Stock for every one share of Preferred Stock
(and each $10 of accumulated and unpaid dividends thereon). To date, Mr. Hartley
has not exercised any part of the Option and the Company has not issued any
shares of the Preferred Stock. On May 29, 1997, the Company agreed to extend the
Option exercise period until May 18, 1999, convertible at the conversion ratio
which pertained at May 18, 1997, with the conversion period extended to May 18,
1999.
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17. Common Stock Option Issued to CG TIRE, Inc. in Consideration of Proposal for
Strategic Alliance
On April 24, 1997, Registrant granted a three-year option (the "CGT
Option") to purchase shares of its Common Stock to CG TIRE, Inc. ("CGT"), a
wholly-owned subsidiary of Continental General Tire, Inc. ("Continental Tire").
The CGT Option was granted in consideration for CGT's agreement to explore the
possibility of Registrant's furnishing Continental Tire with all or part of its
80-mesh crumb rubber requirements and establishing local tire recycling centers
for the purpose of accepting for disintegration scrap tires from Continental
Tire's network of independent dealers; and CGT's agreement to advise the Company
with respect to Continental Tire's specifications for its crumb rubber
requirements, any further development of such specifications in the future, the
suitability of the Company's Cryogenic tire disintegration technology for
meeting such specifications, and the further development of the Company's
technology in coordination with Continental Tire's product development
requirements. The number of shares of Common Stock subject to the CGT Option is
equal to all, or any part of, the number of shares which shall constitute upon
their issuance, on a fully diluted basis, ten percent (10%) of the issued and
outstanding Common Stock of Registrant. The exercise price for the balance of
the CGT Option shares is equal to fifty percent (50%) of the average of the
final bid and ask prices of the Common Stock, as quoted in the OTC Bulletin
Board during the ten business days preceding the Exercise Date. 969,365 of the
shares subject to the option are covered by an amendment (the "August 13, 1997
Amendment") to the Option which will allow CGT to exercise a portion of the CGT
Option at an exercise price related to the market price of the Common Stock as
at August 13, 1997. To date, CGT has not exercised any part of the CGT Option,
which was amended on February 16, 1998 to provide that it cannot be exercised
prior to the effective date of the registration statement of which this
Prospectus forms a part and which will end on April 23, 2000. As at the date of
this Prospectus there are 4,753,035 shares subject to the CGT Option, all of
which are being registered hereunder.
Basis for Section 4(2) Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described and claimed to have been exempt from the registration requirements of
Section 5 of the Securities Act pursuant to Section 4(2) thereof:
(i) Registrant did not engage in general advertising or general solicitation
and paid no commission or similar remuneration, directly or indirectly,
with respect to such transactions.
(ii) The persons who acquired these securities were current executive officers,
directors, employees, consultants, to Registrant as well as unrelated
private persons, all of whom were sophisticated investors; Such persons
had continuing access to all relevant information concerning the
Registrant and/or have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks
of such investment and were able to bear the economic risk thereof.
(iii) The persons who acquired these securities advised Registrant that the
Shares were purchased for investment and without a view to their resale or
distribution unless subsequently registered and acknowledged that they
were aware of the restrictions on resale of the Shares absent subsequent
registration and that an appropriate legend would be placed on the
certificates evidencing the Shares reciting the absence of their
registration under the Securities Act and referring to the restrictions on
their transferability and resale.
(iv) Such sales did not constitute a single financing plan of the Registrant
for the reasons set forth above.
Accordingly, Registrant claims the transactions hereinabove described, to
have been exempt from the registration requirements of Section 5 of the
Securities Act by reason of Section 4(2) thereof in that such transactions did
not form part of a single financing plan and did not involve a public offering
of securities.
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18. Sales Made Pursuant to Exemption From Registration Available Under Rule 506
of the Securities Act.
18.1 On April 9, 1998, the Company sold twenty 10% convertible Debentures,
each in the principal amount of $25,000 and two million stock purchase options
to purchase a like number of shares of common stock at a price of $.001 per
share, to two private investors, who had no affiliation with the Company. These
securities were sold as twenty units (the "Type A Units") in a private placement
(the "Type A Private Placement", made by the Company between November 5, 1997
and May 11, 1998, through H.J. Meyers & Co., Inc., as placement agent (the
"Placement Agent"), at a price of $25,000 per Unit. Each Type A Unit consisted
of one 10% Convertible Subordinated Debenture in the principal amount of $25,000
(the "Type A Debentures") and 100,000 warrants (the "Type A Warrants") to
purchase a like number of shares of the Common Stock of the Company (the "Type A
Warrant Shares").
The Type A Private Placement was effected in reliance upon the
availability of an exemption from the registration provisions of the Securities
Act by virtue of compliance with the provisions of Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereof ("Rule 506"). The Type A
Units were offered and sold to a limited number of sophisticated investors who
understood and were economically capable of accepting the risks associated with
a speculative investment, including the complete loss of such investment, and
who are "Accredited Investors" within the meaning prescribed by Regulation D and
Rule 501 of the Securities Act.
The 2,000,000 outstanding Type A Warrants are exercisable at a price of
$.001 per share, commencing on the day following the effective date (the
"Effective Date") of the registration statement on Form SB-2 of which this
Prospectus is a part (the "Registration Statement"). The Type A Debentures are
convertible commencing on the day following the Effective Date of the
Registration Statement at a conversion ratio of 75% of market price. The
Debentures are redeemable at any time after issuance at 125% of face value after
March 31, 1998.
The Company's sale of the 2,000,000 Type A Warrant Shares pursuant to the
exercise of the Type A Warrants and the Company's issuance of shares of its
Common Stock pursuant to the conversion of the Type A Debentures (the "Type A
Debenture Shares"), have been registered by way of inclusion in this
Registration Statement
18.2 On January 7, 1998, The Company issued a total of 3,305,000 shares of
its common stock to thirty-six persons, none of whom had any affiliation with
the Company. These issuances were made pursuant to the terms of a merger
agreement by and among the Company, the Company's wholly-owned subsidiary Tirex
Acquisition Corp. ("TAC"), and RPM Incorporated ("RPM") respecting the merger of
RPM with and into TAC (the "RPM Merger").
The RPM Merger Agreement was effective on January 7, 1998, concurrent with
the initial closing of a private placement of its securities which had been made
by RPM (the "RPM Private Placement") and which was continued by the Company
after the Merger as the Type B Private Placement, described in Paragraph 18.3,
below. In effectuation of the RPM Merger, the Company:
(i) exchanged one share of its common stock ("Merger Shares") for every
issued and outstanding share of RPM common stock (which included
305,000 shares sold in the RPM Private Placement and 3,000,000
shares which had been issued and outstanding prior to the
commencement of the RPM Merger); and
(ii) assumed RPM's liabilities and obligations under 30.5 RPM 10%
subordinated, convertible debentures in the aggregate principal
amount of $305,000 which RPM had theretofore sold in the RPM Private
Placement;
All of the net proceeds from the RPM Private Placement ($276,085) remained
in RPM when it was merged into TAC, which was the surviving entity. From the
date of the RPM Merger until May 11, 1998, the Company continued the RPM Private
Placement as the "Type B Private Placement, offering the balance of the
securities which had originally been offered by RPM, with the exchange of RPM
Common Stock for Company common stock and the Company's assumption of the RPM
debentures being deemed to have occurred concurrently with the RPM Merger (see
the description of the Type B. Private Placement, above Paragraph 18.3, below).
All of the 30.5 RPM Debentures, which were assumed by the Company, were
amended prior to the filing of the Registration Statement to provide for: (i)
the registration of the shares of the Company's
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common stock issuable upon the conversion of the assumed RPM Debentures (the
"Conversion Shares"); (ii) the termination of the holder's right to convert the
RPM Debentures, effective the day immediately prior to the filing of the
Registration Statement, of which this Prospectus forms a part, and the
commencement of a new conversion period as of the date following the effective
date of the said Registration Statement; and (iii) restrictions on the transfer
of the Conversion Shares until the first to occur of: (a) six months from the
effective date of the Registration Statement, or (b) one year from the date of
the issuance of the Debenture. The Type B Debentures are convertible at a ratio
of one share for every $0.20 of the principal amount of the Debenture plus
interest earned thereon from the date of issuance. The assumed RPM Debentures
are redeemable at face value plus all earned interest from the date of issuance
on the first to occur of: (i) two years from the issue date or (ii) the
completion and closing of a public offering of its securities by the Company
(see "Prospectus Summary - The Offering", "Selling Securities Holders" and
"Description of Securities").
3,000,000 shares (the "Pre-Placement RPM Shares") of the 3,305,000 shares
of RPM Common Stock for which the Company issued Merger Shares, constituted all
of the shares of RPM Common Stock which were issued and outstanding prior to the
commencement of RPM Private Placement. These shares were exchanged for 3,000,000
Merger Shares in consideration of RPM's waiver of certain consulting fees in the
amount of $4,000 per month, accrued prior and subsequent to the Merger pursuant
to the terms of a certain five-year consulting agreement, dated June 9, 1997,
among RPM, the Company, and two individuals who were, prior to the Merger, RPM's
principal shareholders, officers, and directors. None of the RPM Shareholders
had any affiliation of any kind with Registrant prior to or after the Merger
(except insofar as they have become shareholders of Registrant as a result of
the said Merger). Based upon information provided by the recipients (the RPM
Shareholders") of the above described 3,305,000 shares of Common Stock and
advice from the principals of RPM and the opinion of RPM's counsel, all
3,000,000 of the Pre-Placement RPM Shares were acquired by the RPM Shareholders
prior to March 31, 1997; all of the RPM Shareholders are "accredited investors"
as that term is defined in Rule 501(a) of the Securities Act; all 3,305,000 of
the shares of RPM common stock (including the Pre-Placement RPM Shares as well
as the RPM Shares sold in the RPM Private Placement) which were exchanged for
Merger Shares were acquired in transactions which were exempt from the
registration requirements of Section 5 of the Securities Act available under
Rule 506 of Regulation D thereof, which would not be integrated, as such term is
defined in Section 502(a) of Regulation D under the Securities Act, with the
distribution of the Merger Shares to the RPM Shareholders, so as to render
unavailable, for such distribution, the exemption from the registration
provisions of the Securities Act under Rule 506 of Regulation D. Registrant
filed a Form D with the Commission with respect to the distribution of the
Merger Shares to the RPM Shareholder.
18.3 Between January 23, 1998 and May 11, 1998, the Company sold 230,000
shares of its common stock and 23 10% convertible Debentures, each in the
principal amount of $10,000, to 21 private investors, who had no affiliation
with the Company. These securities were sold as 23 units (the "Type B Units"),
in a private placement (the "Type B Private Placement", made by the Company
between January 20, 1997 and May 11, 1998, through H.J. Meyers & Co., Inc., as
placement agent (the "Placement Agent"), at a price of $10,300 per Unit. The
Type B Private Placement was a continuance by the Company of a private placement
(the "RPM Private Placement") made by RPM Incorporated ("RPM"), which commenced
upon the effective date of a merger (the "RPM Merger") of RPM into the Company's
wholly-owned subsidiary, Tirex Acquisition Corp. ("TAC") (see the discussion in
Paragraph 18.2, above, respecting the RPM Merger). Each Type B Unit consisted of
one 10% Convertible Subordinated Debenture in the principal amount of $10,000
(the "Type A Debentures") and 10,000 shares of the Common Stock of the Company.
The Type B Units were sold in a series of three closings, as follows:
No. Of No. Of
Closing Date Units Sold Purchasers
------------ ---------- ----------
January 23, 1998 8.5 Units 8
February 19, 1998 5.5 Units 6
May 11, 1998 9 Units 7
The Type B Private Placement was effected in compliance with Rule 506 and
the Type B Units were offered and sold only to a limited number of sophisticated
investors who understood and were economically capable of accepting the risks
associated with a speculative investment, including the complete loss of such
investment, and who were "Accredited Investors" within the meaning prescribed by
Regulation D and Rule 501 of the Securities Act.
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All of the Type B Debentures were amended prior to the filing of the
Registration Statement to provide for: (i) the registration of the shares (the
"Type B Conversion Shares") issuable upon the conversion of the Debentures; (ii)
the termination of the holder's right to convert the Type B Debentures,
effective the day immediately prior to the filing of the Registration Statement,
of which this Prospectus forms a part, and the commencement of a new conversion
period as of the date following the effective date of the said Registration
Statement; and (iii) restrictions on the transfer of the Type B Conversion
Shares until the first to occur of: (a) six months from the effective date of
the Registration Statement, or (b) one year from the date of the issuance of the
Debenture. The Type B Debentures are convertible at a ratio of one share for
every $0.20 of the principal amount of the Debenture plus interest earned
thereon from the date of issuance. The Type B Debentures are redeemable at face
value plus all earned interest from the date of issuance on the first to occur
of: (i) two years from the issue date or (ii) the completion and closing of a
public offering of its securities by the Company.
18.4 Between the last week in March 1998 and May 11, 1998, in a private
placement (the "Type C Private Placement") made directly by the Company, with
all offers and sales made by officers of the Company, the Company sold an
aggregate of 11,710,000 shares of the Company's Common Stock (the "Type C
Shares") at a price of $.10 per share to 57 private investors, none of whom had
any affiliation with the Company. The Type C Private Placement was effected in
compliance with Rule 506 and the Type C Shares were offered and sold only to a
limited number of sophisticated investors who understood and were economically
capable of accepting the risks associated with a speculative investment,
including the complete loss of such investment, and who were "Accredited
Investors" within the meaning prescribed by Regulation D and Rule 501 of the
Securities Act.
The 11,710,000 Type C Shares which were sold are included among the
"Outstanding Shares" and all of such shares have been registered for re-sale to
the public by the holders thereof by way of their inclusion in the Registration
Statement. (see "Prospectus Summary - The Offering", "Selling Securities
Holders" and "Description of Securities").
Basis for Section Rule 506 Exemption Claimed
With respect to all sales and other issuances of securities as hereinabove
described and claimed to have been exempt from the registration requirements of
Section 5 of the Securities Act pursuant to Rule 506 thereof:
(a) Registrant did not engage in general advertising or general
solicitation and paid no commission or similar remuneration, directly or
indirectly, with respect to such transaction.
(b) Registrant made reasonably inquiry to determine the investment intent
of the purchasers (i.e., to determine that such Shares were purchased for
investment and without a view to their resale and informed them that an
appropriate legend would be placed on certificates or documents evidencing such
securities reciting the absence of their registration under the Act and
referring to the restrictions on their transferability and resale).
(c) The Purchasers have been provided with, or have access to, all
information requested by them and with what Registrant believes to be all
relevant information concerning the Registrant, and Registrant believes such the
Purchasers are knowledgeable with respect to the affairs of Registrant.
(d) Each of the Purchasers is an accredited investor, as that term is
defined in Rule 501(a) of the Securities Act, and has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of such investments and is able to bear the
economic risk thereof.
(e) Registrant made no sales of unregistered securities during the six
month preceding the sales made pursuant to Rule 506 except for sales made
pursuant to Employee Benefit Plans as that term is defined in Rule 405 of the
Securities Act.
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19. Sales Claimed To Have Been Made In Accordance With Regulation S of the
Securities Act.
On January 10, and February 5, 1997, (the "Purchase Dates") Registrant
sold an aggregate of 600,000 shares of its common stock, $.001 par value, per
share (the "Shares") without registration under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to Regulation S thereof. The following
sets forth information respecting the dates, purchasers, and consideration
involved in such sales and the bases for Registrant's claim that all such sales
were exempt from the registration provisions of Section 5 of the Securities Act.
The Shares were purchased for cash on a "delivery against payment basis"
by a corporation formed under the laws of the British Virgin Islands and having
its administrative office at P.O. Box 484, 108 Halkett Place, St. Helier,
Jersey, Channel Islands (the "Buyer") at a purchase price of twenty-seven United
States cents (US $0.27) per share (the"Per Share Purchase Price") aggregating to
a total purchase price of fifty-four thousand ($54,000). The Buyer had
represented to Registrant that such purchase was made for investment for its own
account and not with a view to the resale or distribution thereof, and that it
did not intend to divide its participation with others or to resell or otherwise
dispose of all or any part of the Shares unless and until they were subsequently
registered under the Act, or an exemption from such registration is available.
The per share purchase price of $0.27 represented a discount of three cents
($0.03) or ten percent (10%) from the average of the high and low bid prices for
Registrant's common stock as traded in the over-the-counter market and reported
in the NASDAQ Bulletin Board during the month of December 1996.
Basis for Regulation S Exemption Claimed
These sales are claimed to have been exempt from registration under the
Securities Act pursuant to Regulation S for the following reasons:
The sales constituted an "offshore transaction" within the meaning of Rule
902 insofar as:
1. The offer and sale of the Shares was made outside the United States;
2. The Buyer was an offshore corporation formed under the laws of the
British Virgin Islands and having its administrative office at P.O. Box 484, 108
Halkett Place, St. Helier, Jersey, Channel Islands and the it has represented
itself as such to Registrant. In addition, the Buyer's Corporate Secretary,
Basel Corporate Services (Channel Islands) Limited, and the Directors of the
Buyer (the "Directors") also represented the same to the Registrant;
3. The Registrant did not engage in any "directed selling efforts" to
condition the United States market for the Shares in contemplation of the sale
and the Buyer represented that, during the "restricted period" applicable to the
Shares, it would not engage in any such directed selling efforts to condition
the United States market for the Shares.
4. Registrant reasonably believed that the sale of the Shares has not been
pre-arranged with a buyer in the United States, that upon Buyer's purchase of
the Shares the entire economic risk of such purchase would be sustained outside
of the United States, and that the Shares would "come to rest" outside of the
United States. Registrant based such belief on the following representations
which the Buyer has made in the Subscription Agreement, on its own behalf and on
behalf of each of each beneficial owner of the Buyer (the "Beneficial Owners"),
and on similar representations certified by the Directors, that, among other
things:
(a) The Buyer was not organized under the laws of the United States and
was not formed for the sole purpose of investing in securities sold
without registration under the Securities Act pursuant to Regulation
S or otherwise.
(b) The Buyer was not organized by any person or persons who are
citizens or residents of the United States and no Beneficial Owner"
of Buyer was a United States citizen or resident; For purposes of
Buyer's representations, the term "Beneficial Owner" meant any
natural person who, directly or indirectly through one or more other
natural persons and/or entities, had a beneficial ownership interest
in, or in any way controlled, was controlled by, or was under common
control with, the Buyer.
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(c) The Buyer was not organized by, and neither the Buyer nor any of the
Beneficial Owners was:
(i) a person who, prior to the purchase of the Shares, has a
beneficial ownership of ten percent or more of the issued and
outstanding common stock of the Seller or in any way controls,
is controlled by, or is under common control with, the Seller;
or
(ii) a person who intended upon expiration of the Restricted
Period, either directly or indirectly through one or more
intermediaries, to distribute, arrange for, facilitate, or
participate in any other manner in the distribution of, the
Shares in the United States.
(d) At the time the buy order was originated, Buyer and each of the
Beneficial Owners of Buyer were outside the United States;
(e) No offer to purchase the Shares was solicited or made in the United
States;
(f) The Buyer (and each of the Beneficial Owners, through the Buyer),
was purchasing the Shares for such person's own account and neither
the Buyer or any of the Beneficial Owners intended upon the
expiration of the Restricted Period, either directly or indirectly
through one or more intermediaries, to trade, arrange for,
facilitate, or participate in any other manner in the trading of,
the Shares in the United States.
(g) All subsequent offers and sales of the Shares would be made in
compliance with Regulation S, pursuant to the registration of the
Shares under the Securities Act, or pursuant to an exemption from
registration.
(h) Upon payment of the purchase price for the Shares, Buyer would have
assumed the entire economic risk of the beneficial ownership of the
Shares and neither the Buyer nor any of the Beneficial Owners has
directly or indirectly entered, would not during the Restricted
period enter, and did not intend upon expiration of the Restricted
Period to enter, into any arrangements, agreements, or
understandings with any person resident in the United States to
transfer to such person all or any part of the economic risk of
beneficial ownership of the Shares or any of the benefits or burdens
of such ownership including but not limited to any rights to buy or
sell the Shares, short selling and other hedging transactions such
as option writing, equity swaps, pledging the Shares as collateral,
either in a margin account or otherwise, where the lender is in the
United States and the expectation is that the collateralization
would shift the benefits and burdens of ownership to the lender, or
other types of derivative transactions which would result in the
transfer of the benefits and burdens of the ownership of the Shares
back to the United States.
(i) The Buyer did not intend, nor did any Beneficial Owner indirectly
through the Buyer intend, to purchase the Shares in the Regulation S
offering for the purpose of evading, and such purchase would not
constitute a transaction or a part of a series of transactions that,
although in technical compliance with Regulation S, is part of a
plan or scheme to evade, the registration provisions of the
Securities Act.
(j) The funds which the Buyer used to purchase the Shares were not
borrowed or otherwise obtained by the Buyer or by any of the
Beneficial Owners, directly or indirectly through one or more
intermediaries, from a source within the United States of America.
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ITEM 27. EXHIBITS.
The exhibits filed as a part of this Report or incorporated herein by
reference are as follows:
Exhibits Incorporated
Herein By Reference,
Exhibit No. As Filed With
Document Indicated
------------------
2. (a) Agreement and Plan of Merger and
Reorganization, dated May 9, 1989 (1) 2
(b) Certificate of Merger, filed with the
Secretary of State of Delaware on
June 8, 1989 (5) 2(b)
(c) Certificate of Merger, filed with the
Secretary of State of New Jersey on
June 8, 1989 (5) 2(c)
(d) Acquisition Agreement among the Company,
Patrick McLaren, Louis V. Muro and George
Fattell, dated March 26, 1993 (8) 2
(e) Certificate of Merger, of Tirex Acquisition
Corp and RPM Incorporated filed with the
Secretary of State of Delaware on January
20, 1998
(f) Agreement and Plan of Merger
(Tirex Acquisition Corp. and RPM
Incorporated) (To Be Filed By Amendment)
3. (a) Certificate of Incorporation filed
August 19, 1987 (2) 3(a)
(b) Certificate of Amendment filed June 20,
1989 (5) 3(b)
(c) Certificate of Amendment filed
March 10, 1993 (8) 3
(d) Certificate of Amendment filed
December 5, 1995 (9) 3(e)
(e) By-Laws (2) 3(b)
(f) Certificate of Amendment filed August 11, 1997
(g) Certificate of Amendment filed February 3, 1998(18)
(h) Certificate of Incorporation of Tirex
Acquisition Corp., filed with the Secretary
of State of Delaware on December 15, 1997
4. (a) Form of Option to John Hartley for the purchase
of 20,000 shares of Preferred Stock (9) 4(g)
(b) Form of Exchangeable Option, Dated October 5,
1995, to Sharon Sanzaro for the purchase of
560,000 shares of common stock (9) 4(h)
(c) Form of Exchangeable Option, Dated October 5,
1995, to Raymond Pirraglia for the purchase
of 140,000 shares of common stock (9) 4(i)
(d) Form of Exchangeable Option, Dated October 5,
1995, to Terry Bentley for the purchase of
100,000 shares of common stock (9) 4(j)
(e) Form of Exchangeable Option, Dated January 1,
1996, to Raymond Pirraglia for the purchase
of 43,750 shares of common stock(9) 4(k)
(f) Form of Exchangeable Option, Dated January 1,
1996, to Terry Bentley for the purchase of
31,250 shares of common stock (9) 4(l)
(g) Form of Exchangeable Option, Dated January 1,
1996, to Sharon Sanzaro for the purchase of
175,000 shares of common stock (9) 4(m)
(h) Specimen Preferred Stock Certificate (9) 4(f)
(i) Form of Exchangeable Option, Dated as of
March 31, 1996, to Raymond Pirraglia for the
purchase of 43,750 shares of common stock (12) 4(n)
(j) Form of Exchangeable Option, Dated as of
March 31, 1996, to Terry Bentley for the
purchase of 31,250 shares of common stock (12) 4(o)
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(k) Form of Exchangeable Option, Dated as of
March 31, 1996, to Sharon Sanzaro for the
purchase of 175,000 shares of common stock (12) 4(p)
(l) Form of Exchangeable Option, Dated July 1,
1996, to Raymond Pirraglia for the purchase
of 43,750 shares of common stock (12) 4(q)
(m) Form of Exchangeable Option, Dated July 1,
1996, to Terry Bentley for the purchase of
31,250 shares of common stock (12) 4(r)
(n) Form of Exchangeable Option, Dated July 1,
1996, to Sharon Sanzaro for the purchase of
175,000 shares of common stock (12) 4(s)
(o) Form of Option, Dated April 24, 1997 to CG
TIRE, Inc. for the purchase of up to 10% of
the common stock of Registrant (17) 4(t)
(p) Amendment, Dated September 30, 1997, to GC
TIRE, Inc.
(q) Amendment, Dated February 16, 1998, to CG
TIRE, Inc.
(r) Specimen common stock certificate 4(a)
(s) Form of "Type A" Subordinated, Convertible
Debenture (To Be Filed By Amendment)
(t) Form of "Type B" Subordinated Convertible
Debenture
(u) Form of "Type A" Warrant (To Be Filed By Amendment)
purchase warrant
(v) Stock Purchase Warrant Issued To
Security Capital Trading, Inc. (To Be Filed By Amendment)
(w) Form of Amendment to "Type B" Debenture
(x) Amendment to CGT Option
(y) Form of "Type A" Securities Purchase
Agreement (To Be Filed By Amendment)
(z) Form of "Type B" Securities Purchase
Agreement
(aa) Form of Subscription and Registration Rights
Agreement
(bb) Option To Purchase Common Stock, Issued to
Alan Epstein, dated April 13, 1998 (18) 4.2
5. Option of Frances Katz Levine, Esq.
10. (a) Executive Agreement, dated Jan 18, 1995,
between the Company and Terence C. Byrne (9) 10(rr)
(b) Stock Restriction Agreements, dated Jan 18,
1995, June 1, 1995, and July 31, 1995
between the Company and Terence C. Byrne (9) 10(tt)
(c) Stock Restriction Agreements, dated Jan 18,
1995, June 1, 1995, July 31, 1995 between
the Company and Frances Katz Levine (9) 10(uu)
(d) License Agreement , dated as of July 3, 1995
between the Company and Tirex Canada (9) 10(ggg)
(e) Shareholders Agreement, dated as of July 3,
1995, as amended February 8, 1996 among the
Company, Tirex Canada, Kenneth J. Forbes,
Terence C. Byrne, and Louis V. Muro (9) 10(hhh)
(f) Amendment, dated August 27, 1997 to
Shareholders Agreement, dated as of
July 3, 1995, as amended February 8, 1996
among the Company, Tirex Canada, Kenneth
J. Forbes, Terence C. Byrne, and Louis
V. Muro
(g) Special Compensation Agreement, dated
April 1, 1996, between the Company and
Frances Katz Levine (11) 4.6
(h) Amendment No. 1 dated May 30, 1996, to
Executive Agreement, dated Jan. 18, 1995,
between the Company and Terence C. Byrne (11) 4.7
(i) Amendment No. 1 dated May 30, 1996, to Stock
Restriction
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Agreement, dated June 1, 1995, between the
Company and Terence C. Byrne (11) 4.9
(j) Amendment No. 1 dated May 30, 1996, to Stock
Restriction Agreement, dated June 1, 1995,
between the Company and Frances Katz
Levine (11) 4.9
(k) Special Compensation Agreements, dated June
1, 1995, July 25, 1995, November 15, 1995,
and March 18, 1996 between the Company and
Terence C. Byrne (12) 10(rrr)
(l) Special Compensation Agreements, dated
November 15, 1995 and March 18, 1996, and
April 1, 1996 between the Company and Louis
V. Muro (12) 10(ttt)
(m) English translation of Agreement for
Financial Assistance for Technology
Development between La Societe Quebecoise
de Recuperation et de Recyclage and Tirex
Canada Inc. (12) 10(vvv)
(n) Commitment, dated April 11, 1996, from the
Industrial Recover Program for Southwest
Montreal, for a loan of up to $500,000
(Canadian) (12) 10(www)
(o) Amendment No. 1 to Stock Restriction
Agreement of January 18, 1995, dated May 30,
1996, between the Company and Terence C.
Byrne. (12) 10(xxx)
(p) Amendment No 1. to Stock Restriction
Agreement of January 18, 1995, dated May 30,
1996, between the Company and Frances Katz
Levine. (12) 10(yyy)
(q) Financial Consulting Agreement, dated May 3,
1997, between Registrant and The Nais
Corp. (15) 10
between Registrant and the Nais Corp.
(r) Employment Agreement, effective as of
January 1, 1996, between Registrant and
John L. Threshie, Jr. (13) 4.4
(s) Employment Agreement, dated April 29, 1997,
between Registrant and Vijay Kachru (17) 10(cccc)
(t) Amendment No.2, dated May 1, 1997, to Stock
Restriction Agreement of April 1, 1996,
between Registrant and Louis V. Muro (17) 10(dddd)
(u) Amendment No. 2, dated May 1, 1997, to Stock
Restriction Agreement of June 1, 1995
between Registrant and Terence C. Byrne (17) 10(eeee)
(v) Amendment No. 2, dated May 1, 1997, to Stock
Restriction Agreement of June 1, 1995
between Registrant and Frances Katz Levine (17) 10(ffff)
(w) Employment Agreement, dated December 22, 1997,
between Registrant and Frances Katz Levine (17) 10(gggg)
(x) Amendment, dated May 1, 1997, to Employment
Agreement of December 22, 1996, between
Registrant and Frances Katz Levine (17) 10(hhhh)
(y) Amendment, dated May 1, 1997, to Employment
Agreement of January 18, 1995, between
Registrant and Terence C. Byrne (17) 10(iiii)
(z) Amendment, dated May 1, 1997 to Employment
Agreement of January 1, 1996, between
Registrant and Louis V. Muro (17) 10(jjjj)
(aa) Equipment Lease & Purchase Agreement, dated
May 29, 1997, between Registrant and Oceans
Tire Recycling & Processing Co., Inc.,
including Royalty Agreement and Crumb rubber
Brokerage Agreement, of even date therewith,
as Exhibits thereto (17) 10(kkkk)
(bb) Equipment Lease & Purchase Agreement, dated
May 29, 1997, between Registrant and Ocean
Ventures III, Inc., including Royalty
Agreement and Crumb rubber Brokerage
Agreement, of even date therewith, as
Exhibits thereto (17) 10(llll)
(cc) Equipment Lease & Purchase Agreement, dated
May 29, 1997, between Registrant and Ocean
Ventures III, Inc.,
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including Royalty Agreement and Crumb rubber
Brokerage Agreement, of even date therewith,
as Exhibits thereto (17) 10(mmmm)
(ee) Equipment Lease & Purchase Agreement, dated
July 8, 1997, between Registrant and
Recycletron Inc., including Royalty Agreement
and Crumb rubber Brokerage Agreement, of even
date therewith, as Exhibits thereto (17) 10(oooo)
(ff) Consulting Agreement, dated April 18, 1998,
between Registrant and Alan Epstein(18) 4.1
(gg) Consulting Agreement, dated January 28, 1998,
between Registrant and Louis Sanzaro
17. (a) Release and Resignation of J. Richard
Goldstein, dated November 5, 1992 (7) 17(a)
(b) Release and Resignation of Robert Kopsack,
dated November 5, 1992 (7) 17(b)
(c) Release and Resignation of Peter Stratton,
dated November 5, 1992 (7) 17(c)
(d) Release and Resignation of George Fattell,
dated March 24, 1994 (9) 17(d)
(e) Notice and Release of Escrow Agent by Patrick
McLaren and Louis V. Muro, dated January 18,
1995 (9) 17(e)
20. (a) "Type A" Private Placement Memorandum, dated
November 5, 1997, as amended February 26, 1998
(b) "Type B" Private Placement Memorandum, dated
November 28, 1997, as amended March 6, 1998
(b) "Type C" Private Placement Memorandum, dated
March 19, 1998
21. (a) Subsidiaries of the Company
22. (a) Notice to Shareholders, dated July 21, 1997,
Pursuant to Delaware General Corporation
Law Section 228(d), respecting the amendment
of the Certificate of Incorporation,
changing Registrant's name to "The Tirex
Corporation" (16) 20
(b) Notice to Shareholders, dated February 4,
1998, Pursuant to Delaware General
Corporation Law Section 228(d), respecting
the amendment of the Certificate of
Incorporation, increasing Registrant's
Capital Stock to 70,000,000 shares
23. Consent of Nevoso, Pivirotto, Pinkham & Foster, CPA
99. (a) Feasibility Study by Techtran:
Technology Transfer Institute (12)
- ----------
Notes
(1) Filed with the Securities and Exchange Commission on June 21, 1989, as
an exhibit, numbered as indicated above, to the Company's current report on Form
8-K dated June 1, 1989, which exhibits are incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the registration statement of the Company on
Form S-18, File No. 33-17598-NY, which exhibits are incorporated herein by
reference.
(3) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1988, which exhibits are incorporated herein by
reference.
(4) Filed with the Securities and Exchange Commission on December 13, 1988
and incorporated herein by reference.
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(5) Filed with the Securities and Exchange Commission on August 10, 1989,
as an exhibit, numbered as indicated above, to post-effective amendment no. 1 to
the registration statement of the Company on Form S-18, File No. 33-17598-NY,
which exhibits are incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's transition report on Form 10-K for
the transition period December 31, 1988 to June 30, 1989, which exhibits are
incorporated herein by reference.
(7) Filed with the Securities and Exchange Commission on February 1, 1993,
as an exhibit, numbered as indicated above, to the Company's current report on
Form 8-K dated November 5, 1992, which exhibits are incorporated herein by
reference.
(8) Filed with the Securities and Exchange Commission on April 15, 1993,
as an exhibit, numbered as indicated above, to the Company's current report on
Form 8-K dated March 10, 1993, which exhibits are incorporated herein by
reference.
(9) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1995, which exhibits are incorporated herein by
reference.
(10) Filed with the Securities and Exchange Commission on June 20, 1996 as
an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, File No. 333-5090, which exhibits are incorporated herein
by reference.
(11) Filed with the Securities and Exchange Commission on June 22, 1996 as
an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, Registration No. 333-5310, which exhibits are incorporated
herein by reference.
(12) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1996, which exhibits are incorporated herein by
reference.
(13) Filed with the Securities and Exchange Commission on March 21, 1997
as an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, Registration No. 333-23759, which exhibits are incorporated
herein by reference.
(14) Filed with the Securities and Exchange Commission on August 27, 1997
as an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, Registration No. 333-34369, which exhibits are incorporated
herein by reference.
(15) Filed with the Securities and Exchange Commission on July 14, as an
exhibit, numbered as indicated above, to the Company's current report on Form
8-K dated June 24, 1997, which exhibits are incorporated herein by reference.
(16) Filed with the Securities and Exchange Commission on August 14, 1997,
as an exhibit, numbered as indicated above, to the Company's current report on
Form 8-K dated July 11, 1997, which exhibits are incorporated herein by
reference.
(17) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 1997, which exhibits are incorporated herein by
reference.
(18) Filed with the Securities and Exchange Commission on April 14, 1998
as an exhibit, numbered as indicated above, to the registration statement of the
Company on Form S-8, File No. 333-50071, which exhibits are incorporated herein
by reference.
Reports on 8-K
The Company filed the following current report on Form 8-K during the last
quarter of the period covered by this report:
Current Report on Form 8-K, dated, June 24, 1997, filed with the Commission on
July 14, 1997.
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ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and,
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. Insofar as indemnification for liabilities arising under the
securities Act of 1933 may be permitted to Directors, Officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Director, Officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by a Director, Officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and shall be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Montreal, Province of Quebec, Canada, on May 19,
1998.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Terence
C. Byrne as his true and lawful attorney-in-fact and agent with full power of
substitution and re-substitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments (including post effective
amendments) to this Registration Statement and a new Registration Statement
filed pursuant to Rule 462(b) of the Securities Act of 1933 and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURES TITLE Date
Principal Executive Officer:
/s/ Terence C. Byrne May 19, 1998
- ----------------------------------
Terence C. Byrne President
Principal Financial and Accounting Officer:
/s/ Terence C. Byrne May 19, 1998
- ----------------------------------
Terence C. Byrne Treasurer
A Majority of the Board of Directors:
/s/ Terence C. Byrne May 19, 1998
- ----------------------------------
Terence C. Byrne Director
/s/ John G. Hartley May 19, 1998
- ----------------------------------
John G. Hartley Director
/s/ Louis V. Muro May 19, 1998
- ----------------------------------
Louis V. Muro Director
/s/ John L. Threshie, Jr. May 19, 1998
- ----------------------------------
John L. Threshie, Jr. Director
145
<PAGE>
INDEX OF EXHIBITS BEING FILED HEREWITH
2. (e) Certificate of Merger, of Tirex Acquisition Corp
and RPM Incorporated filed with the Secretary
of State of Delaware on January 20, 1998
(f) Agreement and Plan of Merger of Tirex
Acquisition Corp. and RPM Incorporated) (To Be Filed By Amendment)
3. (h) Certificate of Incorporation of Tirex
Acquisition Corp., filed with the Secretary
of State of Delaware on December 15, 1997
4. (s) Form of "Type A" Subordinated, Convertible
Debenture (To Be Filed By Amendment)
(t) Form of "Type B" Subordinated Convertible
Debenture
(u) Form of "Type A" Warrant (To Be Filed By Amendment)
(v) Stock Purchase Warrant Issued To Security
Capital Trading, Inc. (To Be Filed By Amendment)
(w) Form of Amendment to "Type B" Debenture
(x) Amendment to CGT Option
(y) Form of "Type A" Securities Purchase
Agreement (To Be Filed By Amendment)
(z) Form of "Type B" Securities Purchase Agreement
(aa) Form of "Type C" Subscription and
Registration Rights Agreement
5. Opinion of Frances Katz Levine, Esq. (To be Filed by Amendment)
10. (f) Amendment, dated August 27, 1997 to Shareholders
Agreement, dated as of July 3, 1995, as
amended February 8, 1996 among the Company,
Tirex Canada, Kenneth J. Forbes, Terence C.
Byrne, and Louis V. Muro
(gg) Consulting Agreement, dated January 28, 1998,
between Registrant and Louis Sanzaro
20. (a) "Type A" Private Placement Memorandum, dated
November 5, 1997, as amended February 26, 1998
(b) "Type B" Private Placement Memorandum, dated
November 28, 1997, as amended March 6, 1998
(c) "Type C" Private Placement Memorandum, dated
March 19, 1998
21. (a) Subsidiaries of the Company
23. Consent of Nevoso, Pivirotto, Pinkham & Foster, CPA
EXHIBIT 2(e)
State of Delaware
Office of the Secretary of State
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF MERGER,
WHICH MERGES:
"RPM INCORPORATED', A DELAWARE CORPORATION,
WITH AND INTO "TIREX ACQUISITION CORP." UNDER THE NAME OF "TIREX
ACQUISITION CORP.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTIETH DAY OF
JANUARY, A.D. 1998, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8872796
<PAGE>
CERTIFICATE OF MERGER
OF
RPM INCORPORATED
AND
TIREX ACQUISITION CORP.
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(I) RPM Incorporated, which incorporated under the laws of the State of
Delaware; and
(II) Tirex Acquisition Corp., which is incorporated under the laws of the
State of Delaware.
2. An Agreement and Plan of Merger has been approved, adopted certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 251 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein certified is
Tirex Acquisition Corp. which will continue its existence as said surviving
corporation under its present name upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of Tirex Acquisition Corp., as now in
force and effect, shall continue to be the Certificate of Incorporation of said
surviving corporation until amended and changed pursuant to the provisions of
the General Corporation Law of the State of Delaware.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations in on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
Tirex Acquisition Corp.
c/o The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
6. A copy of the aforesaid Agreement and Plan of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The Agreement of Merger between the aforesaid constituent corporations
provides that the merger herein certified shall be effective upon filing, of
this certificate of Merger.
Dated: January 8, 1998 RPM Incorporated
By: /s/Eugene Stricker, DDS
-------------------------------
Dr. Eugene Stricker, President
Dated: January 8, 1998 Tirex Acquisition Corp.
By: /s/ Terence C. Byrne
-------------------------------
Terence C. Byrne, President
EXHIBIT 3(h)
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TIREX ACQUISITION CORP.", FILED IN THIS OFFICE ON THE
FIFTEENTH DAY OF DECEMBER, A.D. 1997, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
----------------------------------------------
Edward J. Freel, Secretary of State
[SEAL] AUTHENTICATION: 8812596
DATE: 12-15-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TIREX ACQUISITION CORP.
_________
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is TIREX ACQUISITION CORP.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is one thousand. The par value of each of such shares is
one dollar. All such shares are of one class and are shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
John S. Hoenigmann 375 Hudson Street, 11th Floor
New York, New York 10014
SIXTH: The corporation is to have perpetual existence.
-1-
<PAGE>
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of
directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss. 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the Bylaws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of ss. 141 of the General Corporation Law of the State of
Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by
the stockholders entitled to vote of the corporation unless provisions for
such classification shall be set forth in this certificate of
incorporation.
-2-
<PAGE>
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of ss.242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of ss. 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss. 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Artical ELEVENTH.
Signed on December 15, 1997.
/s/ John S. Hoenigmann
-------------------------------------
John S. Hoenigmann, Incorporator
-3-
EXHIBIT 4(s)
FORM OF "TYPE A" DEBENTURE
To Be Filed By Amendment
EXHIBIT 4(t)
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL: (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO;
OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH TRANSFER IS NOT IN
VIOLATION OF ANY APPLICABLE FEDERAL, STATE OR FOREIGN SECURITIES LAWS. THIS
LEGEND SHALL BE ENDORSED UPON ANY SECURITIES ISSUED IN EXCHANGE FOR THESE
SECURITIES; PROVIDED, HOWEVER, THAT IN NO EVENT ARE THESE SECURITIES
TRANSFERRABLE PRIOR TO MARCH 31, 1998.
10% Convertible Subordinated Debenture
Of
RPM INCORPORATED
To Be Assumed, Upon or Prior to Issuance By
THE TIREX CORPORATION
No.__ $__________U.S.
The Maker (RPM Incorporated prior to the Merger described below or The
Tirex Corporation after the said Merger), for value received, hereby promises to
pay in currency of the United States of America to
____________________________________ or registered assigns (the "Payee" or
"Holder") in accordance with the provisions contained herein, at the offices of
the Maker, the principal amount of __________________ United States Dollars
($__________), along with interest on such principal amount at the rate of ten
percent (10%) per annum, payable in arrears, from the date hereof through the
Maturity Date, two years from the date hereof, in the following manner: The
entire principal face value of this Debenture and all accrued and unpaid
interest hereon shall be due and payable on the "Maturity Date" which shall be
the first of the following to occur: (i) two years from the issue date or (ii)
the completion and closing of a public offering of its securities by the Maker.
This Debenture is issued pursuant to a Securities Purchase Agreement dated
__________ ___, 1997, between the Maker and the Payee (the "Securities Purchase
Agreement"). Notwithstanding any provision to the contrary contained herein,
this Debenture is subject to certain terms, conditions, covenants and agreements
contained in the Securities Purchase Agreement. Any transferee or transferees of
this Debenture, by their acceptance hereof, assume the obligations of the
Subscriber in the Securities Purchase Agreement with respect to the conditions
and procedures for transfer of this Debenture. Reference to the Securities
Purchase Agreement shall in no way impair the absolute and unconditional
obligation of the Maker to pay both principal and interest of this Debenture as
provided for herein.
1. Assumption of Debenture by way of Merger as Condition to Closing
RPM has entered into an Agreement and Plan of Merger, dated as of October
20, 1997 (the "Merger Agreement"), with Tirex and a newly formed subsidiary of
Tirex (the "Tirex Subsidiary") that provides, subject to certain conditions,
that upon an initial closing (the "Initial Closing") of the private offering in
which this Debenture is being offered and sold (the "Offering") to take place
after the sale of not less than 30 Units of which this
<PAGE>
Debenture forms a part (the "Units"): (i) RPM will merge with and into the Tirex
Subsidiary (the "Merger"); (ii) this Debenture, and all of the other Debentures
sold in the Offering, will thereupon be assumed by Tirex and become convertible
into shares of the common stock of Tirex, $.001 par value, per share ("Tirex
Common Stock") at the conversion ratio of one share for every $0.20 U.S. of the
principal amount of the Debenture plus all accrued, but unpaid, interest
thereon; and (iii) all of the shares of the Common Stock of RPM, $.001 par
value, per share, forming part of the Units sold in the Offering (the "Unit
Shares") prior to the Initial Closing will be exchanged for shares of Tirex
Common Stock on a share-for-share basis. The consummation of the transactions
contemplated by the Merger Agreement are a condition to the Initial Closing of
the Offering and are therefore conditions to the issuance of this Debenture.
After the Initial Closing and the effectuation of the Merger (which will take
place contemporaneously therewith), all sales of the Units made in the Offering
will be made directly by Tirex, all Unit Shares included in the Units sold
hereunder will consist of shares of Tirex Common Stock, and Tirex's assumption
of the Debentures will have occurred concurrently with the Merger. Upon the
consummation of the Merger, the net proceeds from the Offering, ranging from an
estimated minimum of $266,000 to an estimated maximum of $761,000, will remain
in RPM, and Tirex will have acquired all of the issued and outstanding common
stock of RPM for the following consideration: (i) one share of Tirex Common
Stock for every issued and outstanding share of RPM Common Stock, and (ii)
Tirex's assumption of all of RPM's obligations and liabilities under the
Debentures. Accordingly, if, during the Offering Period, as that term is defined
in the Confidential Private Offering Memorandum pertaining to the Offering (the
"Memorandum"), a minimum of 30 Units are sold, the above described Merger will
be effected and the net proceeds from the Offering will thereby inure to the
benefit of Tirex. Alternatively, if RPM fails to sell a minimum of 30 Units
during the Offering Period, all funds will be returned to the subscribers and
the Offering will terminate without any Units having been sold. As a result, any
investment in the Units purchased pursuant to this Securities Purchase Agreement
will necessarily constitute an investment in Tirex and not in RPM and Tirex will
have assumed the obligations and liabilities of the Maker under this Debenture
concurrently with or prior to the issuance date of this Debenture. Hereinafter,
references to the "Maker" are to RPM prior to the Merger and to Tirex after the
Merger.
2. Conversion And Redemption
(a) The principal amount of this Debenture plus all accrued but unpaid
interest thereon are convertible, in whole or in part, at any time prior to
Maturity into that number of shares (the "Conversion Shares") of the Maker's
common stock, par value $.01 per share ("Common Stock") as is obtained by
dividing the portion of the unpaid principal amount of the Debenture, and the
portion of accrued but unpaid interest thereon, which is to be converted, by an
amount equal to $.20 U.S. (the "Conversion Price"). Any portion of this
Debenture may be partially converted and in case of such partial conversion, the
Maker, upon surrender hereof, will deliver to the Holder a new Debenture
representing the principal face value which has not been converted.
(b) This Debenture is convertible into shares of Common Stock at any time
prior to Maturity at the conversion ratio described above in Section 2(a). The
Holder hereof shall have no conversion rights following payment in full of the
principal and interest owed by the Maker to the Holder hereof. The conversion
rights represented by this Debenture may be exercised, in whole or in part, by
the Holder at any time within the period specified in this Section 2(b) by
surrender of this Debenture for cancellation at the principal executive office
of the Maker (or at such other office or agency of the Maker as it may designate
by notice in
7
<PAGE>
writing to the Holder at the address of the Holder appearing on the books of the
Maker), together with the amount of applicable stock transfer taxes, if any.
This Debenture shall be deemed to have been converted, in whole or in part to
the extent specified, immediately prior to the close of business on the date on
which all of the applicable provisions of this Section 2(b) are satisfied. If
this Debenture is converted in part, the Maker will deliver to the Holder hereof
a new Debenture representing that part of the principal amount which has not
been converted. The Maker will transmit the certificates representing the
Conversion Shares to the Holder via express courier within seven business days
after receipt by the Maker of all the documentation required by this Section
2(b).
(c) The Holder of this Debenture shall not, by virtue hereof, be entitled
to any rights of a stockholder in the Maker, either at law or in equity;
provided, however, that in the event any certificate representing Conversion
Shares is issued to the Holder hereof upon conversion of some or all of this
Debenture, such Holder shall, for all purposes, be deemed to have become the
holder of record of such Conversion Shares on the date on which all of the
applicable provisions of Section 2 have been met, irrespective of the date of
delivery of such share certificate.
(d) In the event that the Company shall (i) pay a dividend in Common Stock
or make a distribution in Common Stock, (ii) subdivide its outstanding Common
Stock into a greater number of shares, (iii) combine its outstanding Common
Stock into a smaller number of shares (including a recapitalization in
connection with any consolidation or merger), then the Holder of this Debenture
shall thereafter be entitled, upon conversion, to receive the number and kind of
shares which, if this Debenture had been converted immediately prior to the
happening of such event, that the Holder would have owned upon such conversion
and been entitled to receive upon such dividend, distribution, subdivision,
combination, or reclassification. Such adjustment shall become effective
contemporaneously with the of occurrence of: (i) the record date of such
dividend or distribution or (ii) the day upon which such subdivision,
combination, or reclassification shall become effective and the Conversion Price
on the date of such adjustment shall be adjusted by multiplying such Conversion
Price by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately before such event and the denominator of which is
the number of shares of Common Stock outstanding immediately after such event;
and the number of shares of Common Stock for which this Debenture may be
converted immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Conversion Price immediately
before such event and the denominator of which is the Conversion Price
immediately after such event; provided, however, that in no event shall the
Conversion Price be below $.001 per share.
(e) In case of any consolidation or merger of the Company with or into
another corporation (other than any consolidation or merger in which the Company
is the continuing corporation and which does not result in any increase,
decrease, or other reclassification of the outstanding shares of Common Stock)
or the conversion of such outstanding shares of Common Stock into shares or
other stock or other securities or property, or the liquidation, sale or
transfer of the property of the Company as an entirety or substantially as an
entirety and for other unusual events, there shall be deliverable upon
conversion of the Debenture (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the conversion of this Debenture would have
been entitled upon such action if this Debenture had been converted immediately
prior to such action.
8
<PAGE>
(f) In the sole discretion of the Holder hereof, such Holder may require
that the Maker assign the obligations of the Maker described in this Debenture
to any successor of the Maker if the Maker is not the surviving entity of a
merger or consolidation. The Maker must give the Holder hereof fifteen (15)
business days notice of the terms of any such consolidation or merger and the
terms thereof.
(g) Each certificate evidencing the Conversion Shares, and any
certificates issued upon transfer or exchange of the foregoing shall be stamped
or imprinted with the following legend:
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL: (I) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH
RESPECT THERETO; OR (II) RECEIPT BY THE ISSUER OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER AND
THAT SUCH TRANSFER IS NOT IN VIOLATION OF ANY APPLICABLE
STATE, FEDERAL OR FOREIGN SECURITIES LAWS.
The legend set forth above shall be removed and the Maker shall issue a
certificate without such legend to the holder of the Conversion Shares upon
which it is stamped, if, unless otherwise required by state securities laws, in
connection with a transfer, such holder provides the Maker with an opinion of
counsel reasonably satisfactory to the Maker, to the effect that a transfer
thereof may be made without registration under the Act and that such transfer
does not violate any applicable state or foreign securities laws.
(h) This Debenture may be redeemed by the Holder at any time after the
Maturity Date at 100% of the principal face value of this Debenture plus all
accrued but unpaid interest.
3. Covenants of The Maker.
The Maker covenants and agrees that, so long as any portion of this
Debenture shall be outstanding:
(a) it will promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Maker or upon its income and
profits, or upon any of its property, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such properties or any part thereof;
provided, however, that the Maker shall not be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Maker shall
set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
9
<PAGE>
(b) it will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to the Maker, except where the
failure to comply would not have a material adverse effect on the Maker;
(c) it will at all times keep true and correct books, records and
accounts;
(d) it will at all times maintain, preserve, protect and keep its property
used or useful in the conduct of its business in good repair, working order and
condition, and from time to time make all necessary and proper repairs,
renewals, replacements, betterments and improvements thereto as shall be
reasonably required in the conduct of its business;
(e) it will to the extent necessary for the operation of its business,
keep adequately insured by financially sound and reputable insurers, all
property of a character usually insured by similar corporations and carry such
other insurance as is usually carried by similar corporations;
(f) it will timely make all filings required under the Securities Exchange
Act of 1934, as amended;
(g) it will use its best efforts to maintain the listing of its Common
Stock on all public stock exchanges on which the Common Stock is approved for
listing.
(h) that all shares of Common Stock issuable upon conversion of this
Debenture will, upon delivery, be duly and validly authorized and issued,
fully-paid and non-assessable with no personal liability attaching to the Holder
thereof; and
(i) it will at all times on and subsequent to the date at which this
Debenture becomes convertible and prior to expiration of this Debenture reserve
and keep available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Debenture.
4. Issuance of Certificates.
As soon as possible after any full or partial conversion of this
Debenture, but in any event not more than seven (7) business days, the Maker, at
its expense, will cause to be issued in the name of and delivered to the Holder
of this Debenture, a certificate or certificates for the number of fully paid
and non-assessable shares of Common Stock to which such Holder shall be entitled
on such conversion. No fractional shares of Common Stock will be issued on
conversion of this Debenture. If, on any conversion of this Debenture, a
fractional share results, the Maker will pay the cash value of that fractional
share, calculated on the basis of the conversion price per share.
5. Additional Provisions
This Debenture is subject to the following additional provisions:
10
<PAGE>
(a) The Maker shall be entitled to withhold from all payments of principal
of and interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or other applicable
laws at the time of such payments.
(b) This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act") any
applicable state securities laws and any applicable securities laws of any other
jurisdiction. Prior to due presentment for transfer of this Debenture, the Maker
and any agent of the Maker may treat the person in whose name this Debenture is
duly registered on the Maker's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Maker nor any such
agent shall be affected by notice to the contrary.
(c) No provision of this Debenture shall alter or impair the obligation of
the Maker, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture is the direct obligation of the
Maker. This Debenture ranks equally and ratably with all other notes now or
hereafter issued under the terms set forth herein.
(d) No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer, director or
control person, as such, past, present or future, of the Maker or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
(e) The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture until: (i) a registration statement
under the Act shall have become effective with respect thereto; or (ii) receipt
by the Maker of an opinion of counsel reasonably satisfactory to the Maker to
the effect that registration under the Act is not required in connection with
such proposed transfer and that such transfer is not in violation of any
applicable state or foreign securities laws.
6. Events of Default
(a) This Debenture shall become and be due and payable upon written demand
made by the Holder hereof if one or more of the following events, hereinafter
called events of default, shall happen and be continuing:
(i) default in the payment of principal or interest on this Debenture when
and as the same shall become due and payable, whether by acceleration or
otherwise.
(ii) default in the due observance or performance of any material
covenant, condition or agreement on the part of the Maker to be observed or
performed pursuant to the terms hereof if such default shall continue uncured
for five (5) days after written notice thereof, specifying such default, shall
have been given to the Maker by the Holder of the Debenture;
11
<PAGE>
(iii) The Maker shall (1) commence any proceeding or other action relating
to it in bankruptcy or seek reorganization, arrangement, readjustment of its
debts, receivership, dissolution, liquidation, winding-up, composition or any
other relief under the Bankruptcy Act, as amended, or under any other
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law; of any jurisdiction,
domestic or foreign, now or hereafter existing; or (2) admit the material
allegations of any petition or pleading in connection with any such proceeding;
or (3) apply for, or consent or acquiesce to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a substantial part
of its property; or (4) make a general assignment for the benefit of creditors;
(iv) Commencement of any proceeding or the taking of any other action
against the Maker in bankruptcy, or seeking reorganization, arrangement,
readjustment of its debts, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any such
events for sixty (60) days undismissed, unbonded or undischarged; or the
appointment of a receiver, conservator, trustee or similar officer of the Maker
or for all or substantially all of its property and the continuance of any such
events for sixty (60) days undismissed, unbonded or undischarged.
(v) a breach of the Maker's representations, warranties or covenants
contained in the Securities Purchase Agreement;
(vi) the sale or other disposition or transfer by the Maker or any
subsidiary of substantially all of its assets;
(vii) the merger by the Maker or any subsidiary with or into another
corporation, other than for purposes of changing domicile, where the Maker is
not the surviving corporation.
(c) the Maker agrees that notice of the occurrence of any event of default
will be promptly given to the Holder at his or her registered address by
certified mail.
(b) In case any one or more of the events of default specified above shall
occur and continue to occur, the Holder of this Debenture may proceed to protect
and enforce his rights by suit in the specified performance of any covenant or
agreement contained in this Debenture or in aid of the exercise of any power
granted in this Debenture or may proceed to enforce the payment of this
Debenture or to enforce any other legal or equitable rights as such Holder may
have.
7. Subordination of Other Indebtedness; Security
(a) The Maker, for itself, its successors and assigns, covenants and
agrees, and each Holder of this Debenture, by his acceptance thereof, likewise
covenants and agrees, that the payment of the principal of and interest on, each
and all of the Debentures is hereby expressly subordinated in right of payment,
to the prior payment in full of any indebtedness now outstanding or hereinafter
incurred, to a bank, financial institution engaged in lending money, insurance
company or other similar institutional lender ("Senior Indebtedness"). Each
Holder of this Debenture shall, upon the Maker's reasonable request, execute and
deliver to the Maker such documents as may be necessary or appropriate to
evidence or confirm the foregoing subordination.
12
<PAGE>
(b) Notwithstanding the subordination described in Section 6(a) above,
until: (i) the occurrence of an event of default by the Maker under any document
evidencing Senior Indebtedness; or (ii) the Maker makes any assignment for the
benefit of creditors; or (iii) any bankruptcy proceedings are instituted by or
against the Maker; or (iv) any receiver for the Maker's business or assets is
appointed; or (v) there is any dissolution or winding up of the affairs of the
Maker, whichever of the foregoing occurs earliest, the Maker may make and the
Holders of this Debenture may receive any and all payments due under this
Debenture.
(c) In the event of any insolvency or bankruptcy (voluntary or
involuntary) proceedings or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, related to the Maker or to
its creditors, as such, or to its property, or in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of the Maker, whether
or not involving insolvency or bankruptcy, then the holders of Senior
Indebtedness shall be entitled to receive payment in full of all principal and
interest on all Senior Indebtedness before the Holder of this Debenture is
entitled to receive any payment on account of principal or interest on this
Debenture, and to that end the holder of Senior Indebtedness shall be entitled
to receive for application in payment thereof any payment or distribution of any
kind or character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect of this Debenture,
except securities which are subordinate and junior in right or payment to the
payment of Senior Indebtedness.
(d) In the event that this Debenture is declared due and payable before
its expressed maturity because of the occurrence of an event of default
hereunder (under circumstances when the provisions of the foregoing clause (c)
shall not be applicable), the holders of Senior Indebtedness outstanding at the
time the Debenture so becomes due and payable because of such occurrence of a
default thereunder shall be entitled to receive payment in full of all principal
and interest on all Senior Indebtedness before the Holder of the Debenture is
entitled to receive payment on account of the principal or interest upon this
Debenture.
(e) In the event of any default in payment of any principal of or any
interest on any Senior Indebtedness and during the continuance of any such
default, no amount shall be paid by the Maker and the Holder of this Debenture
shall not be entitled to receive any amount, in respect of the principal of or
interest on the Debenture. No present or future holder of Senior Indebtedness
shall be prejudiced in his right to enforce subordination of this Debenture by
any act or failure to act on the part of the Maker. The Maker shall render
written notice to the Holder of this Debenture immediately upon the occurrence
of each such default in the payment of any principal of or any interest on any
Senior Indebtedness describing such default in detail.
(f) Nothing contained in the subordination herein is intended to or shall
impair, as between the Maker, its creditors other than the holders of Senior
Indebtedness, and the Holder of this Debenture, the obligation of the Maker,
which is absolute and unconditional, to pay to the persons entitled thereto
under the terms thereof the principal of and interest on this Debenture, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the Holder of this Debenture and creditors of the
Maker other than the holders of Senior Indebtedness, nor shall anything herein
prevent the Holder of this Debenture from exercising all remedies otherwise
permitted by applicable law upon default under the Debenture, subject to the
rights, if any, under the subordination herein, of the holders of Senior
Indebtedness in respect of cash, property or securities of the Maker received
upon the exercise of any such remedy.
13
<PAGE>
8. Miscellaneous
(a) This Debenture has been issued by the Maker pursuant to authorization
of the Board of Directors of the Maker which provides for an aggregate of up to
$850,000 U.S. in face amount of identical Debentures to be issued.
(b) The Maker may consider and treat the person in whose name this
Debenture shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Debenture shall be overdue) and the Maker shall
not be affected by any notice to the contrary. The registered owner of this
Debenture shall have the right to transfer it by assignment (subject to the
limitations on transfer contained in this Debenture and in the Securities
Purchase Agreement) and the transferee thereof shall, upon his registration as
owner of this Debenture, become vested with all the powers and rights of the
transferor. Registration of any new owner shall take place upon presentation of
this Debenture to the Maker at its offices at 740 St. Maurice, Suite 201,
Montreal, Canada H3C 1L5, together with a duly authenticated assignment. In case
of transfer by operation of law, the transferee agrees to notify the Maker of
such transfer and of his address, and to submit appropriate evidence regarding
the transfer so that this Debenture may be registered in the name of the
transferee. This Debenture is transferable only on the books of the Maker by the
holder hereof, in person or by attorney, on the surrender hereof, duly endorsed.
Communications sent to any registered owner shall be effective as against all
holders or transferees of the Debenture not registered at the time of sending
the communication.
(c) Payment of the principal and outstanding interest shall be made to the
registered owner of this Debenture upon presentation of this Debenture upon or
after maturity.
(d) The Maker hereby waives presentment for payment, demand and protest
and notice of dishonor.
(e) Neither this Debenture nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
(f) All notices, requests, demands and other communications to the Maker
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by certified or registered mail, postage prepaid, return receipt
requested or via facsimile, addressed as follows or to such other addresses as
the Maker may designate in writing to the holder hereof:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec #3C 1L5
Attention: Terence C. Byrne, President
Fax No.: (514) 878-9847
(g) This Debenture shall be construed and enforced in accordance with the
internal laws of the State of New York, without regard to such State's
principles respecting the conflicts of law.
14
<PAGE>
(h) The terms of this Debenture shall be binding on the Maker and its
successors and assigns.
IN WITNESS WHEREOF, each of the below listed Makers, jointly and
severally, has caused this Debenture to be signed in its name by the
undersigned.
Dated: _____________ ___, 1997
THE TIREX CORPORATION
By:__________________________
RPM INCORPORATED
By:__________________________
15
EXHIBIT 4(u)
FORM OF "TYPE A" WARRANT
To Be Filed By Amendment
16
EXHIBIT 4(v)
STOCK PURCHASE WARRANT
ISSUED TO SECURITY CAPITAL TRADING, INC.
To Be Filed By Amendment
17
EXHIBIT 4(w)
-----------------
THE TIREX CORPORATION
-----------------
AMENDMENT TO
10% CONVERTIBLE SUBORDINATED DEBENTURE
OF
THE TIREX CORPORATION
-----------------
Amendment, made this _______________ day of May 1998, by and between
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal Quebec, Canada H3C 1L5
(the "Maker")
and
1~
(the "Debentureholder").
the original parties to a 10% Convertible Subordinated Debenture in the
principal amount of $_____________ (the "Debenture").
Whereas, the Maker recently completed and closed several private
placements of its securities (each, a "Private Placement") including the Private
Placement in which the Debentureholder purchased the Debenture;
20
<PAGE>
Whereas, the Maker is obligated to register certain securities, including
but not limited to, some of those sold in the Private Placements;
Whereas, the Debentureholder is entitled to convert the Debenture, in
whole or in part, into shares of the Maker's common stock (the "Conversion
Shares"), at any time prior maturity, in accordance with the terms and
provisions of Article 1 "Conversion and Redemption" of the Debenture.
Whereas, the Company's obligation to issue the Conversion Shares pursuant
to the conversion of the Debenture constitutes a "continuing offer" on the part
of the Maker to sell the Conversion Shares to the Debentureholder;
Whereas, the existence of the above described "continuing offer" may
disable the Maker from filing the Registration Statement in accordance with its
obligations;
Whereas, the parties hereto have agreed that it would be in the best
interest of both of them if the Debentureholder were to agree to terminate its
right to convert the Debenture as of the day immediately preceding the filing
with the Securities and Exchange Commission ("SEC") of the registration
statement relating to, among other things, the Conversion Shares (the "Filing
Date") and to commence a new conversion period as of the date next following the
date the registration statement is declared effective by the SEC (the "Effective
Date") pursuant to the terms and provisions of this Amendment to the Debenture.
Now therefore, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree to set forth herein the
following amendment to the Option:
A. AMENDMENT OF DEBENTURE
1. Amendment of Article 1. "Conversion and Redemption"
Paragraph (a) and (b) of Article 1 of the Debenture are hereby amended so
as to read as follows:
1. Conversion And Redemption
(a) The principal amount of this Debenture plus all accrued but
unpaid interest thereon are convertible, in whole or in part, at any time
prior to Maturity into that number of shares (the "Conversion Shares") of
the Maker's common stock, par value $.01 per share ("Common Stock") as is
obtained by dividing the portion of the unpaid principal amount of the
Debenture, and the portion of
21
<PAGE>
accrued but unpaid interest thereon, which is to be converted, by an
amount equal to $.20 U.S. (the "Conversion Price"). Any portion of this
Debenture may be partially converted and in case of such partial
conversion, the Maker, upon surrender hereof, will deliver to the Holder a
new Debenture representing the principal face value which has not been
converted. Notwithstanding the foregoing in the event that the Corporation
shall, on or prior to May 30, 1998, file a registration statement with the
Securities and Exchange Commission (the "SEC") registering the the
Conversion Shares underlying this Debenture (the "Registration
Statement"), then any rights which the Debentureholder shall have had to
convert this Debenture shall terminate as at the day immediately preceding
the date of such filing (the "Filing Date"), in which case the
Debentureholder shall be entitled to convert this Debenture, on the same
terms as are set forth above, at any time prior to Maturity, in whole or
in part at any time, and from time to time, during the period commencing
on the date immediately following the date that the Registration Statement
is declared effective by the SEC. Notwithstanding the foregoing, in the
event the Registration Statement is not declared effective within 120 days
of the Filing Date or, if for any reason, the Corporation shall withdraw
the Registration Statement, then upon demand of the Debentureholder, a new
conversion period shall immediately commence and this Debenture shall
thereupon be convertible into Conversion Shares in accordance with the
provisions of this Article 1(a).
(b) Subject to the provisions of Paragraph (a) of this Article 1, this
Debenture is convertible into shares of Common Stock at any time prior to
Maturity at the conversion ratio described above in Article 1(a). The
Holder hereof shall have no conversion rights following payment in full of
the principal and interest owed by the Maker to the Holder hereof. The
conversion rights represented by this Debenture may be exercised, in whole
or in part, by the Holder at any time within the period specified in this
Article 1(b) by surrender of this Debenture for cancellation at the
principal executive office of the Maker (or at such other office or agency
of the Maker as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Maker), together with
the amount of applicable stock transfer taxes, if any. This Debenture
shall be deemed to have been converted, in whole or in part to the extent
specified, immediately prior to the close of business on the date on which
all of the applicable provisions of this Article 1(b) are satisfied. If
this Debenture is converted in part, the Maker will deliver to the Holder
hereof a new Debenture representing that part of the principal amount
which has not been converted. The Maker will transmit the certificates
representing the Conversion Shares to the Holder via express courier
within seven business days after receipt by the Maker of all the
documentation required by this Article 1(b).
22
<PAGE>
2. Addition of New Articles 8 and 9, "Registration Rights" and "Lock-Up
Agreement"
The Debenture is further amended by the addition of a new Article 8
"Registration Rights" and a new Article 9 "Lock-Up Agreement", as follows:
8. Registration Rights
In consideration of the Debentureholder's agreement to terminate the
right to convert this Debenture as of the date immediately preceding the
Filing Date and to commence a new conversion period on the date next
following the Effective Date, the Maker agrees to file a registration
statement on Form SB-2 with the Securities and Exchange Commission (the
"Registration Statement") as promptly as a practicable following the
execution of this Amendment, covering the shares of Common Stock issuable
upon conversion of the Debentures in accordance with Article 1 hereof.
9. Lock-Up Agreement
In consideration of the Maker's agreement to register the Conversion
Shares, in accordance with Article 8 hereof, the Debentureholder agrees
that he or she will not sell, assign, hypothecate, pledge or otherwise
dispose of, directly or indirectly, any of the Conversion Shares until the
first to occur of: (i) six months following the Effective Date of the
Registration Statement; or (ii) one year from the date of the issuance of
the Debenture. Furthermore, the undersigned will permit all certificates
evidencing the Conversion Shares to be endorsed with the appropriate
restrictive legends, and consents to the placement of appropriate stop
transfer orders with the transfer agent for the Company.
B. NO OTHER AMENDMENTS
Except as expressly provided in this Amendment, all of the terms and
conditions of the Debenture remain in full force and effect.
C. COUNTERPARTS
This Amendment may be executed in any number of counterparts and by each
party on a separate counterpart, each of which when so executed and delivered
shall be an original, but all of which together shall constitute one Amendment.
23
<PAGE>
In Witness Whereof, the parties hereto have caused this Amendment to be
executed the day and year first above written.
THE TIREX CORPORATION
By____________________________
Terence C. Byrne, President
By____________________________
Debentureholder
24
EXHIBIT 4(x)
-----------------
THE TIREX CORPORATION
-----------------
AMENDMENT
TO STOCK PURCHASE OPTION
OF APRIL 24, 1997
-----------------
Amendment, made this ________th day of May 1998, by and between
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal Quebec, Canada H3C 1L5
(the "Corporation")
and
CG TIRE, Inc.
1800 Continental Boulevard
Charlotte, NC 28273
(the "Optionee").
the original parties to a stock purchase option, dated as of April 24, 1997 (the
"Option"), as amended by that certain letter agreement between the parties,
dated September 30, 1997 (the "Letter"). Terms used in this Amendment which are
defined in the Option and not defined herein shall have the same meaning herein
as therein.
Whereas, on April 30, 1998, the Optionee, by written notice, has requested
that the Corporation register the shares of common stock issuable upon exercise
of the Option in accordance with Section 8 of the Option and Paragraph 3(b) of
the Letter.
Whereas, the Corporation asserts that regulations of the Securities and
Exchange Commission (the "SEC") may require that the Option not be exercisable
until after the SEC declares the applicable registration statement effective in
order for the Corporation to preserve its exemption from registration, provided
under Regulation D, for certain limited offerings of the Corporation.
22
<PAGE>
Now therefore, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree to the following amendment to the
Option:
A. AMENDMENT
Article 2. Exercise of Option
Article 2 of the Option is hereby amended to read as follows:
"2. Exercise of Option
2.1 Subject to the provisions hereof, Optionee may purchase the
Optioned Shares, in whole or in part, at any time, and from time to time,
during the two-year period commencing on April 24, 1997 and terminating at
5:00 p.m., New York Time, on April 23, 2000 (the "Exercise Period").
Exercise shall be effected by presentation and surrender of this Option
(or any option for which this Option has been exchanged) to the
Corporation at its principal office with a written notice of exercise
specifying the number of Optioned Shares being purchased pursuant to such
exercise, duly executed and accompanied by payment of the Exercise Price
for the number of shares specified. The date of receipt by the Corporation
of the foregoing shall be deemed to be the "Exercise Date" and the
Optionee shall be deemed to be the holder of record of the Optioned Shares
issuable upon such exercise, notwithstanding that the stock transfer books
of the Corporation shall then be closed or that certificates representing
such Optioned Shares shall not then be actually delivered to the Optionee.
2.2 In the event that the Corporation shall, on or prior to June 10,
1998, file a registration statement with the Securities and Exchange
Commission (the "SEC") registering the Company's sale to the Optionee of
the Optioned Shares (the "Registration Statement"), then any rights which
the Optionee shall have had to exercise the Option shall be deemed to be
terminated as at the day immediately preceding the date of such filing
(the "Filing Date"). In such event, the Optionee shall be entitled to
exercise the Option, in whole or in part at any time, and from time to
time, during the period commencing on the date immediately following the
date that the Registration Statement is declared effective by the SEC and
terminating at 5:00 p.m., New York Time, on April 23, 2000 (the "Exercise
Period"). Notwithstanding the foregoing, in the event the Registration
Statement is not declared effective within 120 days of the Filing Date or,
if for any reason, the Corporation shall withdraw the Registration
Statement, then upon demand of the Optionee, a new Exercise Period shall
immediately commence and shall continue until 5:00 p.m., New York Time, on
April 23, 2000.
B. NO OTHER AMENDMENTS
23
<PAGE>
Except as expressly provided in this Amendment, all of the terms and
conditions of the Option and the Letter remain in full force and effect.
C. COUNTERPARTS
This Amendment may be executed in any number of counterparts and by each
party on a separate counterpart, each of which when so executed and delivered
shall be an original, but all of which together shall constitute one Amendment.
24
<PAGE>
In Witness Whereof, the parties hereto have caused this Amendment to be
executed the day and year first above written.
THE TIREX CORPORATION
By ____________________________
Terence C. Byrne, President
CG TIRE, Inc.
By ____________________________
James A. Sears, President
25
EXHIBIT 4(Y)
"TYPE A" SECURITIES PURCHASE AGREEMENT
To Be Filed By Amendment
29
EXHIBIT 4(z)
FORM OF "TYPE B" SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of
___________, 1997, is entered into by and among (the "Purchaser"), RPM
Incorporated ("RPM"), and The Tirex Corporation ("Tirex"). This is the Agreement
referred to as "Securities Purchase Agreement" in Section 1 of the Debenture, as
defined herein in Section 2, below. The Purchaser agrees to purchase _________
Units (as hereinafter defined) in Section 2 for an aggregate purchase price of
$_________ (the "Purchase Price").
The Parties hereto agree as follows:
1. Proposed Merger of RPM and a Wholly Owned Subsidiary of Tirex. RPM has
entered into an Agreement and Plan of Merger, dated as of October 20, 1997 (the
"Merger Agreement") with Tirex and a newly formed subsidiary of Tirex (the
"Tirex Subsidiary") that provides, subject to certain conditions, that upon an
initial closing (the "Initial Closing") of the private offering to which this
Securities Purchase Agreement pertains (the "Offering"), to take place after the
sale of not less than 30 Units: (i) RPM will merge with and into the Tirex
Subsidiary (the "Merger"); (ii) each of the Debentures, as that term is defined
in Section 2, below, purchased pursuant to this Securities Purchase Agreement
prior to the said Initial Closing will be assumed by Tirex and become
convertible into shares of the common stock of Tirex, $.001 par value, per share
("Tirex Common Stock") at the conversion ratio of one share for every $0.20 of
the principal amount of the Debenture plus all accrued, but unpaid, interest
thereon (the "Conversion Shares"); and (iii) all of the shares of the Common
Stock of RPM, $.001 par value, per share (the "Unit Shares") purchased pursuant
to this Securities Purchase Agreement prior to the Initial Closing will be
exchanged for shares of Tirex Common Stock on a share-for-share basis. The
consummation of the transactions contemplated by the Merger Agreement are a
condition to the Initial Closing of the Offering. After the Initial Closing and
the effectuation of the Merger (which will take place contemporaneously
therewith), all sales of the Units made pursuant to this Securities Purchase
Agreement will be made directly by Tirex, all Unit Shares included in the Units
sold hereunder will consist of shares of Tirex Common Stock, and Tirex's
assumption of the Debentures will have occurred concurrently with the Merger.
Upon the consummation of the Merger, the net proceeds from the Offering, ranging
from an estimated minimum of $266,000 to an estimated maximum of $761,000, will
remain in RPM, and Tirex will have acquired all of the issued and outstanding
common stock of RPM for the following consideration: (i) one share of Tirex
Common Stock for every issued and outstanding share of RPM Common Stock, and
(ii) Tirex's assumption of all of RPM's obligations and liabilities under the
Debentures. Accordingly, if, during the Offering Period, as that term is defined
in the Confidential Private Offering Memorandum pertaining to the Offering (the
"Memorandum"), a minimum of 30 Units are sold, the above described Merger will
be effected and the net proceeds from the Offering will thereby inure to the
benefit of Tirex. Alternatively, if RPM fails to sell a minimum of 30 Units
during the Offering Period, all funds will be returned to the subscribers and
the Offering will terminate without any Units having been sold. As a result, any
investment in the Units purchased pursuant to this Securities Purchase Agreement
will necessarily constitute an investment in Tirex and not in RPM. Hereinafter,
references to the "Company" are to RPM prior to the Merger and to Tirex after
the Merger.
-1-
<PAGE>
2. Purchase and Sale of Securities. Upon the basis of the representations
and warranties, and subject to the terms and conditions set forth in this
Agreement, the Company covenants and agrees to sell to the Purchaser on the
Closing Date (as hereinafter defined) ______________ Units, each consisting of:
(i) a 10% Convertible Subordinated Debenture in the principal amount of $10,000
United States Dollars (each a "Debenture"); and (ii) 10,000 Unit Shares. (Prior
to the Merger, the Unit Shares will consist of 10,000 shares of the Common Stock
of RPM; After the Merger, the Unit Shares will consist of 10,000 shares of Tirex
Common Stock.) The Debenture is convertible in accordance with the terms and
conditions of the Debenture, the form of which is annexed hereto as Exhibit A,
at any time on the dates set forth in the Debenture (any such date of
conversion, being called herein a "Conversion Date") into shares of Common Stock
of the Company (the "Conversion Shares") at a conversion ratio of one Conversion
Share for every $0.20 of the principal amount of the Debenture plus all accrued
and unpaid interest thereon. If a Debenture is not converted, it may be redeemed
by the holder any time after Maturity at 100% of the principal amount of the
Debenture plus all accrued and unpaid interest thereon. In the event that the
Company effects the Proposed Public Offering, as that term is defined in the
Memorandum, the Unit Shares will be subject to a one-year lockup from the
effective date of the Proposed Public Offering. The Debentures and the Unit
Shares are referred to collectively herein as the "Securities". The descriptions
of the Debentures, the Conversion Shares, and the Unit Shares contained herein
are qualified in their entirety by the form of Debenture attached hereto as
Exhibit A and the information contained in the Memorandum under the Captions,
"THE OFFERING", "TERMS OF THE OFFERING", and "DESCRIPTION OF SECURITIES".
3. Closing. The Initial Closing of the purchase and sale of the Securities
pursuant to Section 2 hereof shall take place at the offices of Frank Hariton,
Esq., _____________________________ or at such other date, time and place as the
Purchaser and the Company may agree upon in writing, or at such other time at
which the Escrow Agent (as hereinafter defined) shall have received all
documents and instructions as it shall in its sole judgment deem necessary and
appropriate to consummate the transactions contemplated hereby (such time and
date for the Initial Closing is referred to herein as the "Initial Closing
Date"). Subsequent closings, if any, of the purchase and sale of the Securities
pursuant to Section 2 hereof shall take place on or before December 31, 1997 at
the offices of Frances Katz Levine, Esq., 621 Clove Road, Staten Island, New
York 10310 at such other dates, times and places as the Purchaser and the
Company may agree upon in writing, or at such other times at which the Escrow
Agent (as hereinafter defined) shall have received all documents and
instructions as it shall in its sole judgment deem necessary and appropriate to
consummate the transactions contemplated hereby (such times and dates for the
closing is referred to herein as the "Closing Date"). The certificates
representing the Securities to be purchased by the Purchaser shall be delivered
by, or on behalf of, the Company at the Closing Date against payment of the
Purchase Price therefor in immediately available funds by, or on behalf of, the
Purchaser to the attorney trust account of Harter, Secrest & Emery (pursuant to
this Agreement and an Escrow Agreement in the form of Exhibit B hereto) (the
"Closing Instructions"), instructing Harter, Secrest & Emery, as Escrow Agent,
with respect to the closing and settlement procedures, subject, however, to the
terms and conditions of this Agreement and the Escrow Agreement. Commencing on
the second business day after delivery to the Escrow Agent of the Purchase
Price, the Purchaser, if the purchase and sale transaction contemplated hereby
has not been consummated in accordance with the terms of this Agreement, may
terminate the proposed transaction by notice to the Company and the Escrow
Agent, whereupon the Escrow Agent shall redeliver the Purchase Price to the
Purchaser as soon as practicable in accordance with the written instructions of
the Purchaser.
-2-
<PAGE>
4. Representations, Warranties and Covenants of the Purchaser. The
Purchaser understands, and represents and warrants to, and agrees with, the
Company, that:
(a) The Securities (including the Conversion Shares and the Unit
Shares) have not been and will not be registered under the Securities Act, or
any other applicable securities law, and accordingly, may not be offered, sold,
transferred, pledged, hypothecated or otherwise disposed of ("Transferred")
unless Transferred in a transaction exempt from registration under the
Securities Act and any other applicable securities law (in which event, the
Purchaser shall be required to provide the Company with an opinion of counsel
that registration is not required, in form and substance reasonably satisfactory
to the Company and its counsel).
(b) The Purchaser recognizes that the certificates representing the
Securities (including the Conversion Shares) will bear a legend containing the
following language:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR,
UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO
ISSUER, THAT SUCH OFFER, SALE, OR TRANSFER IS EXEMPT
FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT AND SUCH LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY ALSO BE SUBJECT TO A LOCK-UP AGREEMENT,
A COPY OF WHICH IS AVAILABLE FROM THE COMPANY AT NO
CHARGE.
(c) The Purchaser is either an "Institutional Investor" or an
"Accredited Investor" within the meaning of Rule 501(a) under the Securities Act
(an "Accredited Investor"), and is acquiring or will acquire the Securities for
its own account. The Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of an
investment in the Securities. The Purchaser is aware that it may be required to
bear the economic risk of an investment in the Securities for an indefinite
period, and it is able to bear such risk for an indefinite period.
Purchaser meets at least one of the following criteria as an
"Accredited Investor" (Please check all that apply):
[ ] (a) The undersigned is a director or executive officer
of the Company;
[ ] (b) The undersigned is a natural person whose
individual net worth, or joint net worth with that
person's spouse, at the time of purchase exceeds
$1,000,000;
[ ] (c) The undersigned is a natural person who had an
individual income in excess of $200,000 in each of
the two most recent years or joint income with
that person's spouse in excess of $300,000 in each
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of those years and who reasonably expects the
same income level in the current year;
[ ] (d) The undersigned is an entity, and all of the
equity owners of such entity meet the
qualifications of either (a), (b) or (c) above or
(e), (f), (g) or (h) below;
[ ] (e) Any savings and loan association or other
institution specified in section 3(a)5(A) of the
Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant
to section 15 of the Security Exchange Act of
1934; any plan established and maintained by a
state, its political subdivisions, or any agency
or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if
such plan has total assets in excess of
$5,000,000; an employee benefit plan within the
meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined
in section 3(21) of such Act, which is a savings
and loan association, or if the employee benefit
plan has total assets in excess of $5,000,000 or,
if a self- directed plan, with investment
decisions made solely by persons that are
accredited investors;
[ ] (f) Any private business development company as
defined in section 202(a)(22) of the Investment
Advisers Act of 1940;
[ ] (g) Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or
partnership, not formed for the specific purpose
of acquiring the securities offered, with total
assets in excess of $5,000,000; and
[ ] (h) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase
is directed by a sophisticated person as described
in ss.230.506(b)(2)(ii).
(d) The Purchaser is acquiring or will acquire the Securities for its
own account for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution thereof, except in compliance with
applicable securities laws (including exemptions thereunder) or pursuant to an
effective registration statement under the Securities Act. The Purchaser agrees
to offer, sell or otherwise transfer the Securities only (i) in accordance with
the terms of this Agreement and (ii) pursuant to an exemption from registration
under the Securities Act and any other applicable securities law (in which
event, the Purchaser
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<PAGE>
shall be required to provide the Company with an opinion of counsel that
registration is not required, in form and substance reasonably satisfactory to
the Company and its counsel).
(e) The Company has furnished or made available to the Purchaser all
material information relating to the business, finances and operations of the
Company and material information relating to the offer and sale of the
Securities and which have been requested by the Purchaser. The Purchaser and/or
its advisors, if any, in each case, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the
Purchaser has had the opportunity to obtain and to review the Company's
Confidential Private Offering Memorandum (the "Memorandum") dated November __,
1997 and the Exhibits attached thereto.
(f) Purchaser, in electing to subscribe for the Securities hereunder,
has relied upon an independent investigation made by it and its representative,
if any. Purchaser has been given no oral or written representations or
assurances from the Company or any representation of the Company other than as
set forth in this Agreement or in a document executed by a duly authorized
representative of the Company making reference to this Agreement.
(g) The Purchaser has no existing short position with respect to the
Common Stock and agrees not to, for a period 180 days from the Closing Date,
enter into any short sales or other hedging transactions directly involving the
Common Stock. Purchaser further agrees that, at all times after the execution of
this Agreement by the Purchaser and prior to conversion or exercise of all
Securities acquired by Purchaser, it will keep its purchase of the Securities
confidential, except as required by law, as necessary in the ordinary course of
Purchaser's business or as necessary to effectuate the conversion of such
Securities, as applicable.
(h) The Purchaser acknowledges that, except for the historical
material contained herein or in the Securities and Exchange Commission ("SEC")
documents respecting Tirex attached as Exhibits to the Memorandum (the "SEC
Documents"), the matters disclosed herein and therein are forward-looking
statements under the federal securities laws that involve risks and
uncertainties, including, but not limited to, product demand and market
acceptance risks, the effect of economic conditions, the impact of competitive
products and pricing, product development, commercialization and technological
difficulties, capacity and supply constraints or difficulties, the results of
financing efforts, actual purchases under agreements, the effect of the
Company's accounting policies, and other risks detailed in Tirex's SEC
Documents. Actual results could differ materially from those estimated or
anticipated in these forward-looking statements.
(i) The Purchaser is a resident of the state set forth on the
signature page hereto.
(j) Possible Non-Occurrence of Public Offering. The undersigned
acknowledges that the undersigned has been advised that no assurance can be
given that the proposed public offering of Tirex, which is described in the
Confidential Private Memorandum, will occur or that any public offering of Tirex
securities, underwritten by H.J. Meyers & Co., Inc. or any other underwriter,
will occur. The undersigned agrees that he shall not assert any claim against
H.J. Meyers & Co., Inc. or any other person based upon the non-occurrence of any
public offering of Tirex securities.
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5. Possible Material Changes in Offering Terms Due to NASD Review.
Following the closing of this Offering and prior to the closing of any proposed
public offering, should such public offering take place, the company intends to
apply for the listing of its Common Stock on the National Association of
Securities Dealers ("NASD") Automated Quotation System SmallCap Market System.
In connection with such listing application, the NASD may require that the terms
of this Offering be materially modified. The Purchaser hereby agrees to make any
such changes and modifications as may be required in connection with the
foregoing and hereby further agrees to any such necessary changes that may occur
on a post-closing basis. The Purchaser agrees to take such actions and do such
things as are reasonably required by the Company in connection with the
foregoing.
6. Representations and Warranties of RPM and Tirex (Singly, and
Collectively as the "Company"). RPM and Tirex, singly and collectively, and
jointly and severally, as the case may be, hereby represent and agree with the
Purchaser that:
(a) RPM has been duly incorporated and is validly existing as a
corporation under the laws of Delaware and has the requisite corporate power to
own its properties and to carry on its business, if any, as now being conducted.
(b) The Company and each of its Subsidiaries have been duly
incorporated and are validly existing as a corporation under the laws of
Delaware or Canada or other appropriate jurisdiction and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted.
(c) This Agreement and the Debenture have been duly authorized,
executed and delivered by the Company and constitute valid and binding
agreements, enforceable in accordance with their respective terms (except to the
extent that enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally), and the Company has
full corporate power and authority necessary to enter into such agreements and
to perform its obligations thereunder.
(d) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its affiliates or of any third party or of the stockholders of the
Company is required for execution of this Agreement or the Debenture or the
performance of its obligations under such agreements, including, without
limitation, the issuance and sale of the Securities or the Conversion Shares
(except that any notices of sale required to be filed with the Securities and
Exchange Commission pursuant to Regulation D promulgated under the Securities
Act of 1933 or any state securities law authority pursuant to applicable blue
sky laws may be filed within the applicable periods therefor).
(e) Neither the sale of the Securities pursuant to this Agreement, nor
the performance of its obligations under this Agreement or the Debenture by the
Company will:
(f) violate, conflict with, result in a breach of, or constitute a
default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
of incorporation or by-laws of the Company or its subsidiaries, (B) any decree,
judgment, order, law, treaty, rule regulation or determination applicable to the
Company or its subsidiaries of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or its subsidiaries or over the
properties or assets of the Company or its subsidiaries, the violation,
conflict, breach or default of which
-6-
<PAGE>
would have a material adverse effect on the Company and its subsidiaries
considered as a whole, (C) the terms of any bond, debenture, or any other
evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company or its subsidiaries is a party by which the Company or its subsidiaries
is bound, or to which any of the properties of the Company or its subsidiaries
is subject, the violation, conflict, breach or default of which would have a
material adverse effect on the Company and its subsidiaries considered as a
whole, or (D) the terms of any "lockup" or similar provision of any underwriting
or similar agreement to which the Company or its subsidiaries is a party; or
(g) result in the creation or imposition of any lien, claim or other
encumbrance upon any of the assets of the Company or its subsidiaries.
(h) The Securities have been duly and validly authorized and are (i)
free and clear of any security interests, liens, claims or other encumbrances,
(ii) are duly and validly issued, (iii) fully paid and nonassessable, (iv) not
issued or sold in violation of any preemptive or other similar rights of the
holders of any securities of the Company, and (v) do not subject the holders
thereof to personal liability by reason of being such holders.
(i) The Conversion Shares and the Unit Shares have been duly and
validly authorized and when issued (i) will be free and clear of any security
interests, liens, claims or other encumbrances, (ii) will be duly and validly
issued, (iii) will be fully paid and nonassessable, (iv) will not have been
issued or sold in violation of any preemptive or other similar rights of the
holders of any securities of the Company, and (v) will not subject the holders
thereof to personal liability solely by reason of being such holders.
(j) Except as set forth in the SEC Documents, there is no pending or,
to the best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates that would
materially affect the results of operations of the Company or its subsidiaries
or adversely affect the execution by the Company of, or adversely affect the
performance by the Company of its obligations under, this Agreement or the
Debenture or the transactions contemplated hereby or thereby.
(k) Neither the Company, nor any authorized representative of the
Company, has made, at any time, any written or oral communication in connection
with the offer or sale of the securities offered hereby which contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
(l) Assuming the accuracy of, and compliance with, the
representations, warranties and covenants of the Purchaser in this Agreement,
the sale of the Securities offered hereby pursuant to this Agreement have been
made in accordance with the provisions and requirements of Section 4(2)
("Section 4(2)") under the Securities Act and Regulation D and Rule 506
promulgated thereunder and any applicable state law.
(m) None of the Company, any affiliate of the Company, or any person
acting on behalf of the Company or any such affiliate has engaged, or will
engage, in any general solicitation or general advertising with respect to the
Securities.
(n) Both RPM and Tirex are corporation's duly organized, validly
existing and in good standing under the laws of the State of Delaware and each
is duly qualified as a foreign
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<PAGE>
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on either such corporation and its subsidiaries taken as
a whole. Tirex's subsidiary, 3143619 Canada, Inc., doing business as Tirex
Canada, is duly organized, validly existing and is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Neither Tirex nor RPM has registered its Common Stock pursuant to the Exchange
Act of 1934, as amended (the "Exchange Act"), the Common Stock of RPM is not
publicly traded; the Common Stock of Tirex is listed and trades on the NASD
Over-the-Counter Electronic Bulletin Board System. Tirex has filed all materials
required to be filed pursuant to all reporting obligations under either Section
13(a) or 15(d) of the Exchange Act for at least 12 months immediately preceding
the date hereof, and has received no notice, either oral or written, with
respect to the continued eligibility for such listing. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). Prior
to the date hereof, the Company has corrected all statements in the SEC
Documents which have required correction and has filed all necessary amendments
to the SEC Documents, in each case as required by applicable law.
(o) As of the date hereof, the authorized capital stock of the Company
consists of (i) 50,000,000 shares of which 35,000,000 shares are designated in
the certificate of incorporation as common stock, par value $.001 per share and
fifteen million (15,000,000) shares are designated as Open Stock, par value
$.001 per share. All of the shares of Open Stock have been or will be designated
as shares of Common Stock, par value $.001 per share, of which 38,774,625 shares
are issued and outstanding, and (ii) no shares of preferred stock, no par value
per share, of which no shares are issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. Except in connection with: (i) employee compensation agreements; (ii) a
certain stock purchase option held by CG TIRE, Inc., as described in the
Company's 1997 10-K; and (iii) certain stock options held by consultants, as
described in the 1996 10-K, there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no outstanding debt securities of the Company
except as may be incurred pursuant to the issuance of certain Subordinated
Convertible Debentures, which form part of certain Units being offered
concurrently herewith by Tirex, in a maximum aggregate principal amount of
$700,000 (which may, under certain circumstances, be increased to a maximum
aggregate principal amount of $875,000). The Company has made available to the
Purchaser true and correct copies of the Company's Certificate of Incorporation,
as amended, as in effect on the date hereof ("Certificate of Incorporation"),
and the Company's By-laws, as in effect on the date hereof (the "Bylaws").
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<PAGE>
(p) The Company undertakes and agrees to make all necessary filings in
connection with the sale of the Securities offered hereby as required by the
United States laws and the regulations or any domestic securities exchange or
trading market.
(q) Except as set forth in the SEC Documents or the Memorandum, there
has been no material adverse development in the assets, liabilities, business
properties, operations, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, except as disclosed in the
filings of the Company with the SEC.
(r) None of the filings of the Company with the SEC contained at the
time they were filed, and the Memorandum does not contain, any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has filed
all requisite forms, reports and exhibits thereto with the SEC. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents.
(s) Except as set forth in the SEC Documents and in the Memorandum,
there is no known fact to the Company or any subsidiary (other than general
economic conditions generally known to the public) that has not been disclosed
in writing to the Purchaser that (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Company or any subsidiary, or (ii) could reasonably be expected to adversely
affect the ability of the Company or any subsidiary to perform its obligations
pursuant to this Agreement or the Debenture.
(t) The Company acknowledges and agrees that Purchaser is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement, the Debenture, and the transactions contemplated hereby and thereby.
The Company further acknowledges that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement, the Debenture, or the transactions contemplated hereby and
thereby and any advice given by Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereby and thereby is merely incidental to Purchaser's purchase of the
Securities. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement, and the Debenture has been based solely
on the independent evaluation by the Company and its representatives.
(u) Neither the Company, nor any of its affiliates, has, directly or
indirectly, made any offers or sales of any securities or solicited any offers
to buy any security, under circumstances that would require registration of the
Securities under the 1933 Act.
(v) Except as set forth within this Agreement, the SEC Documents, or
the Memorandum, the Company and its subsidiaries own, have obtained or possess
rights to use the patents, trademarks, trade names, service marks, service mark
registrations, patents, copyrights, licenses, approvals, governmental
authorizations, trade secrets and other rights necessary to conduct their
respective businesses as now conducted, the Company does not have any knowledge
of any material infringement by the Company or its subsidiaries of any
trademark, trade name rights, patent rights, copyrights, licenses, service
marks, service mark registrations, trade secrets or other similar rights of
others and there is no claim being made against the Company or its subsidiaries
regarding trademark, trade name, patent, copyright, license, service marks,
service mark registrations, trade secret or other infringement which could have
a material
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<PAGE>
adverse effect on the Company. The Company and its subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
(w) The Company understands and acknowledges the potentially dilutive
effect to its Common Stock upon the issuance of each of the Conversion Shares
and each share of the Common Stock.
7. Covenants of the Company. The Company covenants and agrees with the
Purchaser:
(a) To comply with all requirements of Section 4(2) and Section
3(a)(9), as applicable, and to the extent applicable Regulation D under the
Securities Act, with respect to the sale of the Securities and the Conversion
Shares.
(b) To notify the Purchaser promptly if at any time during the period
beginning on the date of this Agreement and ending on the final Closing Date of
any event shall have occurred as a result of which any written or oral
communication made by the Company, any authorized person representing the
Company, would include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) To cause the Conversion Shares and the shares of Common Stock,
which form part of the Units being purchased hereunder, to be, upon delivery,
fully paid, nonassessable, free of preemptive rights and free from all taxes,
liens, charges, security interests or other encumbrances.
(d) Have at all times authorized and reserved for issuance, free from
preemptive rights, a sufficient number of shares of Common Stock to satisfy the
conversion and exercise rights of the Purchaser pursuant to the terms and
conditions of all Securities and to satisfy the issuance of any other shares of
Common Stock which are reserved for issuance or which are issuable upon the
exercise, conversion, exchange or satisfaction of any outstanding securities or
obligations or rights of the Company.
(e) Each party shall use its best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary,
including without limitation, timely to satisfy the conditions to be satisfied
as provided in Section 8 and 9 of this Agreement, to consummate the transactions
contemplated hereby.
(f) Until the date on which the holders may sell all of the Conversion
Shares and shares of Common Stock, which form part of the Units being purchased
hereunder, without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), Tirex shall use its best efforts to timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, and
Tirex shall not voluntarily terminate its status as a Company required to file
reports under the 1934 Act even if the Act or the rules and regulations
thereunder would permit such termination.
(g) The Company covenants and agrees that it will not without the
prior written consent of the Purchaser, (a) enter into any subsequent or further
offer or sale of Common Stock or securities convertible or exercisable into
Common Stock with any third party until May 31, 1998 unless the Company first
offers H.J. Meyers & Co., Inc. the right to place
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such securities, after which H.J. Meyers shall have five business days from the
time of the offer to accept or reject it. If H.J. Meyers accepts the offer, the
placement of such additional securities shall be made upon substantially the
same terms as set forth herein or such other terms to be agreed upon between the
Company and H.J. Meyers. If H.J. Meyers rejects the offer, the Company shall be
permitted to proceed with the additional offering. However, this restriction
shall not apply to (i) the issuance of securities (other than for cash) in
connection with the terms of presently existing employee compensation agreements
a merger, consolidation, sale of assets, disposition of a business, product or
license by the Company, strategic alliance, bank loan or agreement, public
offering, securities issued at the then current market price (as determined in
good faith by the board of Directors), or the exercise of options, or presently
outstanding options or (ii) the exchange of the capital stock for assets, stock
or other joint venture interests. However, nothing contained herein shall be
deemed to preclude the Company from taking such action as may be reasonably
required to cure any alleged default under agreements to which the Company is or
may become a party.
8. Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the performance by the Company of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct in all
material respects as of the date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of the Closing Date. The
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. If requested, the Company shall certify to Purchaser and the Escrow Agent
that the requirements of this Section 8(a) have been met.
(b) Pursuant to this Agreement (this "Agreement"), the Company shall
have: (i) instructed its transfer agent, Continental Stock Transfer and Trust
Co. Inc., to issue to the Purchaser the shares of Common Stock, forming part of
the Units being purchased hereunder and (ii) have issued to Purchaser a
Debenture in the form annexed hereto as Exhibit A.
(c) If requested, the Company will provide to the Purchaser an opinion
or opinions of counsel satisfactory to counsel for the Purchaser.
(d) None of the following shall have occurred: (i) any general
suspension of trading in, or limitation on prices listed for, the Common Stock
on the NASD Over-the-Counter Electronic Bulletin Board System, (ii) a
declaration of a banking moratorium or any suspension of payments in respect to
banks in the United States, (iii) a commencement of a war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States, (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof, or (v) any limitation
by the federal or state authorities on the extension of credit by lending
institutions that materially and adversely affects the Purchaser.
(e) No action, suit, investigation or proceeding before or by any
governmental authority shall have been commenced or threatened in writing
against the Company or any of the officers, directors or affiliates of the
Company, which seeks to restrain, prevent or challenge the transactions
contemplated by this Agreement or the Debenture or which seeks damages in
connection with such transactions.
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9. Conditions Precedent to the Company's Obligations.
(a) The obligations of the Company hereunder are subject to the
performance by the Purchaser of its obligations hereunder and to the
satisfaction of the condition precedent that the representations and warranties
made by the Purchaser in this Agreement shall, unless waived by the Company, be
true and correct in all material respects as of the date hereof and at the
Closing Date, with the same force and effect as if they had been made on and as
of the Closing Date.
(b) The Purchaser shall have delivered to the Escrow Agent by check or
wire transfer the Purchase Price for the Securities.
10. Transfer of Securities.
(a) Securities Act Legend. Each of the certificates evidencing the
Securities and the Conversion Shares, and any certificates issued upon transfer
or exchange of the foregoing, shall be stamped or imprinted with a legend
containing language similar to the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR,
UNLESS, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE
SATISFACTORY TO ISSUER'S COUNSEL THAT IT IS EXEMPT FROM
REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT
AND SUCH LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY ALSO BE SUBJECT TO A LOCK-UP AGREEMENT,
A COPY OF WHICH IS AVAILABLE FROM THE COMPANY AT NO
CHARGE.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities and the
Conversion Shares, as applicable, if, unless otherwise required by state
securities laws, such holder provides the Company with reasonable assurances
that the shares of Common Stock, constituting part of the Units being purchased
hereunder, and the Conversion Shares, as applicable, can be sold pursuant to
Rule 144 under the 1993 Act (or a successor rule thereto). Notwithstanding the
removal of any such legend, Purchaser agrees to Transfer the Securities and the
Conversion Shares, including those represented by certificate(s) from which the
legend has been removed, in compliance with all applicable securities laws and,
if, in connection with any Transfer, a legend would be appropriate under
applicable securities laws, Purchaser shall, in connection with any such
Transfer ensure that the certificates representing any securities so Transferred
shall bear the foregoing legend.
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<PAGE>
(b) Securities Act Compliance. Each holder (a "Holder") of a
certificate evidencing the shares of Common Stock, constituting part of the
Units being purchased hereunder, and the Conversion Shares which bears the
restrictive legend set forth in Section 4(b) above (the "Restricted
Securities"), and who proposes to Transfer (as defined in Section 4(a) of this
Agreement) any Restricted Securities (other than pursuant to Rule 144), shall
give written notice to the Company of such Holder's intention to effect such
Transfer. Each such notice shall describe the manner and circumstances of the
proposed sale or other disposition in sufficient detail and may be accompanied
by an opinion of legal counsel to the Holder. Promptly upon receipt of such
notice, the Company shall present a copy thereof (together with any accompanying
opinion of legal counsel to the Holder) to its legal counsel, and the following
provisions shall apply:
(c) If, in the opinion of legal counsel to such Holder, reasonably
satisfactory in form and substance to the Company and its legal counsel, or if
such notice was not accompanied by an opinion of legal counsel to the Holder,
then, if, in the opinion of legal counsel to the Company, the proposed sale or
other disposition may be effected without registering the Restricted Securities
involved under the Securities Act or under state securities law, such Holder
shall be entitled to so Transfer such Restricted Securities in accordance with
the terms of such notice delivered to the Company pursuant to this paragraph
(b). The Company will advise the Holder, within five business days after
submission of such notice, whether the Company believes such Holder is entitled
to so Transfer the restricted Securities in accordance with the foregoing. If
the Holder is entitled to so Transfer, he shall submit the stock certificate or
certificates evidencing the Restricted Securities to be Transferred to the
Company in proper form for Transfer and accompanied by appropriate instruments
of Transfer and the Company shall promptly issue new certificates giving effect
to such Transfer. Certificates for Restricted Securities thus Transferred (and
each of the certificates evidencing any untransferred balance of the Conversion
Shares not so transferred) shall bear the restrictive legend set forth in
Section 4(b), unless, in the opinion of such Holder's legal counsel, which
opinion shall be reasonably satisfactory in form and substance to legal counsel
to the Company, such legend is not required by the applicable provisions of the
Securities Act or state securities laws; and
(d) If in the reasonable opinion of the legal counsel to the Company
that, the proposed Transfer cannot be effected without registering the
Restricted Securities involved under the Securities Act or state securities
laws, such Holder shall not offer to Transfer such Restricted Securities unless
and until an exemption from such registration becomes available.
(e) Subject to the restrictions set forth in Section 10 (a) and (b)
above, upon the valid conversion of the Debenture, the Company shall instruct
its transfer agent to issue certificates, registered in the name of Purchaser or
its nominee, for the Conversion Shares in such amounts as specified from time to
time by the respective Purchasers to the Company. The Company shall provide
instructions and opinions of counsel to its transfer agent in accordance with
this Section 10. The Company warrants that no instruction other than such
instructions referred to in this Section 10 will be given by the Company to its
transfer agent. Nothing in this Section shall affect in any way Purchaser's
obligations and agreement to comply with all applicable securities laws upon
resale of the Conversion Shares.
11. Fees and Expenses. Each of the Purchaser and the Company agrees to pay
its respective expenses incident to the performance of its obligations
hereunder, including, but not limited to, the fees, expenses and disbursements
of such party's counsel.
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<PAGE>
12. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Company and the Purchaser, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of any payment for the Units.
13. Notices. All notices, requests and other communications hereunder must
be in writing and delivered to the parties at the following addresses or
facsimile numbers:
If to Purchaser, to: __________________________
__________________________
__________________________
Telephone:
Telecopy:
If to RPM, to: RPM Incorporated
c/o The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
Telephone: (514) 878-0727
Telecopy: (514) 878-9847
with copies to: Frank Hariton, Esq.
1065 Dobbs Ferry Road
White Plains, New York 10607
Telephone: (914) 693-7353
Telecopy: (914) 693-2963
and
Frances Levine, Esq.
621 Clove Road
Staten Island, New York 10310
Telephone: (718) 981-8485
Telecopy: (718) 447-1153
If to Tirex: The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
Telephone: (514) 878-0727
Telecopy: (514) 878-9847
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<PAGE>
with a copy to: Frances Levine, Esq.
621 Clove Road
Staten Island, New York 10310
Telephone: (718) 981-8485
Telecopy: (718) 447-1153
All such notices, requests and other communications will (i) if delivered
personally (including, without limitation, by reputable overnight courier
service) to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon telecopy generated confirmation
of receipt; provided that prior telephonic notice of such facsimile transmission
is given and that each such facsimile is forwarded to the party receiving notice
by prepaid overnight delivery service for receipt the following business day;
and (iii) if delivered by mail in the manner described above to the address as
provided in this Section, be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
14. Third Party Beneficiary. Any permitted transferee of any part of the
principal amount of the Securities or the Conversion Shares, shall be a third
party beneficiary of the Company's obligations under this Agreement and the
Debenture. Such person shall have all the rights of a third party beneficiary
with respect to the enforcement against the Company of any provision of this
Agreement and the Debenture.
15. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same agreement.
This Agreement, once executed by a party, may be delivered to the other party by
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and permitted assigns.
(c) This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without given effect to conflicts of
laws principles). With respect to any suit, action or proceedings relating to
this Agreement, each of the Company and the Purchaser irrevocably submits to the
exclusive jurisdiction of the state courts of the State of New York and the
Federal courts located in Monroe County in the City of Rochester and hereby
waives to the fullest extent permitted by applicable law any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. Subject to
applicable law, the Company agrees that final judgment against it in any legal
action or proceeding arising out of or relating to this Agreement, or any
transaction contemplated hereby or thereby, shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided by
law.
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<PAGE>
(d) The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
(e) The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid, illegal or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect in
that jurisdiction only such clause or provision, or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
(f) This Agreement, including the exhibits hereto, constitutes the sole
and entire agreement of the parties with respect to the subject matter hereof.
(g) Purchaser shall have the right to approve before issuance any press
releases or any other public statements with respect to the transaction
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions not referring directly by
name to Purchaser and as is required by applicable law, rules or regulations, or
the requirements imposed by the NASD Over-the-Counter Bulletin Board System
Stock Market (although Purchaser shall be provided with a copy of any such press
release or other public disclosure upon its release).
(h) Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
(i) Notwithstanding any of the representations, warranties,
acknowledgments or agreements made herein by the Company and Purchaser, the
Company and Purchaser does not thereby or in any manner waive any rights granted
to it or him under U.S. Federal or state securities laws.
16. Time of Essence. Time shall be of the essence in this Agreement.
17. Escrow Agent. The Escrow Agent shall not be liable for any action
taken or omitted by it in good faith and its liability hereunder shall be
limited to liability for gross negligence or willful misconduct on its part. The
Company and the Purchaser agree to save harmless, indemnify and defend the
Escrow Agent for, from and against their respective share of any loss, damage,
liability, judgment, cost and expense whatsoever, by reason of, or on account
of, any misrepresentation made to it or its status or activities as Escrow Agent
under this Agreement except for any loss, damage, liability, judgment, cost or
expense resulting from gross negligence or willful misconduct on the part of the
Escrow Agent.
The Escrow Agent shall not be responsible for any failure or inability
of any of the parties to perform or comply with the provisions of this
Agreement, or the agreements delivered in connection herewith.
In the performance of its duties hereunder, the Escrow Agent shall be
entitled to rely in good faith upon any document (including facsimile
transmitted copies of documents), instrument or signature believed by it in good
faith to be genuine and to be signed by any party
-16-
<PAGE>
hereto or an authorized officer or agent thereof, and shall not be required to
investigate the truth or accuracy of any statement contained in any such
document or instrument. The Escrow Agent may assume in good faith that any
person purporting to give any notice in accordance with the provisions hereof
has been duly authorized to do so.
Each party hereto acknowledges that the Escrow Agent is serving as an
accommodation to the parties hereto. Each party further acknowledges that the
Escrow Agent has acted, acts, and will continue to act as legal counsel in
certain matters to H.J. Meyers & Co., Inc. ("Meyers").
It is understood and further agreed that the Escrow Agent shall:
(a) be under no duty to enforce payment of any subscription that is to be
paid to and held by it hereunder,
(b) promptly notify the Purchaser and the Company of any discrepancy
between the amounts set forth on any statement delivered by the Purchaser and/or
the Company and the sum or sums delivered to it therewith;
(c) be under no duty to accept funds, checks, drafts or instruments for
the payment of money from anyone other than the Company or the Purchaser, or to
give any receipt therefor except to the Company or the Purchaser, with a copy in
each case to the Company;
(d) be protected in acting upon any notice, request, certificate,
approval, consent or other paper reasonably believed by it to be genuine and to
be signed by the proper party or parties (including, but not limited to, copies
of documents transmitted by facsimile);
(e) be permitted to consult with counsel of its choice, and shall not be
liable for any action taken, suffered, or omitted by it in accordance with the
advice of such counsel; provided, however, that nothing in this subsection (e),
nor any action taken by the Escrow Agent, or suffered or omitted by it in
accordance with the advice of any counsel, shall relieve the Escrow Agent from
liability for any claims that are occasioned by its gross negligence or willful
misconduct;
(f) not be bound by any modification, amendment, termination,
cancellation, or recision of this Agreement, unless the same shall be in writing
and signed by it;
(g) be entitled to refrain from taking any action other than to keep all
property held in escrow if it (i) shall be uncertain concerning its duties or
rights hereunder, or (ii) shall have received claims or demands from any party,
or (ii) shall have received instructions from the Purchaser and/or the Company
that, in the Escrow Agent's opinion, are in conflict with any of the provisions
of this Agreement, until it shall have received a final judgment by a court of
competent jurisdiction;
(h) have no liability for following the instructions herein or expressly
provided for herein, or the written instructions given jointly by the Purchaser
and/or the Company; and/or
(i) have the right, at any time, to resign hereunder by giving written
notice of its resignation to all other parties hereto at least three business
days prior to the date specified for such resignation to take effect, and upon
the effective date of such resignation all cash and other payments and all other
property then held by the Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by the other parties executing this
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<PAGE>
Agreement, whereupon the Escrow Agent's obligations hereunder shall cease and
terminate. If no such person has been designated by such date, all obligations
of the Escrow Agent hereunder shall, nevertheless, cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely all
property then held by it and to deliver the same to a person designated by the
other parties executing this Agreement or in accordance with the directions of a
final order or judgment of a court of competent jurisdiction.
18. Delivery of Securities. Subject to the Notice provisions of Section
13, above, the Company will permit the Purchaser to exercise its right to
convert the Debenture by telecopying a duly executed and completed notice of
conversion or exercise, as applicable, containing Purchaser's name, address and
amount of the Debenture to be converted, in a form understandable by the Company
and delivering within five business days thereafter, the original notice of
conversion and Debenture (the "Original Documentation"), by express courier.
Each date on which a notice of conversion is telecopied to and received by the
Company (pursuant to Paragraph 11 hereof) in accordance with the provisions
hereof shall be deemed a Conversion Date. The Company will issue the
certificates representing the Conversion Shares via express courier within five
business days after receipt by the Company of the Original Documentation.
19. Liquidated Damages for Failure to Deliver. The Company understands
that a delay beyond the deadline for delivery, specified in Paragraph 16, could
result in economic loss to the Purchaser. As compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser for the late
issuances of shares issuable at conversion or exercise in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five business days after receipt by the Company of the
original documentation):
No.
Business Days Late Payment for Each $5,000 of
Late Debenture Being Converted
------------- -------------------------------
5 $50.00
6 $100.00
7 $150.00
8 $200.00
9 $250.00
10 $300.00
11 $350.00
12 $400.00
>13 $400 + $100.00 for each Business
Day Late Beyond 10 Days
The Company shall make any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit a
Purchaser's right to actual damages for the Company's failure to issue and
deliver the Conversion Shares to the Purchaser. Furthermore, in addition to any
other remedy which may be available to the Purchaser, in the event that the
Company fails for any reason to effect delivery of Conversion Shares within five
business days after the date on which the Company has received the Original
Documentation, the Purchaser will be entitled to elect to be deemed to be
treated as not having exercised the relevant Notice of Conversion by delivering
a notice to such effect to the Company whereupon the Company and the Purchaser
shall each be restored to their respective positions immediately prior to such
Notice of Conversion; provided, however, that no such election shall constitute
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<PAGE>
waiver of any right or remedy Purchaser may have and the Company shall still be
obligated not withstanding any such election to make penalty payments hereunder
and for any actual damages.
20. Non-Delivery of the Shares. If, within five business days of the date
after receipt by the Company of the Original Documentation, the Company shall
fail to (i) issue the Conversion Shares and (ii) deliver to the Purchaser the
Conversion Shares for any reason other than failure by the Purchaser to comply
with its obligations hereunder, then the Company shall:
(a) hold the Purchaser harmless against any loss, claim or damage
arising from or as a result of such failure by the Company (including, without
limitation, any such loss, claim or damage resulting from an obligation to
resell the Conversion Shares); and
(b) reimburse the Purchaser for all of its out-of-pocket expenses
reasonably incurred, including fees and disbursements of its counsel, incurred
by the Purchaser in connection with this Agreement and the transactions
contemplated herein; provided, however, that the Company shall not have further
liability to the Purchaser except as provided for in this Section 18.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer(s) of each party hereto as of the date first above
written.
Purchaser: RPM Incorporated:
____________________________ By____________________________
Name:
Title:
The Tirex Corporation
By___________________________
Name:
Title:
-19-
EXHIBIT 4(aa) THE TIREX CORPORATION
SUBSCRIPTION AND REGISTRATION RIGHTS
AGREEMENT
COMMON STOCK, $.001 PAR VALUE
Securities Purchase Agreement (the "Agreement"), is entered into by and
between ______________ (the "Purchaser") and The Tirex Corporation (the
"Company").
1. Purchase and Sale of Common Stock.
Upon the basis of the representations and warranties, and subject to the
terms and conditions set forth in this Agreement, the Purchaser agrees to
purchase, and the Company agrees to sell to the Purchaser _________ shares of
the common stock of the Company, $.001 par value, per share (the "Shares") at a
per share price of $0.10 (the "Purchase Price").
2. Registration Rights
The Company will file a registration statement under the Securities Act of
1933, as amended (the "Act") covering the Shares as promptly as practicable
after the expiration of all presently outstanding offers for the sale of the
Company's securities and will use its best efforts to cause such registration
statement to be declared effective by the SEC as promptly as possible.
3. Representations, Warranties and Covenants of the Purchaser
The Purchaser understands, and represents and warrants to, and agrees
with, the Company, that:
(a) The Shares have not been, and, until they are registered under the
Securities Act pursuant to Paragraph 2, above, will not be, registered under the
Securities Act or any other applicable securities law and, accordingly, may not
be offered, sold, transferred, pledged, hypothecated, or otherwise disposed of
("Transferred") unless registered under the Securities Act or unless they are
transferred in a transaction exempt from registration under the Securities Act
and any other applicable securities law.
(b) The Purchaser understands that, until the Shares are registered
under the Securities Act in accordance with Paragraph 2, above, the certificates
representing the Shares will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE
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<PAGE>
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR,
UNLESS, IN THE OPINION OF COUNSEL TO THE ISSUER, SUCH
OFFER, SALE, OR TRANSFER IS EXEMPT FROM REGISTRATION OR
IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS.
(c) The Purchaser is either an "Institutional Investor" or an
"Accredited Investor" within the meaning of Rule 501(a) under the Securities Act
(an "Accredited Investor"), and is acquiring or will acquire the Shares for the
Purchaser's own account. The Purchaser has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of an investment in the Shares. The Purchaser is aware that he
or she may be required to bear the economic risk of an investment in the Shares
for an indefinite period, and is able to bear such risk for an indefinite
period.
Purchaser meets at least one of the following criteria as an
"Accredited Investor" (Please check all that apply):
[ ] (a) The undersigned is a director or executive officer
of the Company;
[ ] (b) The undersigned is a natural person whose
individual net worth, or joint net worth with that
person's spouse, at the time of purchase exceeds
$1,000,000;
[ ] (c) The undersigned is a natural person who had an
individual income in excess of $200,000 in each of
the two most recent years or joint income with
that person's spouse in excess of $300,000 in each
of those years and who reasonably expects the same
income level in the current year;
[ ] (d) The undersigned is an entity, and all of the
equity owners of such entity meet the
qualifications of either (a), (b) or (c) above or
(e), (f), (g) or (h) below;
[ ] (e) Any savings and loan association or other
institution specified in section 3(a)5(A) of the
Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant
to section 15 of the Security Exchange Act of
1934; any plan established and maintained by a
state, its political subdivisions, or any agency
or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if
such plan has total assets in excess of
$5,000,000; an employee benefit plan within the
meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined
in section 3(21) of such Act, which is a savings
and
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<PAGE>
loan association, or if the employee benefit plan
has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made
solely by persons that are accredited investors;
[ ] (f) Any private business development company as
defined in section 202(a)(22) of the Investment
Advisers Act of 1940;
[ ] (g) Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or
partnership, not formed for the specific purpose
of acquiring the securities offered, with total
assets in excess of $5,000,000; and
[ ] (h) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase
is directed by a sophisticated person as described
in ss.230.506(b)(2)(ii).
(d) The Purchaser is acquiring or will acquire the Shares for its own
account for investment purposes and not with a view to, or for offer or sale in
connection with, any distribution thereof, except in compliance with applicable
securities laws (including exemptions thereunder) or pursuant to an effective
registration statement under the Securities Act. The Purchaser agrees to offer,
sell or otherwise transfer the Shares only (i) in accordance with the terms of
this Agreement and (ii) pursuant to registration under the Securities Act or an
exemption from registration under the Securities Act and any other applicable
securities law.
(e) The Company has furnished or made available to the Purchaser all
material information relating to the business, finances and operations of the
Company and material information relating to the offer and sale of the Shares
and which have been requested by the Purchaser, the Purchaser and/or its
advisors, if any, in each case, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the
Purchaser acknowledges that he or she has been furnished with, and has had the
opportunity to review, a copy of a draft of the Company's registration statement
on Form SB-2 (the "Draft Registration Statement"); the Purchaser understands
that such Draft Registration Statement has not yet been filed with the
Securities and Exchange Commission ("SEC"), and that no sales of any securities
can be made pursuant to such Draft Registration Statement unless and until it
shall be filed with, and declared effective by, the SEC; The purchaser
acknowledges further that he or she understands that except for the historical
matters discussed in the Draft Registration Statement, the matters discussed
therein are forward-looking statements under the federal securities laws that
involve risks and uncertainties, including, but not limited to, product demand
and market acceptance risks, the effect of economic conditions, the impact of
competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraints or difficulties, the
results of financing efforts, actual purchases under agreements, the effect of
the Company's accounting policies, and other risks detailed therein. The
purchaser understands that actual results could differ materially from those
estimated or anticipated in these forward-looking statements.
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<PAGE>
(f) The Purchaser, in electing to subscribe for the Shares hereunder,
has relied upon an independent investigation made by it and its representative,
if any. The Purchaser has been given no oral or written representations or
assurances from the Company or any representation of the Company other than as
set forth in this Agreement.
(g) The Purchaser understands that it is within the sole and absolute
discretion of the Company whether to accept his or her subscription in whole or
in part and that this subscription is not binding unless and until it is
accepted by the Company. The Purchaser also understands and agrees that his or
her subscription to purchase the Shares shall not be deemed binding upon the
Company until the funds paid by the Purchaser herewith clear and are credited to
the Company's account. If all or any part of this subscription is not accepted,
the funds paid by the Purchaser representing such partially or completely
rejected subscription, delivered herewith, with be returned promptly to the
Purchaser, without interest.
(h) The Purchaser has the ability to evaluate the merits and risks of
an investment in the Company based upon his or her knowledge and experience in
financial and business matters.
(i) The Purchaser's investment in the Company has not been solicited
by means of public solicitation or advertisement and all of the information and
representations contained herein, particularly those representations relating to
the Purchaser's general ability to bear the risks of the investment being made
hereby and my suitablilty as an Investor are true and correct.
(j) The Purchaser is aware that the Shares are a speculative
investment involving a very high degree of risk and that there is no guarantee
that the Purchaser will realize any gain from an investment in the Shares. The
Purchaser is able (i) to bear the economic risk of this investment, (ii) to hold
the Shares indefinitely, and (iii) presently able to afford a partial or
complete loss of this investment; and has adequate other means of providing for
his or her current needs and personal contingencies and therefor has no need for
liquidity in this investment.
(k) The Purchaser is a minimum of 18 years of age, is a bona fide
resident of the State set forth on the signature page hereto, maintains his or
her principal residence there and have no present intention of becoming a
resident of any other state or jurisdiction prior to my purchase of the Shares.
(l) The Purchaser represents that the funds provided for this
investment are either separate property of the purchaser, community property
over which the purchaser has the right of control or are otherwise funds as to
which the purchaser has the sole right of management.
(m) The Purchaser understands the meaning and legal consequences of
the foregoing representations and warranties, which are true and correct as of
the date hereof and will be true and correct as of the date of the acquisition
of the Shares subscribed for herein. Each such representation and warranty shall
survive such purchase.
(n) The Purchaser understands and agrees that if this subscription is
accepted, he or she may be required to execute other documents to effectuate or
evidence his or her purchase of the Shares.
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<PAGE>
(o) (For Florida Residents Only). The Purchaser understands and agrees
to the following:
THE SHARES REFERRED TO HEREIN WILL BE SOLD TO, AND
ACQUIRED BY ME IN A TRANSACTION EXEMPT UNDER SECTION
517.061 OF THE FLORIDA SECURITIES ACT. THE SHARES HAVE
NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF
FLORIDA. IN ADDITION, IF SALES ARE MADE TO FIVE OR MORE
FLORIDA RESIDENTS I SHALL HAVE THE PRIVILEGE OF VOIDING
THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST
TENDER OF CONSIDERATION IS MADE BY ME TO THE COMPANY, AN
AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN 3
DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO ME, WHICHEVER OCCURS LATER.
4. Notices.
(a) All notices, requests and other communications hereunder must be
in writing and delivered to the parties at the following addresses:
If to Purchaser, to:__________________________________________________
_______________________________________
_______________________________________
If to the Company, to: The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
with a copy to: Frances Levine, Esq.
621 Clove Road
Staten Island, New York 10310
(b) All notices required or permitted to be given hereunder shall be
mailed by certified mail, or delivered by hand or by recognized overnight
courier to the party to whom such notice is required or permitted to be given
hereunder at the address set forth above for such party, in all cases with
written proof of receipt required. Any such notice shall be deemed to have been
given when received by the party to whom notice is given, as evidenced by
written and dated receipt of the receiving party. Either party may change the
address to which notice to it is to be addressed, by written notice to the other
party, as provided herein.
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<PAGE>
5. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same agreement.
This Agreement, once executed by a party, may be delivered to the other party by
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and permitted assigns.
(c) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed in accordance with and governed by the
internal laws of the State of Delaware without giving effect to conflicts of
law.
(d) The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
(e) The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid, illegal or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforecability shall affect in
that jurisdiction only such clause or provision, or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
(f) This Agreement constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer(s) of each party hereto as of the date
first above written.
Purchaser:
______________________________
Name:
-25-
<PAGE>
The Tirex Corporation
______________________________
Name:
Title:
-26-
EXHIBIT 5
OPINION OF FRANCES KATZ LEVINE
-28-
EXHIBIT 10(f)
AMENDMENT TO SHAREHOLDERS AGREEMENT
Amendment, made this 27th day of August 1997, by and among The Tirex
Corporation (formerly, "Tirex America Inc."), a Delaware Corporation, 740 St.
Maurice, Suite 201, Montreal, Quebec H3C 1L5 ("Tirex"), Frances Katz Levine,
Esq., 621 Clove Road, Staten Island, New York 10310, ("Escrow Agent"), and
Terence C. Byrne, 489 Grosvner Street, Westmount, Quebec, CA H3Y 2S5, inter alia
parties to a certain Shareholders Agreement, dated as of July 3, 1995, as
amended February 8, 1996 (the "Shareholders Agreement") by and among the
shareholders of Canadian corporation No. 314361-9, known and doing business as
"Tirex Canada Inc" ("Tirex Canada"). Terms used herein which are defined in the
Shareholders Agreement and not defined herein shall have the same meaning herein
as therein.
Whereas, Mr. Byrne is an officer and director of Tirex and is a Canadian
resident;
Whereas, Contemporaneously herewith, pursuant to the terms of Section
2.(e)(iii) of the Shareholders Agreement, Tirex is requesting that Kenneth J.
Forbes, 2076 Sherbrooke Street West, Montreal, Quebec 113HDG5 Canada,
("Forbes"), another party to the Shareholders Agreement, transfer seventeen (17)
of the Escrowed Shares (the "Transfer Shares") to Mr. Byrne.
Whereas, in accordance with the terms and conditions of the said Section
2(e)(iii) of the Shareholders Agreement, upon Tirex's request, Forbes must
transfer all or any part of the Escrowed Shares to any officer and director of
Tirex, who is at the time of such request a Canadian resident, and Forbes shall
have no further rights or claims in respect of such Escrowed Shares or any other
shares or other securities of Tirex Canada provided that the person to whom the
Escrowed Shares are transferred, receives such Escrowed Shares pursuant to the
terms of a Shareholders Agreement identical in its terms to the Shareholders
Agreement.
Whereas, Mr. Byrne has agreed to accept and hold the Transfer Shares
pursuant to the terms of a Shareholders Agreement identical in its terms to the
Shareholders Agreement by way of this amendment thereto.
Whereas, Pursuant to the terms of Section 2(e)(iii) of the Shareholders
Agreement, Simultaneously with the execution of this Amendment, the Escrow Agent
will release the seventeen Transfer Shares from escrow and transfer them from
Mr. Forbes to Mr. Byrne.
-33-
<PAGE>
Now therefore, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree to amend the Shareholders
Agreement as follows:
A. AMENDMENTS
Section 2. "Conditions of Transfer"
Section 2 is amended, so as to read as follows:
(a) Terence C. Byrne and Louis V. Muro agree to hold any and all
shares Tirex Canada now held or hereinafter acquired by them,
singly or collectively, pursuant to the following terms and
conditions:
(a) Upon the execution of this Amendment, Kenneth Forbes shall
transfer and deliver to Byrne the seventeen Transfer Shares of
the common stock of Tirex Canada;
(b) Immediately upon his receipt of the Transfer Shares, Byrne
shall Simultaneously deliver, or cause to be delivered on his
behalf, to the Escrow Agent for deposit into escrow pursuant
to the terms hereof, the seventeen Transfer Shares together
with the number of stock powers, endorsed in blank for
transfer of such shares, as the Escrow Agent shall request
(hereinafter, the seventeen Transfer Shares delivered to the
Escrow Agent pursuant to this paragraph 2(b) and all other
shares of Tirex Canada Common Stock of which Mr. Bryne and Mr.
Muro, or either one of them is the record holder, or any part
of such shares for as long as they shall remain in escrow
hereunder, shall be referred to as the "Escrowed Shares").
(c) The Escrowed Shares shall be considered to be issued and
outstanding stock of Tirex Canada and shall enjoy all voting
rights accorded to all other issued and outstanding shares of
the same class and Byrne shall have the power to vote the
Escrowed Shares while such shares remain in escrow pursuant to
this agreement.
(d) Any shares issued in the name of Mr. Byrne or Mr. Muro, in
respect of any of the Escrowed Shares, pursuant to a stock
split or reclassification of shares shall be deposited with
the Escrow Agent and such additionally deposited shares shall
be subject to the terms and conditions of this Agreement.
Similarly, any and all distributions of shares or cash, issued
and/or distributed by reason of the ownership of the Escrowed
Shares, shall likewise be placed in escrow, subject to the
terms and conditions hereof.
34
<PAGE>
(e) The Escrowed Shares shall be held in escrow until such time as
the occurrence, and/or from time to time the occurrences, of
one or more of the following events:
(i) Any time, and from time to time, as one or more third parties,
who are Canadian residents, shall make an equity investment in
Tirex Canada by way of the purchase of one or more Canadian
Investment Shares, then in such event one or more of the
Escrowed Shares, equal in number to the number of Canadian
Investment Shares so purchased by such third parties, shall be
removed from escrow and returned to Tirex Canada where they
shall be retired to the status of authorized but unissued
shares of Class A common stock of Tirex Canada; the removal
from escrow of any of the Escrowed Shares pursuant to this
subparagraph 2(e)(i) shall not in any way affect the status of
the balance of the Escrowed Shares, all of which shall remain
in escrow subject to the terms of this agreement.
(ii) Tirex shall exercise the Tirex Option to repurchase the
Canadian Investment Shares, in which event all of the Escrowed
Shares shall be transferred to Tirex, with no further
consideration paid to Mr. Byrne or Mr. Muro in respect
thereof, so as to cause Tirex Canada to become a wholly-owned
subsidiary of Tirex, with neither Mr. Byrne nor Mr. Muro
having any further rights or claims in respect of such
Escrowed Shares or any other shares or other securities of
Tirex Canada.
(iii) Tirex shall request that Mr. Byrne or Mr. Muro, or both of
them transfer all or any part of the Escrowed Shares to any
officer and director of Tirex who is at the time of such
request canadian resident provided however that such person
shall be required to receive such Escrowed Shares pursuant to
the terms of a Shareholders Agreement identical in its
material terms to this agreement and neither Mr. Byrne nor Mr.
Muro shall have any further rights or claims in respect of
such Escrowed Shares or any other shares or other securities
of Tirex Canada.
(iv) In the event of the death of Mr. Byrne or Mr. Muro, all of the
Escrowed Shares will be transferred back to Tirex and the
estate of Byrne and Mr. Muro shall have no further rights or
claims in respect of such Escrowed Shares or any other shares
or other securities of Tirex Canada.
-35-
<PAGE>
(v) This Shareholders Agreement is terminated pursuant to
Section 5 hereof, in which event the Escrowed Shares
shall be released in accordance with the provisions
of such Section 5.
Section 5. Duration and Termination
Section 2 is amended, so as to read as follows:
The term of this Agreement will expire on the first to occur of: (i) all
of the Escrowed Shares shall have been released from escrow pursuant to the
terms of Paragraph 2(e) hereof, or (ii) May 2, 2001, unless sooner extended
unilaterally by Tirex upon written notice to Byrne. If by such expiration date
the conditions for release have not been met, the Escrowed Shares are to be
transferred and delivered to Tirex, upon which event neither Mr. Byrne nor Mr.
Muro shall have any further rights or claims in respect of such shares and the
Escrow Agent shall be relieved of all further obligations hereunder.
B. NO OTHER AMENDMENTS
Except as expressly provided in this Amendment, all of the terms and
conditions of the Shareholders Agreement remain in full force and effect.
C. COUNTERPARTS
This Amendment may be executed in any number of counterparts and by each
party on a separate counterpart, each of which when so executed and delivered
shall be an original, but all of which together shall constitute one Amendment.
In Witness Whereof, the parties hereto have caused this Amendment to be
executed the day and year first above written.
THE TIREX CORPORATION
By /s/ Terence C. Byrne /s/ Louis V. Muro
-------------------------- ---------------------------
Terence C. Byrne Louis V. Muro
/s/ Terence C. Byrne /s/ Kenneth J. Forbes
-------------------------- ---------------------------
Terence C. Byrne Kenneth J. Forbes
36
EXHIBIT 10(gg)
----------------
THE TIREX CORPORATION
----------------
CONSULTING AGREEMENT
Consulting Agreement, made this 28th day of January 1998, to be effective
as of January 1, 1997 (the "Effective Date") between The Tirex Corporation, a
Delaware corporation (the "Corporation"), and Louis Sanzaro, 1497 Lakewood Road,
Toms River, NJ 08755 (the "Consultant").
Whereas, since the Effective Date, the Consultant has been providing to
the Corporation, on the terms set forth herein, the consulting services
described in Section 2, of this Agreement;
Whereas, the Corporation wishes to assure itself of the continued services
of the Consultant for the period provided in this Agreement, and the Consultant
is willing to provide his services to the Corporation for the said period under
the terms and conditions hereinafter provided.
Now, Therefore, Witnesseth, that for and in consideration of the premises
and of the mutual promises and covenants herein contained, the parties hereto
agree as follows:
1. Employment
The Corporation agrees to and does hereby engage the Consultant, and the
Consultant agrees to and does hereby accept engagement by the Corporation as a
consultant in connection with the operation of certain aspects of the business
and affairs of the Corporation, for the two-year period which commenced as of
the Effective Date and will end on December 31, 1999. The period during which
Consultant has, and will continue to, serve in such capacity shall be deemed the
"Engagement Period" and shall hereinafter be referred to as such.
2. Consulting Services
The services which the Consultant has rendered since the Effective Date
have included, and will, during the balance of the Engagement Period, include,
the rendering of advice, opinions, "thands-on" assistance, and, in some cases,
effectuation of, the following:
1
<PAGE>
(a) Developing pro-forma financial projections respecting the operations
of a TCS-1 Plant ("Plant") and marketing of rubber crumb generated
thereby;
(b) Designing and developing a complete maintenance program for the
TCS-1 System to insure continuous operation in compliance with
specifications;
(c) Developing specialized accounting sofiware to be used with all TCS-1
Systems for the purpose on monitoring all financial aspects of
operations and for calculation of sales-based royalties due and
payable to the Corporation;
(d) Designing and developing logistics respecting Plant configuration
necessary for safe and efficient operations-flow and providing
technical and mechanical adjustments to plant set-ups throughout the
United States during the Engagement Period;
(e) Testing new equipment at construction and assembly site, adjusting,
and designing modifications to new equipment as required by test
results;
(f) Assist site-planning and installation at operators' sites
throughout the United States during the Engagement Period, including
providing personnel to "trouble-shoot" and or adjust all newly
installed equipment, as required during the Engagement Period.
(g) Advise Corporation management of pertinent changes and developments
respecting new emerging technologies in tire recycling industry;
(h) Develop and establish a training program for the instruction of
operators and their personnel with respect to all aspects of Plant
operations.
All such services are to be performed only upon direct authorization from
the Corporation. The Consultant shall have the sole discretion as to the form,
manner and place in which the said consulting services shall be rendered. The
Consultant shall by this agreement, be prevented and barred from rendering
services of the same or similar nature, as herein described, or services of any
nature whatsoever, for or in behalf of persons, in the same business of the
Corporation firms or corporations other than the Corporation.
3. Compensation
3.1 As compensation for all consulting services rendered by the Consultant
during the Engagement Period pursuant to this Agreement, the Corporation
shall issue to the Consultant:
2
<PAGE>
(a) a total of six hundred thousand shares of the common stock, $.001
par value, of the Corporation, for a per share purchase price of
$.001, payment of which, by valuable services rendered, is hereby
acknowledged.
(b) an option to purchase an additional 400,000 shares of the Company's
Common Stock, at a per share price of $0._______
3.2 During the term of this Agreement, the Corporation shall reimburse the
Consultant for reasonable and properly documented out-of-pocket business and/or
entertainment expenses incurred by the Consultant in connection with his duties
under this Agreement, provided however, that the Consultant shall not incur
expenses during any one month period in excess of US $2,000 without the prior
written consent of the Corporation.
4. Secrets
Consultant agrees that any trade secrets or any other like information of
value relating to the business and/or field of interest of the Corporation or
any of its affiliates, or of any corporation or other legal entity in which the
Corporation or any of its affiliates has an ownership interest of more than
twenty-five per cent (25%), including but not limited to, information relating
to inventions, disclosures, processes, systems, methods, formulae, patents,
patent applications, machinery, materials, research activities and plans, costs
of production, contract forms, prices, volume of sales, promotional methods,
list of names or classes of customers, which he has heretofore acquired during
his engagement by the Corporation or any of its affiliates or which he may
hereafier acquire during the Engagement Period and the three-year period
beginning after termination of the Engagement Period as the result of any
disclosures to him, or in any other way, shall be regarded as held by the
Consultant and his personnel, if any, in a fiduciary capacity solely for the
benefit of the Corporation, its successors or assigns, and shall not at any
time, either during the term of this Agreement or thereafter, be disclosed,
divulged, furnished, or made accessible by the Consultant and his personnel, if
any, to anyone, or be otherwise used by them, except in the regular course of
business of the Corporation or its affiliates. Information shall for the
purposes of this Agreement be considered to be secret if not known by the trade
generally, even though such information may have been disclosed to one or more
third parties pursuant to distribution agreements, joint venture agreements and
other agreements entered into by the Corporation or any of its affiliates.
6. Assignment
This Agreement may be assigned by the Corporation as part of the sale of
substantially all of its business; provided, however, that the purchaser shall
expressly assume all obligations of the Corporation under this Agreement.
Further, this Agreement may be assigned by the Corporation to an affiliate,
provided that any such affiliate shall expressly assume all
3
<PAGE>
obligations of the Corporation under this Agreement, and provided further that
the Corporation shall then fully guarantee the performance of the Agreement by
such affiliate. Consultant agrees that if this Agreement is so assigned, all the
terms and conditions of this Agreement shall obtain between such assignee and
himself with the same force and effect as if said Agreement had been made with
such assignee in the first instance. This Agreement is personal to the
Consultant and shall not be assigned without written consent of the Corporation.
7. Entire Understanding
This Consulting Agreement contains the entire understanding between the
parties and supersedes all prior and collateral communications, reports,
agreements, and understandings between the parties. No change, modification,
alteration, or addition to any provision hereof shall be binding unless in
writing and signed by authorized representatives of both parties. This
Consulting Agreement shall apply in lieu of and notwithstanding any specific
statement associated with any particular information or data exchanged, and the
duties of the parties shall be determined exclusively by the aforementioned
terms and conditions.
7. Survival of Certain Agreements
The covenants and agreements set forth in Articles 4 and 5, hereof and, to
the extent applicable, the covenants and agreements set forth in Article 3
hereof, shall survive the expiration of the Engagement Period and shall survive
termination of this Agreement and remain in full force and effect.
9. Notices
9.1 All notices required or permitted to be given hereunder shall be
delivered by hand, certified mail, or recognized overnight courier, in all cases
with written proof of receipt required, addressed to the parties as set forth
below and shall be deemed given upon receipt as evidenced by written and dated
receipt of the receiving party.
9.2 Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
4
<PAGE>
9.3 Any notice to Consultant shall be addressed as follows:
Louis Sanzaro
1497 Lakewood Road
Toms River, NJ 08755
9.4 Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
10. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
11. Interpretation
Whenever possible, each Article of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
Article is unenforceable or invalid under such law, such Article shall be
ineffective only to the extent of such unenforceability or invalidity, and the
remainder of such Article and the balance of this Agreement shall in such event
continue to be binding and in full force and effect.
11. Prior Agreements
This Agreement supersedes and cancels any and all prior agreements,
whether written or oral, between the parties.
In Witness Whereof, the parties hereto have executed the above Agreement
as of the day and year first above written.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
----------------------------
Terence C. Byrne, President
By /s/ Louis Sanzaro
----------------------------
Louis Sanzaro, Consultant
5
EXHIBIT 20(a)
- --------------------------------------------------------------------------------
ADDENDUM DATED FEBRUARY 26, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
DATED NOVEMBER 5, 1997
- --------------------------------------------------------------------------------
The Tirex Corporation
(the "Company")
28 Units
PLACEMENT AGENT
H.J. MEYERS & CO., INC.
1895 Mt. Hope Avenue
Rochester, New York 14620
(716) 256-4600
February 26, 1998
- --------------------------------------------------------------------------------
<PAGE>
ADDITIONAL FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
In addition to the filings of the Company with the Securities and Exchange
Commission (the "Commission"), attached to the Confidential Private Offering
Memorandum, dated November 5, 1997, of the Tirex Corporation (the "Company"), as
Exhibits, the following Commission filings are available upon request without
charge. Requests should be directed to John Threshie, Secretary, The Tirex
Corporation, 740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5. Telephone:
(514) 878-0727; Facsimile: (514) 878-9847.
Quarterly Report on Form 10-QSB for the fiscal quarter ended December 31, 1997.
Current Report on Form 8-K of Registrant, dated February 3, 1998.
2
<PAGE>
ADDENDUM, DATED FEBRUARY 26, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
of November 5, 1997
Name of Offeree________________________ Copy No. _____
- --------------------------------------------------------------------------------
28 Units
$25,000 per Unit
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
THE FOLLOWING IS AN ADDENDUM TO THE CONFIDENTIAL PRIVATE PLACEMENT
OFFERING MEMORANDUM, DATED NOVEMBER 5, 1997, OF THE TIREX CORPORATION (THE
"OFFERING MEMORANDUM") EXCEPT WHERE THIS ADDENDUM MODIFIES THE OFFERING
MEMORANDUM, IT IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED DESCRIPTIONS OF THE
COMPANY AND ITS BUSINESS APPEARING IN THE OFFERING MEMORANDUM AND THE EXHIBITS
THERETO, FOR A COPY OF WHICH HAS BEEN PROVIDED TO YOU.
1. Revision To Terms of Offering
Pursuant to the agreement of The Tirex Corporation (the "Company") and
H.J. Meyers & Co., Inc., (the "Placement Agent") the terms of the following
offering have been revised as follows:
The Tirex Corporation, a Delaware corporation (the "Company"), is offering
to sell through H.J. Meyers & Co., Inc., as placement agent (the "Placement
Agent"), up to 28 units (the "Units") of its securities (the "Offering" or the
"Private Placement") ) at a price of $25,000 per Unit. The Units are being
offered only to "accredited investors", as that term is defined in Rule 501(a)
of the Securities Act of 1933, as amended (the "Securities Act"), with the
requisite investment sophistication and ability to bear the economic risk of an
investment in the Units, including the possibility of the loss of the entire
investment. Each Unit consists of one 10% Convertible Subordinated Debenture in
the principal amount of $25,000 (the "Debenture") and 100,000 warrants to
purchase a like number of shares of the Company's Common Stock, $.001 par value,
at an exercise price of $.001 per share (the "Warrants"). For further
information concerning the securities being offered hereunder, see page 20, "The
Offering". The Units will be offered and sold on behalf of the Company by the
Placement Agent, a broker-dealer registered with the National Association of
Securities Dealers, Inc. (the "NASD"). The Placement Agent may also utilize the
services of other broker-dealers ("Selected Dealers") who are members of the
NASD in connection with the offer and sale of the Units. The first 4 Units will
be offered and sold on a "best efforts, all-or-none" basis. The remaining 18
Units will be offered and sold on a "best efforts" basis.
The Units are being offered on a "best efforts, minimum-maximum basis."
The Company expects to hold an initial closing of this Offering at any time
after the 10 Unit Minimum has been subscribed for, and may hold one or more
additional closings, at any time, from time to time, on or prior to March 31,
1998 (unless extended by mutual agreement of the Company and the Placement Agent
for one or more additional 30-day periods) or such earlier date as the 28 Unit
Maximum has been subscribed for. The Placement Agent has agreed only to use its
"best efforts" and has not committed to sell, or buy for its own account, any of
the Units offered hereby.
3
<PAGE>
2. Other Material Changes
On January 28, 1998 Tirex authorized the issuance of 600,000 shares of
Common Stock to Louis V. Sanzaro pursuant to the terms of his consulting
agreement (the "L. Sanzaro Consulting Agreement"), executed at such date and
deemed by the parties to be effective as of January 1, 1997. Total compensation
under the L. Sanzaro Consulting Agreement consists of the said 1,000,000 shares
of Common Stock, 600,000 of which have been issued, as described above, and the
balance of 400,000 of which will be issued at such time as the parties agree.
On January 28, 1998, Tirex authorized the issuance of an aggregate of
4,000,000 shares to two of its executive officers and to its corporate attorney,
at a price of $.001 per share, as follows: Terence C. Byrne - 2,000,000, Louis
V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000. Such sales were made
pursuant to the exercise of options granted to such persons and subsequently
amended, as follows: On September 3, 1997, Registrant granted to the foregoing
individuals options to purchase the respective number of shares set forth above
at an exercise price equal to the full market price of the Common Stock at such
date, as follows: Terence C. Byrne - 2,000,000, Louis V. Muro - 1,000,000, and
Frances Katz Levine - 1,000,000 (the "1997 Options"). Such bonuses were granted
for the fiscal year ended June 30, 1997 pursuant to the terms of their
respective employment agreements with Registrant. On January 13, 1998,
Registrant granted to each of these persons a bonus (the "1998 Bonus"), under
the terms of their respective employment agreements, for the fiscal year which
will end on June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of
amendments to the terms of the 1997 Options, reducing the option exercise price
$.001 per share.
Effective February 3, 1998, the certificate of incorporation of the
Company was amended so as to change the amount of capital stock, which the
Company is authorized to issue, from 70,000,000 shares of Common Stock, par
value $.001 per share to 69,900,000 shares of Common Stock, par value $.001 per
share and 100,000 shares of Open Stock, par value $.001 per share, and to invest
in the Board of Directors the power to designate the Open Stock in one or more
classes and/or series, with such rights and preferences as the Board of
Directors shall determine.
Management has agreed with the Placement Agent to obtain the Agreement of
all Officers, Directors, and 5% or more shareholders of the Company to refrain
from selling any of the shares of Common Stock held by them during the period
which shall commence as at the Closing of this Offering and which shall end 60
days after the effective date of a Registration Statement which includes the
shares of Common Stock issuable upon exercise of the Warrants and conversion of
the Debentures, which are included in the Units.
I have read this Addendum in conjunction with the Offering Memorandum,
a copy of which was furnished to me together with this Addendum.
Dated:__________ ______________________________
Signature of Investor
4
<PAGE>
EXHIBIT 20(A)
- --------------------------------------------------------------------------------
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
- --------------------------------------------------------------------------------
The Tirex Corporation
(the "Company")
28 Units
PLACEMENT AGENT
H.J. MEYERS & CO., INC.
1895 Mt. Hope Avenue
Rochester, New York 14620
(716) 256-4600
November 5, 1997
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
Exhibits .................................................................. 4
List of Filings with the Securities and Exchange Commission ............... 5
Cover Page ................................................................ 6
Investor Notices .......................................................... 7
Jurisdictional Notices and Representations ................................ 11
Available Information ..................................................... 12
Concurrent Offering and Proposed Acquisition .............................. 13
Confidentiality ........................................................... 13
Independent Evaluation .................................................... 13
Use of Proceeds ........................................................... 15
Terms of the Offering ..................................................... 18
General ................................................................ 18
Restrictions on Transferability ........................................ 18
Investor Suitability Standards ......................................... 18
Plan of Distribution ................................................... 19
Further Information .................................................... 19
Subscription Payments .................................................. 19
Possible Variance in Terms of Offering ................................. 19
The Offering .............................................................. 20
Securities Offered ..................................................... 20
Minimum Purchase ....................................................... 23
Capital Stock Outstanding Prior to Offering ............................ 23
Risk Factors ........................................................... 23
Use of Proceeds ........................................................ 23
Risk Factors .............................................................. 24
Development Stage Company
No Assurance as to Future Profitable Operations ........................ 24
No Guarantee of Product Acceptance in Market ........................... 24
Need for Substantial Additional Capital ................................ 24
Possibility of Material Changes in Offering
Terms; NASD Review ..................................................... 25
Risk of Company's Inability to Repay Debentures ........................ 25
No Collateral Security ................................................. 25
Restricted Securities .................................................. 26
Proposed Public Offering; Reverse Split ................................ 26
Arbitrary Offering Price ............................................... 26
Broad Discretion in
Use of Proceeds ........................................................ 26
2
<PAGE>
Additional Interest Income Original Issue Discount ..................... 27
Dependance on Key Personnel ............................................ 27
Dependance on Major Customer ........................................... 27
Control by Present Officers ............................................ 27
Experience of Management ............................................... 28
Uncertainty of Product and Technology
Development: Technological Factors.................................... 28
Protection of Tirex Proprietary Technology
and Potential Infringement ........................................... 28
Limited Public Market .................................................. 29
Applicability of "Penny Stock Rules to
Broker-Dealer Sales of Company Common Stock ............................ 29
Regulatory and Environmental Considerations ............................ 30
Production and Supply .................................................. 30
Technological Changes .................................................. 31
Competition ............................................................ 31
No Dividends and None Anticipated....................................... 32
Shares Available for Resale ............................................ 32
Authorization of Preferred Stock ....................................... 32
Affiliated Persons to be
Paid Out of Proceeds.................................................... 32
Price Range of Securities ................................................. 33
Shareholders .............................................................. 34
Dividends ................................................................. 34
Business .................................................................. 34
History ................................................................ 34
The Scrap Tire Disposal Business ....................................... 35
Products and Services .................................................. 37
Proposed Product - The TCS-1 System ................................. 37
Proposed Services TCS-1 System Service and Support .................. 48
Proposed Tire Shredding Operations ..................................... 49
Sales and Marketing .................................................... 51
Sales ............................................................... 51
Backlog ............................................................. 53
Dependence on Major Customer ........................................ 54
Marketing and Distribution .......................................... 54
Canadian Operations .................................................... 58
Tirex Canada ........................................................ 58
The Tirex Canada License ............................................ 59
Canadian Financial Assistance Grants and Commitments ................ 59
Research and Development ............................................... 60
Employees .............................................................. 61
Patent Protection ...................................................... 61
Competition ............................................................ 62
Government Regulation .................................................. 62
Properties ............................................................. 63
Legal Proceedings ......................................................... 64
Description of Securities ................................................. 65
Management ................................................................ 67
3
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- --------------------------------------------------------------------------------
EXHIBITS
- --------------------------------------------------------------------------------
Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997............................................................... A
Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1997.............................................................. B
Quarterly Report on Form 10-QSB for the fiscal quarter ended
December 31, 1996........................................................... C
Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 1996.......................................................... D
Current Report on Form 8-K, dated July 11, 1997............................... E
Current Report on Form 8-K, dated June 24, 1997............................... F
Current Report on Form 8-K, dated March 7, 1997............................... G
Current Report on Form 8-K, dated February 5, 1997............................ H
Current Report on Form 8-K, dated January 10, 1997............................ I
Current Report on Form 8-K, dated December 22, 1996........................... J
Form of 10% Convertible Subordinated Debenture................................ K
Form of Warrants.............................................................. L
Form of Securities Purchase Agreement......................................... M
Form of Registration Rights Agreement......................................... N
Form of Lock-Up Agreement..................................................... 0
Escrow Agreement.............................................................. P
4
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- --------------------------------------------------------------------------------
LIST OF FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
In addition to the filings of the Company with the Securities and Exchange
Commission (the "Commission"), attached to this Offering Memorandum as Exhibits,
the following Commission filings are available upon request without charge.
Requests should be directed to John Threshie, Secretary, The Tirex Corporation,
740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5. Telephone: (514) 878-0727;
Facsimile: (514) 878-9847.
Annual Reports on Forms 10-KSB for the fiscal years ended June 30, 1995 and
1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1995,
December 31, 1995, and March 31, 1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1994,
December 31, 1994, and March 31, 1995.
Registration Statement on Form S-8, as amended, filed with the Commission on
August 27, 1997, Registration No. 333 - 34369.
Registration Statement on Form S-8, filed with the Commission on March 31, 1997,
Registration No. 333 - 23759.
Registration Statement on Form S-8, filed with the Commission on July 22, 1996,
Registration No. 333 - 5310.
Registration Statement on Form S-8, filed with the Commission on June 20, 1996,
Registration No. 333 - 5090.
Current Report on Form 8-K of Registrant, dated December 31, 1995.
Annual Reports on Forms 10-K of Registrant for the years ended June 30, 1989,
1990, 1991, 1992, 1993, and 1994.
Transition Report on Form 10-K of Registrant for the transition period January
1, 1989 through June 30, 1989.
Annual Report on Form 10-K of Registrant for the year ended December 31, 1988.
Registration Statement on Form S-18, as amended, File No. 33-17598-NY.
5
<PAGE>
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
November 5, 1997
Name of Offeree________________________ Copy No. _____
- --------------------------------------------------------------------------------
28 Units
$25,000 per Unit
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
The Tirex Corporation, a Delaware corporation (the "Company"), is offering to
sell through H.J. Meyers & Co., Inc., as placement agent (the "Placement
Agent"), up to 28 units (the "Units") of its securities (the "Offering" or the
"Private Placement") ) at a price of $25,000 per Unit. The Units are being
offered only to "accredited investors", as that term is defined in Rule 501(a)
of the Securities Act of 1933, as amended (the "Securities Act"), with the
requisite investment sophistication and ability to bear the economic risk of an
investment in the Units, including the possibility of the loss of the entire
investment. Each Unit consists of one 10% Convertible Subordinated Debenture in
the principal amount of $25,000 (the "Debenture") and 50,000 warrants to
purchase a like number of shares of the Company's Common Stock, $.001 par value,
at an exercise price of $.001 per share (the "Warrants"). For further
information concerning the securities being offered hereunder, see page 20, "The
Offering". The Units will be offered and sold on behalf of the Company by the
Placement Agent, a broker-dealer registered with the National Association of
Securities Dealers, Inc. (the "NASD"). The Placement Agent may also utilize the
services of other broker-dealers ("Selected Dealers") who are members of the
NASD in connection with the offer and sale of the Units. The first 10 Units will
be offered and sold on a "best efforts, all-or-none" basis. The remaining 18
Units will be offered and sold on a "best efforts" basis. The Company and the
Placement Agent reserve the right to offer the Units on more favorable terms to
one or more investors, who are not affiliates of the Company or of the Placement
Agent, without notice to other investors. The basis for any such variance in the
terms of the Offering set forth herein will include without limitation the
amount of the individual investment and the point in the Offering Period when
such investment is made. In such event, other investors will not be entitled to
rescission of their investments in this Private Placement.
- --------------------------------------------------------------------------------
Price to Placement Agent Proceeds to
Investors Commissions(1) the Company(2)
--------- -------------- --------------
Per Unit (Investors) ..... $ 25,000 $ 2,500 $ 22,500
Minimum .................. 250,000 25,000 225,000
Maximum .................. 700,000 70,000 630,000
- --------------------------------------------------------------------------------
(1) Before deduction of expenses of the offering payable by the Company,
estimated to be approximately $11,500 (for the Minimum) and $28,000 (for the
Maximum), including a non accountable expense allowance of 3% of the proceeds
from the sales of all Units sold. See "PLAN OF DISTRIBUTION."
(2) The Offering is for the sale of a minimum of 10 Units (the "Minimum") and a
maximum of 28 Units (the "Maximum"). Prior to the sale of the Minimum, all
proceeds from the sale of the Units being offered hereby will, upon payment by
the subscribers thereof, be placed in an escrow account (the "Escrow Account")
with Harter, Secrest & Emery, 700 Midtown Tower, Rochester, NY 14604, as escrow
agent (the "Escrow Agent"). All proceeds will be promptly refunded in full,
without interest or deduction, unless at least 10 Units have been sold on or
before December 31, 1997 (the "Offering Period"); provided however, that the
Company and the Placement Agent, in their sole discretion, may agree to extend
such Offering Period for one or more 30-day periods. If at least the Minimum of
10 Units have been subscribed for on or before the termination of the Offering
Period, the proceeds being held in the Escrow Account will be released to the
Company, and proceeds of subscribers for additional Units received following
receipt of the Minimum, but prior to the expiration of the Offering Period, will
be paid from the Escrow Account to the Company in one or more subsequent
closings.
- --------------------------------------------------------------------------------
6
<PAGE>
The Offering of the Units is being made in reliance upon the availability
of an exemption from the registration provisions of the Securities Act by virtue
of the Company's intended compliance with the provisions of ss 4(2) and Rule 506
of Regulation D thereof. Accordingly, solicitation of offers or sales shall not
be made to any person unless the Company has reasonable grounds to believe and
does believe, immediately prior to making such sale, that such person, either
alone or together with one or more of his purchaser representatives (if any),
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of an investment in the Units
described in this Memorandum. See "Terms of the Offering." There are
restrictions on the transfer of Units.
PLACEMENT AGENT:
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 10008
(716) 256-4600
The Units are offered hereby on a "best efforts, minimum-maximum basis."
The Company expects to hold an initial closing of this Offering at any time
after the 10 Unit Minimum has been subscribed for, and may hold one or more
additional closings, at any time, from time to time, on or prior to December 31,
1997 (unless extended by mutual agreement of the Company and the Placement Agent
for one or more additional 30-day periods) or such earlier date as the 28 Unit
Maximum has been subscribed for. The Placement Agent has agreed only to use its
"best efforts" and has not committed to sell, or buy for its own account, any of
the Units offered hereby.
This Memorandum does not contain all of the information that would
normally appear in a prospectus for an offering registered under the Securities
Act or that may be necessary to make an informed investment decision regarding
an investment in the Units. The Company will furnish additional information to
interested offerees upon request. Purchasers of the Units will be required to
acknowledge at the time of purchase that they have requested and received all
information necessary to make an informed decision to purchase the Units.
SEE "INVESTOR NOTICES" AND "JURISDICTIONAL NOTICES AND REPRESENTATIONS."
- --------------------------------------------------------------------------------
INVESTOR NOTICES
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY STATE OR REGULATORY AGENCY UNDER ANY SECURITIES
LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION PROVIDED IN SUCH
LAWS AND THE RULES AND REGULATIONS THEREUNDER, AND MAY NOT BE RESOLD OR
TRANSFERRED IN THE ABSENCE OF THE SATISFACTION OF CERTAIN CONDITIONS, INCLUDING
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM CONSTITUTES AN OFFER ONLY
TO THE PERSON OR ENTITY WHOSE NAME APPEARS ON THE COVER PAGE (THE "OFFEREE").
7
<PAGE>
THE UNITS ARE BEING OFFERED ONLY TO INVESTORS WHO QUALIFY AS "ACCREDITED
INVESTORS", AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D, AS PROMULGATED
UNDER THE SECURITIES ACT. ALL INVESTORS MUST MEET CERTAIN SUITABILITY STANDARDS
ESTABLISHED BY THE COMPANY, SUBJECT TO THE COMPANY'S RIGHT TO REJECT
SUBSCRIPTIONS, IN WHOLE OR IN PART. THE MINIMUM SUBSCRIPTION WILL BE $25,000,
UNLESS OTHERWISE APPROVED BY THE COMPANY IN ITS SOLE DISCRETION. AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THESE
SECURITIES ARE HIGHLY SPECULATIVE AND SHOULD ONLY BE PURCHASED BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS" BEFORE
PURCHASING SUCH SECURITIES.
THE UNITS OFFERED HEREBY WILL BE SOLD SUBJECT TO THE PROVISIONS OF A
SECURITIES PURCHASE AGREEMENT (THE "SECURITIES PURCHASE AGREEMENT") CONTAINING
CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND CONDITIONS. ANY INVESTMENT IN THE
UNITS OFFERED HEREBY SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW OF
THE PROVISIONS OF THE SECURITIES PURCHASE AGREEMENT. THE COMPANY RESERVES THE
RIGHT IN ITS DISCRETION TO ACCEPT OR REJECT, IN WHOLE OR PART, ANY PROPOSED
INVESTMENT IN THE UNITS.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE MERITS OF, OR GIVEN APPROVAL TO, ANY
SECURITIES OFFERED HEREBY, OR UPON THE TERMS OF THE OFFERING, NOR HAVE THEY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ANY OTHER SELLING
LITERATURE. THE SECURITIES ARE OFFERED BY THE COMPANY PURSUANT TO EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES
OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DESCRIBED HEREIN ARE BEING OFFERED PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND APPLICABLE STATE
SECURITIES LAWS RELATING TO TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING OR
SOLICITATION. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHOM
THE OFFERING IS MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES
DESCRIBED HEREIN.
INVESTMENT IN THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY
A PERSON WHO OR ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF HIS, HER OR ITS
ENTIRE INVESTMENT. POTENTIAL INVESTORS ARE HEREBY CAUTIONED THAT SUCH INVESTORS,
SHOULD THEY INVEST IN THE SECURITIES DESCRIBED HEREIN, COULD BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF SUCH AN INVESTMENT FOR A SUBSTANTIAL AND/OR INDEFINITE
PERIOD OF TIME. AN INVESTOR WHO PURCHASES THE SECURITIES DESCRIBED HEREIN SHALL
BE REQUIRED TO REPRESENT THAT HE, SHE OR IT IS ABLE TO SUSTAIN SUCH A LOSS, IS
FAMILIAR WITH AND UNDERSTANDS THE TERMS OF THE OFFERING OF SUCH SECURITIES AND
THAT HE, SHE OR IT MEETS CERTAIN SUITABILITY STANDARDS.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OF
SECURITIES DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM
8
<PAGE>
(INCLUDING THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE). IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NO
PERSON OR ENTITY SHOULD CONSIDER INVESTING IN THE SECURITIES DESCRIBED HEREIN
UNTIL SUCH PERSON HAS FULLY READ AND UNDERSTOOD THE CONTENTS OF THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND ALL DOCUMENTS INCORPORATED HEREIN BY
REFERENCE).
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO
TRANSFERABILITY AND RESALE. SUCH SECURITIES MAY NOT BE RESOLD OR OTHERWISE
DISPOSED OF BY AN INVESTOR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, REGISTRATION UNDER THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS MEMORANDUM SPEAKS AS OF
THE DATE HEREOF. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AFTER THE DATE HEREOF.
THE SALE OF THE SECURITIES DESCRIBED HEREIN IS SUBJECT TO THE PROVISIONS
OF, AND EACH OF THE INVESTORS PURCHASING SECURITIES WILL BE REQUIRED TO EXECUTE,
A SECURITIES PURCHASE AGREEMENT. ANY PURCHASE OF THE SECURITIES DESCRIBED HEREIN
BY AN INVESTOR SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW HEREOF
AND OF THE PROVISIONS OF SUCH SECURITIES PURCHASE AGREEMENT, IN THE FORM
ATTACHED HERETO AS EXHIBIT M. IN THE EVENT THAT ANY OF THE TERMS, CONDITIONS OR
OTHER PROVISIONS OF SUCH AGREEMENT ARE INCONSISTENT WITH OR CONTRARY TO A
DESCRIPTION OR THE TERMS SET FORTH IN THIS MEMORANDUM, SUCH AGREEMENT SHALL
CONTROL. IN PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN SUCH AGREEMENT SHALL BE DEEMED TO SUPPLEMENT AND
REPLACE WHERE INCONSISTENT ANY INFORMATION CONTAINED HEREIN.
NO OFFERING LITERATURE OR ADVERTISING SHALL BE EMPLOYED IN THE OFFERING OF
THE SECURITIES DESCRIBED HEREIN, EXCEPT THE INFORMATION CONTAINED HEREIN
(INCLUDING THAT WHICH HAS BEEN INCORPORATED BY REFERENCE). THE DELIVERY OF THIS
MEMORANDUM DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS MEMORANDUM IS SUBMITTED IN CONNECTION WITH THE OFFERING OF THE
SECURITIES DESCRIBED HEREIN AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER
PURPOSE. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, EACH POTENTIAL INVESTOR
AGREES THAT HE, SHE OR IT WILL NOT DIVULGE THE CONTENTS HEREOF TO ANY PERSON OR
ENTITY AND WILL RETURN IT (WITH ALL RELATED DOCUMENTS OR MATERIALS) TO THE
COMPANY UPON REQUEST IF SUCH INVESTOR DOES NOT AGREE TO PURCHASE ANY OF THE
SECURITIES. ANY REPRODUCTION OR DISTRIBUTION OF THIS DOCUMENT WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY IS PROHIBITED.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM
AS LEGAL, TAX OR ACCOUNTING ADVICE, BUT SHOULD CONSULT THEIR LEGAL
9
<PAGE>
COUNSEL, ACCOUNTANTS AND BUSINESS ADVISORS ABOUT LEGAL, TAX AND ACCOUNTING
MATTERS CONCERNING AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN.
PROSPECTIVE INVESTORS ARE URGED TO READ THIS MEMORANDUM CAREFULLY. ALL
PROSPECTIVE INVESTORS WILL HAVE AN OPPORTUNITY TO TALK WITH REPRESENTATIVES OF
THE COMPANY TO VERIFY ANY OF THE INFORMATION INCLUDED HEREIN AND TO OBTAIN
ADDITIONAL INFORMATION REGARDING THE COMPANY. CERTAIN PROVISIONS OF VARIOUS
DOCUMENTS AND RECORDS ARE BRIEFLY SUMMARIZED IN THIS MEMORANDUM. SUCH SUMMARIES
ARE NOT AND DO NOT PURPORT TO BE COMPLETE AND REFERENCE MUST BE MADE DIRECTLY TO
SUCH DOCUMENTS AND RECORDS FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND
OBLIGATIONS OF THE PARTIES. COPIES OF SUCH DOCUMENTS, IF NOT INCLUDED HEREWITH,
ARE AVAILABLE, UPON REQUEST, FROM THE COMPANY WITHOUT CHARGE AND WILL BE MADE
AVAILABLE TO PROSPECTIVE INVESTORS FOR INSPECTION DURING NORMAL BUSINESS HOURS,
UPON REQUEST TO THE COMPANY.
EXCEPT AS HEREIN DISCUSSED, NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION CONCERNING THE COMPANY
OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. IN MAKING AN
INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
ANY ESTIMATES OR FORECASTS AS TO EVENTS THAT OCCUR IN THE FUTURE ARE BASED
UPON THE BEST JUDGMENT OF THE COMPANY'S MANAGEMENT AS OF THE DATE OF THIS
MEMORANDUM. WHETHER SUCH ESTIMATES OR FORECASTS MAY BE ACHIEVED WILL DEPEND UPON
THE COMPANY ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE AVAILABILITY OF
FUNDS, INCLUDING FUNDS FROM THE SALE OF THE SECURITIES OFFERED HEREBY. THERE IS
NO GUARANTEE THAT ANY OF THESE FORECASTS WILL BE ATTAINED. ACTUAL RESULTS WILL
VARY FROM THE FORECASTS AND SUCH VARIATIONS MAY BE MATERIAL.
NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS MEMORANDUM.
THE COMPANY MAY ACCEPT OR REJECT ANY OFFER TO PURCHASE THE SECURITIES
DESCRIBED HEREIN, IN WHOLE OR IN PART, FOR ANY REASON, AND THE COMPANY MAY
WITHDRAW OR CANCEL THE OFFERING WITHOUT NOTICE. AFFILIATES OF THE COMPANY MAY
ACQUIRE SECURITIES IN THIS OFFERING.
THE COMPANY AND H.J. MEYERS & CO., INC. (THE "PLACEMENT AGENT"), RESERVE
THE RIGHT TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE AMOUNT OF
SECURITIES SUCH INVESTOR DESIRES TO PURCHASE.
THE COMPLETION OF EACH PURCHASE AND SALE OF THE WILL BE AT A PLACE AND
TIME SPECIFIED BY THE COMPANY AND THE PLACEMENT AGREEMENT AND IN ACCORDANCE WITH
THE PROVISIONS IN THE FORM OF SECURITIES PURCHASE AGREEMENT.
10
<PAGE>
- --------------------------------------------------------------------------------
JURISDICTIONAL NOTICES AND REPRESENTATIONS
- --------------------------------------------------------------------------------
The following information is specifically directed to residents in each of
the states noted below. Each prospective investor is urged to review all of the
following information with specific focus on the particular information provided
for the state in which such investor resides:
FOR CALIFORNIA RESIDENTS
THE SALE OF SECURITIES WHICH ARE THE SUBJECT OF THIS MEMORANDUM HAS NOT
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
FOR CONNECTICUT RESIDENTS
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION SET FORTH IN SECTION 36b-21(9)(A) OF SAID ACT AND
REGULATIONS PROMULGATED THEREUNDER. THE SECURITIES CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36b-16 OF SAID ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE PURSUANT TO SECTION 36b-21 OF SAID ACT.
FOR ILLINOIS RESIDENTS
THE OFFERING AND SALE OF THE SECURITIES OFFERED HEREBY HAS NOT BEEN
REGISTERED UNDER SECTION 5 OF THE ILLINOIS SECURITIES LAW, AND SUCH SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT UNDER SAID LAW OR IN A TRANSACTION WHICH IS
OTHERWISE IN COMPLIANCE WITH SAID LAW.
FOR NEW JERSEY RESIDENTS
THE SECURITIES REFERRED TO IN THIS MEMORANDUM WILL BE SOLD TO AND ACQUIRED
BY THE HOLDERS IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE NEW JERSEY
STATE UNIFORM SECURITIES LAW, SECTION 49-3-50(b)(12). THEREFORE, THE DEPARTMENT
OF LAW AND PUBLIC SAFETY, DIVISION OF LAW, BUREAU OF SECURITIES HAS NOT PASSED
ON THE ADEQUACY OF THE DISCLOSURE IN THE OFFERING LITERATURE OR ON THE MERITS OF
THIS OFFERING.
11
<PAGE>
FOR NEW YORK RESIDENTS
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE ATTORNEY GENERAL OF NEW YORK OR
ANY OFFICIAL OF SIMILAR CAPACITY OF ANY STATE PASSED UPON THE ACCURACY,
ADEQUACY, OR COMPLETENESS OF THE MEMORANDUM OR THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR GEORGIA RESIDENTS
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is required to file reports, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, and other information
may be inspected and copied at the Commission's public reference room located in
Room 1024 at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th
Floor, New York, New York 10048. The Commission also maintains a web site at
"http:\\www.sec.gov" where such material filed electronically can be examined.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission located in Room 1024 at 450 Fifth
Street, N.W., Washington, D.C. 20549 or, upon request, from the Company at no
charge.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Memorandum and prior to
completion or termination of the Offering shall be deemed to be incorporated by
reference in their entirety herein and to be a part hereof from the date of
filing of such documents.
The information set forth herein should be read together with, and is
qualified in its entirety by reference to the information contained in, the
exhibits hereto and any documents deemed incorporated herein by reference.
Prospective investors should read the exhibits hereto, including financial
statements, in their entirety. To the extent that such information is not
consistent with the information set forth herein, the information herein will be
deemed superseded by the information contained in such exhibits or incorporated
herein by reference.
12
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- --------------------------------------------------------------------------------
CONCURRENT OFFERING AND PROPOSED ACQUISITION
- --------------------------------------------------------------------------------
Concurrently herewith, RPM Incorporated, a Delaware corporation ("RPM"),
is offering to sell, through the Placement Agent (the "RPM Offering"), shares of
RPM common stock ("RPM Common") and subordinated debentures of RPM ("RPM
Debentures") on terms which differ materially from the terms pursuant to which
the Units are being offered in this Private Placement. The terms of the RPM
Offering require that at the closing thereof: (a) the net proceeds, after
deduction of commissions and offering expenses, from the RPM Offering, ranging
from a minimum of $266,000 to $761,000, will remain in RPM, and (b) the Company,
either by way of a merger or an acquisition, will acquire all of the issued and
outstanding common stock of RPM for the following consideration: (i) one share
of The Common Stock of the Company for every issued and outstanding share of RPM
Common, and (ii) the Company's assumption of all of RPM's obligations and
liabilities under the RPM Debentures. A confidential private placement
memorandum respecting the RPM Offering is available upon request from the
Placement Agent.
- --------------------------------------------------------------------------------
CONFIDENTIALITY
- --------------------------------------------------------------------------------
The information contained in this Memorandum is confidential and
proprietary to the Company and is being submitted to prospective investors
solely for such investors' confidential use with the express understanding that,
without the prior written permission of the Company, such prospective investors
will not release this document or discuss the information contained herein or
make reproductions of or otherwise use this Memorandum for any purpose other
than evaluating a potential investment in the securities described herein. This
Memorandum contains certain financial and other information (incorporated by
reference or otherwise) concerning the Company which is material non-public
information and should be treated as confidential. Receipt and acceptance of
this Memorandum constitutes the recipient's acknowledgement that the information
contained herein will be maintained in strict confidence by the recipient and
will not be disclosed to any third parties.
A prospective investor, by accepting delivery of this Memorandum, further
agrees to promptly return to the Company this Memorandum and any other documents
or information furnished if the prospective investor elects not to purchase any
of the securities described herein or upon request of the Company.
- --------------------------------------------------------------------------------
INDEPENDENT EVALUATION
- --------------------------------------------------------------------------------
This Memorandum does not purport to be all-inclusive or to contain all of
the information that a prospective investor may desire in evaluating an
investment in the securities of the Company. Prior to the consummation of the
offer and sale of any of the securities described herein, the Company will
afford prospective investors an opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the securities
described herein, the Company or other relevant matters and to obtain additional
information to the extent the Company possesses such information or can
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<PAGE>
acquire it without reasonable effort or expense. Any such questions should be
directed to John L. Threshie at The Tirex Corporation, 740 St. Maurice, Suite
201 Montreal, Quebec #3C 1L5. Telephone: (514) 878-0727; Facsimile: (514)
878-9847.
No person or entity has been authorized to give any information or to make
representations about the Company or the Offering and, if given or made, any
such information or representation by any other person or entity must not be
relied upon as having been authorized by the Company. Each prospective investor
must conduct and rely on his own evaluation of the Company and the terms of the
Offering (including the merits and risks involved) in making an investment
decision with respect to the securities described herein. Investment in the
Units involves a high degree of risk and is suitable only for investors capable
of sustaining a loss of their entire investment. See "RISK FACTORS."
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<PAGE>
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The Company estimates that the net proceeds from the sale of the Units
offered hereby, after deducting estimated offering expenses and commissions,
will be approximately $213,500 (the "Minimum") assuming the minimum of 10 Units
are sold and $602,000 (the "Maximum") assuming the maximum of 28 Units are sold.
The Company intends to utilize all of the net proceeds from the Minimum to pay
the costs of completing the first production model of the TCS-1 System. Unless
circumstances require otherwise, to the extent the Company raises more than the
Minimum, the proceeds will be expended in the order of priority set forth in the
table, below. Assuming the RPM Offering is successfully completed, RPM will be
acquired by the Company. The Company estimates that at the time of such
acquisition, RPM will have cash assets, representing the proceeds of the RPM
Offering, ranging from a minimum of $266,000 to a maximum of $761,000. A
discussion of the use of the combined proceeds from this Private Placement and
from the RPM Offering (the "Combined Proceeds"), is included below. If both this
Private Placement and the RPM Offering are fully subscribed, the Company expects
to use all of the proceeds within six months from the closing. The Company will
have to seek other financing, for all items not payable out of the proceeds.
Possible alternative financing sources may include, but not be limited to: (i)
Canadian government grants, loans, and/or refundable tax credits and (ii) debt
financing from banks or other lending institutions. There can be no assurance
that, even if this Private Placement is completed and closed, the RPM Offering
will be completed. Nor can there be any assurance that the Company will be able
to obtain alternative sources of financing on beneficial terms, if at all. The
failure to accomplish either of the foregoing would have a material adverse
effect upon the Company's ability to commence business operations on a timely
basis, if at all.
Approximate
Application Dollar Amount
----------- -------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
Cryogenic - Freezing
Section $213,500 $213,500
Disintegration System -0- 125,000
Comprehensive Engineering
and Design -0- 175,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) 28,500
-------- --------
Total $213,500 $602,000
- ----------
Notes to this table follow the "USE OF COMBINED PROCEEDS" table, below.
15
<PAGE>
USE OF COMBINED PROCEEDS
Assuming the RPM Offering is successfully completed, RPM will be acquired
by the Company. The Company estimates that at the time of such acquisition, RPM
will have cash assets, representing the proceeds of the RPM Offering, ranging
from a minimum of $266,000 (the "RPM Minimum") to a maximum of $761,000 (the
"RPM Maximum"). For purposes of this discussion, the net proceeds from the RPM
Offering, which the Company will acquire when it acquires RPM, together with the
net proceeds from this Private Placement will be referred to as the "Combined
Proceeds". Based upon the foregoing assumptions, the Company estimates that the
net Combined Proceeds from the RPM Offering and the sale of the Units offered
hereby, will range from approximately $479,500 (the "Combined Minimum") to
$1,363,000 (the "Combined Maximum"). Unless circumstances require otherwise, to
the extent the Company raises more than the Combined Minimum, the proceeds will
be expended in the order of priority set forth in the table, below. As noted in
the "USE OF PROCEEDS" table, above, if both this Private Placement and the RPM
Offering are fully subscribed, the Company expects to use all of the proceeds
within six months from the closing. The Company will have to seek other
financing for all items not payable out of the Combined Proceeds. Possible
alternative financing sources may include, but not be limited to: (i) Canadian
government grants, loans, and/or refundable tax credits and (ii) debt financing
from banks or other lending institutions. There can be no assurance that, even
if this Private Placement is completed and closed, the RPM Offering will be
completed. Nor can there be any assurance that the Company will be able to
obtain alternative sources of financing on beneficial terms, if at all. The
failure to accomplish either of the foregoing would have a material adverse
effect upon the Company's ability to commence business operations on a timely
basis, if at all.
Approximate
Application Dollar Amount
----------- -------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
Front End of TCS-1 System $ -0- $ 110,000
Cryogenic - Freezing
Section 213,500 213,500
Disintegration System 125,000 125,000
Comprehensive Engineering
and Design 141,000 243,800
Other Capital Investments
Tire Shredding
Equipment Leases (2)(9) -0- 75,000
Tire Dumps (3)(9) -0- 250,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) -0- 55,700
Salaries to Affiliates (7)(9) -0- 134,000
Consultant Fees (8)(9) -0- 96,000
-------- ---------
Total $479,500 1,363,500
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<PAGE>
Notes:
(1) The Company believes that it will require proceeds from this Private
Placement to cover the costs of completing the design engineering and
construction of only the first production model TCS-1 System. The Company
believes that it will be able to obtain conventional construction debt financing
from banks or other lending institutions and/or "pre-commencement" lease
financing to cover construction costs of subsequent systems. There can, however,
be no assurance that the Company will be able to obtain such financing on
commercially reasonable terms, if at all.
(2) Includes total lease payment costs for three tire shredders for a
six-month period. Tire shredders will be required in the event that the Company
successfully concludes its current negotiations respecting its proposed entry
into the on-site tire shredding business (see the discussion under "BUSINESS:
Proposed Tire Shredding Operations", below). As at the date hereof, there can be
no assurance that such negotiations will be successful, that the Company will
commence any tire shredding operations, or that if it does, such operations will
be profitable.
(3) $250,000 have been allocated out of the Maximum to cover the costs of
acquiring 25,000,000 scrap tires which the Company will require in order to meet
its obligations under a contract, which the Company is currently negotiating
with CG TIRE, Inc., in connection with the Company's proposed tire shredding
operations (see the discussion under "BUSINESS: Proposed Tire Shredding
Operations", below). As at the date hereof, there can be no assurance that such
negotiations will be successful, that the Company will commence any tire
shredding operations, or that if it does, such operations will be profitable.
(4) Includes monthly rental payments of approximately $2,000 for six
months. See the discussion under "BUSINESS: Properties".
(5) Includes estimated costs, for a six-month period, of leasing a
manufacturing facility of not less than 100,000 square feet. Such facility will
be used to assemble and operate the first production model TCS-1 System during a
six-month test phase and to assemble and test subsequent TCS-1 Systems.
(6) Includes salaries for a six-month period for one secretarial, two
engineering, and one in-house corporate counsel.
(7) See, "RISK FACTORS: Affiliated Persons To Be Paid Out Of Offering
Proceeds"
(8) Includes fees payable for a six-month period for to one government
liaison consultant, one business and professional organization liaison
consultant, and one consultant who provides advice and guidance respecting
engineering, product development, and tire shredding program management.
(9) Pending the expenditure of the proceeds of this offering, as set forth
above, the Company may make temporary investments in short-term United States
government obligations or other high-quality short-term interest bearing
securities.
17
<PAGE>
- --------------------------------------------------------------------------------
TERMS OF THE OFFERING
- --------------------------------------------------------------------------------
General
The Offering made hereby consists of up to 28 Units which are being
offered by the Placement Agent on behalf of the Company to certain "accredited
investors" as that terms is defined in Section 501(a) of Regulation D of the
Securities Act ("Accredited Investors"). The Units are being offered at a price
of $25,000 per Unit. Each Unit consists of one 10% Convertible Subordinated
Debenture in the principal amount of $25,000 and 50,000 warrants (the
"Warrants") to purchase a like number of shares of the Company's Common Stock
(the "Underlying Shares") at an exercise price of $.001 per share (the
"Warrants"). For a detailed description of the securities comprising the Units,
see "The Offering". None of the Units will be sold unless a minimum of 10 Units
offered are purchased and paid for in accordance with the terms of the Offering.
This Offering will remain open until December 31, 1997, unless extended for one
or more additional 30-day periods by mutual agreement of the Company and the
Placement Agent. Investors will not have recision rights if the Offering Period
is extended prior to the receipt of subscriptions for the ten Unit minimum. The
number of Units being offered hereby may be increased upon agreement between the
Company and the Placement Agent. The Company reserves the right to reject any
subscription, to accept one subscription over another, and to allocate available
Units among subscribers as it deems appropriate.
Restrictions on Transferability
The securities described herein are: (i) not registered under the
Securities Act or the securities laws of any state; and (ii) are being offered
and sold in reliance upon exemptions from the registration provisions of federal
and state securities laws. The Warrants comprising part of the Units will be
subject to lock-up Agreements restricting their sale or transfer for a period
ending on the earlier of: (i) one year from the effective date of the Proposed
Public Offering of the common stock of the Company; or (ii) such longer period
as may be required by any regulatory agency in connection with the proposed
public offering. Investors purchasing such securities will, therefore, not be
able to resell or otherwise transfer such securities in the absence of
registration under the Securities Act or unless an exemption from the
registration requirements thereof is made available. Additionally, all
applicable state laws requiring registration or qualification must also be
satisfied before any resale or transfer of the securities is permitted.
Investor Suitability Standards
An investment in the Units is suitable only for sophisticated investors
who understand and are economically capable of accepting the risks associated
with a speculative investment, including the complete loss of such investment.
Units will only be sold to "Accredited Investors" within the meaning prescribed
by Regulation D and Rule 501 of the Securities Act. Each investor will be
required to represent that: (i) he is an Accredited Investor; (ii) the
investment is suitable for him; (iii) he is purchasing the Units for investment
and not with a view to a distribution or resale, and (iv) he is purchasing the
Units for his own account and not for the account of others. The Company may
require additional information with respect to any subscriber. Subscription
information will be used by the Company to determine whether or not to accept
subscriptions and will be kept confidential and not disclosed except to counsel,
the
18
<PAGE>
Placement Agent and, if required, to governmental and regulatory authorities.
The Company reserves the right, in its sole discretion, to reject any
subscription or to accept one subscription over another.
Plan of Distribution
The Placement Agent is offering the securities described herein on a "best
efforts" basis. None of the Units will be sold unless a minimum of 10 Units are
subscribed and paid for in accordance with the terms of the Offering during an
offering period which expires on December 31, 1997, unless extended for one or
more 30-day periods by mutual agreement of the Company and the Placement Agent.
All proceeds will be deposited in an escrow account with Harter, Secrest & Emery
(by noon of the day following the broker's receipt thereof), and promptly
returned to the subscribers, in full, without interest, if the Company is not
successful in obtaining subscriptions for at least 10 of the Units. Subscribers
will have no right to the return of their funds during the term of the escrow.
The Company has also agreed to pay to the Placement Agent a non-accountable
expense allowance of 3% of the aggregate gross proceeds from the sale of the
Units. The Company will also pay all other expenses of this Private Placement,
including legal and accounting fees and expenses.
Further Information
Upon request, prospective investors will have the opportunity to meet with
and ask questions of the Officers and Directors of the Company concerning the
Company, its operations and prospects and the terms and conditions of the
Offering. The Company will provide prospective investors with such further
information as they may reasonably request to supplement the information
contained in this Memorandum. Prospective investors are urged to avail
themselves of this opportunity. All such additional information is considered
confidential and proprietary information of the Company and is subject to the
confidentiality restrictions applicable to the Memorandum. See "INDEPENDENT
EVALUATION."
Subscription Payments
The purchase price of Units subscribed for must be paid by check or wire
transfer. The minimum investment for each investor is one Unit, although the
Company may, in its discretion, accept subscriptions for lesser amounts and
fractional Units.
Possible Variance in Terms of Offering
The Company and the Placement Agent may agree, in their discretion and
without notice to other investors or offerees, to offer the Units to certain
investors, who are not affiliates of the Company or of the Placement Agent, on
terms more favorable than those set forth herein. The basis for any such
variance in the terms of the Offering will include, but may not be limited to,
the amount of the individual investment and the point in the Offering Period
when such investment is made. In such event, other investors will not be
entitled to rescission of their investments in this Private Placement.
19
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
- --------------------------------------------------------------------------------
Securities Offered:
The Units The Company is offering 28 Units, each Unit
consisting of one 10% Convertible Subordinated
Debenture in the principal amount of $25,000 (the
"Debenture") and fifty thousand (50,000) warrants to
purchase a like number of shares of the Company's
common stock, $.001 par value, at an exercise price
of $.001 per share (the "Warrants") to Accredited
Investors pursuant to this Confidential Private
Offering Memorandum (the "Memorandum").
Effects of Possible
Reverse Split The Company intends to make a public offering of its
Common Stock prior to March 31, 1998 (the "Proposed
Public Offering"). The terms which have been proposed
for such offering will require that not more than ten
million shares of the Company's Common Stock be
issued and outstanding prior to the commencement of
the public offering. There are presently 38,774,625
shares of the Company's Common Stock issued and
outstanding. The effectuation of proposed such Public
Offering will, therefore, require a reverse split of
the Company's securities. Such action will affect the
number of Warrants held by the purchasers thereof,
the number of shares of the Company's Common Stock
issuable upon the exercise of the Warrants, and the
number of shares issuable upon conversion of the
Debentures. See RISK FACTORS: "Proposed Public
Offering: Reverse Split."
The Debentures
Interest The Debentures shall bear interest at an annual rate
of 10%, payable upon maturity.
Maturity The Debentures shall be due and payable on the first
to occur of: (i) the completion and closing of an
underwritten public offering of the securities of the
Company, yielding gross proceeds to the Company of
not less than $8,000,000 (the "Proposed Public
Offering"); (ii) the completion and closing of any
debt or equity financing of the Company in excess of
$4,500,000; or (iii) one year from the issuance of
the Debenture.
Premium on
Redemption
After
March 31, 1998 If a Debenture is not converted, it may be redeemed
by the holder any time after Maturity at 100% of the
principal amount of the Debenture plus all interest
accrued thereon. Redemptions effected after March 31,
1998,
20
<PAGE>
however, will be made at a premium of 125% of the
principal amount of the Debenture plus all interest
accrued thereon.
Conversion
Rights The Debentures shall be convertible, in whole or in
part, at any time prior to maturity at a conversion
rate, on or prior to March 31, 1998, equal to 85%,
and after March 31, 1998, equal to 75%, of the
average of the closing bid price of the Common Stock,
as reported by the National Association of Securities
Dealers Automated Quotation Small Cap Market System
("NASDAQ"), during the five-day period preceding the
Company's receipt of a notice of conversion from a
Debenture holder. In the event the Company's Common
Stock is not then quoted on NASDAQ, the above stated
conversion rates shall be equal to the average of the
closing bid prices of the Common Stock, as traded in
the over-the-counter ("OTC") market and quoted in the
OTC Electronic Bulletin Board of the NASD, during the
five-day period preceding the Company's receipt of a
notice of conversion from a Debenture holder.
Voting Rights: The Debentures have no voting rights. Each of the
shares of Common Stock issuable upon conversion of
the Debentures will have one vote.
The Conversion Shares
Registration
Rights The Company has agreed to file a registration
statement under the Securities Act covering the
shares of Common Stock issuable upon conversion of
the Debentures (the "Conversion Shares") as promptly
as practicable after the expiration of the Offering
Period and to use its best efforts to cause such
registration statement to be declared effective by
the SEC within 120 days after the expiration of the
Offering Period and to keep such registration
statement effective at all times until: (i) all of
the Debentures, which are eligible for conversion,
are converted, and the delivery of a prospectus is no
longer required in connection with any resale of any
of the Conversion Shares and there are no unpaid,
unconverted debentures outstanding, and (ii) all of
the Warrants have been exercised and the delivery of
a prospectus is no longer required in connection with
resale of any of the shares issuable upon the
exercise of such Warrants. If such registration
statement is not declared effective by the commission
within 120 days after the termination of the Offering
Period, the Company will pay the holders of the
Debentures liquidated damages in the amount of 1% of
the principal face value of the Debenture for the
first 30 day-period, commencing on the 121st day
following the termination of the Offering Period,
that such registration statement is not declared
effective and 2% of the principal face value of the
Debenture for each subsequent 30 day-period. The
Debenture is not transferrable under any condition
prior to March 31, 1998. If for any reason, the
Company fails to register the Conversion Shares, or
to keep the Registration Statement respecting the
Conversion Shares effective, as set
21
<PAGE>
forth above, then the holders of the Debentures shall
have the following additional registration rights:
During the one-year period following May 31, 1998, on
one occasion only, the Company shall, pursuant to the
written demand of the holders of 50% or more of the
aggregate principal amount of the Debentures, file a
registration statement under the Securities Act,
covering the Conversion Shares, as promptly as
practicable following such demand; The Company shall
use its best efforts to cause such registration
statement to be declared effective by the SEC within
120 days following such demand and to keep such
registration statement effective at all times, as set
forth above, and if, at any time during the one-year
period following May 31, 1998, the Company intends to
file a registration statement, under the Securities
Act, then, not later than twenty days prior to the
intended filing date for such registration statement,
the Company shall give written notice to the
Debenture holders of its intention to file a
registration statement and each of the Debenture
holders shall have the right, upon their written
instructions, received by the Company within ten days
of the intended filing date of the registration
statement, to have included in such registration
statement the number of Conversion Shares issuable to
them as they shall so instruct. The Company shall use
its best efforts to cause such registration statement
to be declared effective by the SEC as promptly as
possible and to keep such registration statement
effective at all times, as set forth above.
Penalty for Early
Conversion The Debentures and Warrants comprising the Units are
not separable or transferable under any conditions
prior to March 31, 1998. Any conversion, prior to
March 31, 1998, of all or any part of a Debenture
shall be deemed to be an "early conversion." In the
event a Debenture is made subject, in whole or in
part, to an early conversion, the holder of such
Debenture shall lose the right to exercise his or her
Warrants in proportion to the percentage of the
principal amount of the Debenture which has been thus
converted. For Example: (i) One Unit consists of one
Debenture in the principal amount of $25,000 and
50,000 Warrants; (ii) Prior to March 31, 1998, the
holder of a Unit converts $5,000 (or 20%) of the
principal amount of the Debenture which comprises one
part of the Unit; (iii) By way of a penalty for such
early conversion, the Unit holder or any subsequent
holder of the Warrants will lose the right to convert
10,000 (or 20%) of the 50,000 Warrants which comprise
the second part of the Unit.
The Warrants
Exercise and
Restrictions
on transfer The Warrants may be exercised at a price of $.001 per
share commencing on the earlier of: (i) the effective
date of the Proposed Public Offering or (ii) May 31,
1998. Notwithstanding the foregoing, the number of
Warrants eligible for conversion by any holder
thereof will be reduced to the extent that the
Debenture issued in conjunction with such Warrants
had, prior to March 31, 1998, been subject to an
early conversion. See
22
<PAGE>
"Penalty for Early Conversion," above. The Warrants
will not be transferable, under any circumstances,
prior to March 31, 1998.
Voting
Rights: The Warrants have no voting rights. Each of the
Underlying Shares issuable upon the exercise of the
Warrants will have one vote.
The Underlying Shares
Registration
Rights The Company shall include the shares of Common Stock
underlying the Warrants (the "Underlying Shares") in
any registration statement pertaining to the Common
Stock underlying the Debentures. Purchasers of the
Units shall agree not to sell or transfer any of the
Underlying Shares for a period of one year following
the effective date of the registration statement
relating to the Proposed Public Offering. See "The
Conversion Shares - Registration Rights", above.
Minimum Purchase: Unless otherwise agreed to by the Company, the
minimum purchase by each prospective investor is one
Unit (or $25,000).
Capital Stock
Outstanding Prior to
the Offering: 38,774,625 shares of the Common Stock of the Company
were issued and outstanding prior to the Offering
being made hereunder.
Risk Factors: An investment in the Units involves a high degree of
risk and should only be undertaken by investors able
to lose their entire investment. Prospective
investors should review carefully and consider the
factors described under "RISK FACTORS."
Use of Proceeds: The Company plans to use the net proceeds of this
Offering for the completion of the first production
model of the TCS-1 System, general corporate purposes
and for working capital. (See "USE OF PROCEEDS.")
23
<PAGE>
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
Purchase of the securities offered hereby involves a high degree of risk
and must be considered a speculative investment. An investment in the securities
is suitable only for persons of adequate means, who have no need for liquidity
in their investment, who can afford the loss of their entire investment and who
meet the "Accredited Investor" requirements of Rule 501(a) of Regulation D, as
promulgated under the Securities Act. Prospective investors should, prior to any
purchase of Units, carefully consider the following risk factors, as well as the
other information contained in this Memorandum, attached hereto as Exhibits and
incorporated by reference herein.
Development Stage Company; No Assurance as to Future Profitable Operations
There is no assurance that the Company will generate net income or
successfully expand its operations in the future. Because it is in the
development stage and has had no significant operations to date, the Company
cannot predict with any certainty the future success or failure of its
operations. Its proposed operations are subject to all of the risks inherent in
the establishment of a new business enterprise, including the absence of any
significant operating history. The likelihood of the success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the formation of a new
business and the competitive environment in which the Company will operate. The
Company has had no significant operating revenues to date and there can be no
assurance of future revenues. There is limited evidence at this time upon which
to base an assumption that the Company's proposed business will prove successful
or that its proposed TCS-1 System will be successfully developed, manufactured,
and marketed. As a consequence, there is no assurance that the Company will be
able to operate profitably in the future. Additionally, the Company has a very
limited business history which investors can analyze to aid them in making an
informed judgment as to the merits of an investment in the Company. Any
investment in the Company should therefore be considered a high risk investment
because investors will be placing their funds at risk in an unseasoned start-up
company.
No Guarantee of Product Acceptance in Market
The first production model of the TCS-1 System has not yet been completed
and there is no history of commercial operations of the TCS-1 System. There can
be no assurance that the TCS-1 System will be accepted in the market for tire
disintegration equipment. Moreover, the Company has not conducted market
research that focuses on the potential demand for the TCS-1 System to the
exclusion of other types of tire disintegration equipment. Therefore, the
Company is not able to estimate with any assurance the potential demand for the
TCS-1 System, if any. There can be no assurance that sufficient market
penetration can be achieved so that projected production levels of the TCS-1
System will be absorbed by the market (see "Business-Sales and Marketing").
Need for Substantial Additional Capital
The Company presently requires funding to complete the development of the
TCS-1 System and to commence manufacturing and marketing operations. The
proceeds from this Offering are expected to permit the Company to operate only
through the end of 1997. The Company anticipates that only limited revenues will
be available to fund its operations without substantial additional capital.
Further, although
24
<PAGE>
the Company has signed a Letter of Intent with the Placement Agent for the
Proposed Public Offering of its Common Stock in an amount of not less than
$8,000,000, there can be no assurance that such public offering will be
successfully completed or, even if it is completed, that the Company will
receive adequate financing from the Proposed Public Offering. See "PROPOSED
OFFERING; REVERSE STOCK SPLIT." The Company does not currently have in place,
other current options to fund its continued existence in the event the Proposed
Public Offering does not occur or does not occur within a reasonable time
following this Private Placement. The result of the Company's inability to raise
sufficient funding to accomplish its present goals would have a material adverse
effect upon its business, prospects, operating results, and financial condition.
Moreover, if the Proposed Public Offering does not occur on a timely basis, the
Company may be unable to fund its business plan and may be forced to cease to
operate. In such event, investors will lose their entire investment.
Possibility of Material Changes in Offering Terms; NASD Review
Following the closing of this Private Placement, the Company intends to
effect a public offering of its Common Stock in an amount of not less then
$8,000,000. Should such public offering take place, the Company intends to apply
for inclusion of its Common Stock on the National Association of Securities
Dealers ("NASD") Automated Quotation Small Cap Market ("NASDAQ"). In connection
with such application, the NASD may require that the terms of this Private
Placement be materially modified. Such potential modifications may include, but
may not be limited to, an increase in the time such investors must refrain from
selling the Common Stock acquired in this Private Placement beyond the "lock-up"
dates specified in the Lock-Up Agreement attached hereto and described herein.
See "DESCRIPTION OF THE SECURITIES." By executing the Securities Purchase
Agreement, each investor will acknowledge and agree that such modifications may
occur.
Risk of Company's Inability to Repay Debentures
There is no assurance that the Company will be able to repay the
Debentures which are being offered hereby. Repayment of the Debentures depends
in part upon the completion of the Company's Proposed Public Offering and no
assurance can be given that such offering will be completed. See the Risk
Factor, below, "Proposed Offering; Reverse Split" below. If such public offering
is not completed, the Company will need to generate cash flow from its
operations or find other sources of financing. There are no other financing
sources currently available to the Company and no assurance can be given that
additional financing will be available when needed. It is unlikely that the
Company's business will be able to generate sufficient cash flow to repay the
Debentures when they become due if the Proposed Public Offering is not
completed. In such event, the Company will be unable to repay the Debentures and
the investors may be required to wait a substantial period of time for repayment
or may lose their entire investment.
No Collateral Security
Repayment of the Debentures is not secured by any collateral. The assets
and net worth of the Company are insufficient to collateralize the principal of,
or interest on, the Debentures. If the Company does not complete the Proposed
Public Offering, the Company will be unable to pay the principal or interest on
the Debentures and it will have insufficient cash, assets, or net worth to
satisfy the amount due on the debt. In such event, the principal and interest
may be uncollectible and investors may lose their entire investment in the
Company. See "Need for Substantial Additional Capital."
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Restricted Securities
The resale or transfer of the Securities, which comprise the Units being
offered hereby, are specifically restricted and all certificates representing
such securities will bear restrictive legends, as described in "DESCRIPTION OF
SECURITIES." In no event will the securities comprising the Units be
transferable prior to March 31, 1998. The shares of Common Stock issuable upon
exercise of the Warrants will be "locked up" because of limitations on the
rights of the Warrant holders to exercise the Warrants until one year following
the earlier of: (i) the effective date of the Proposed Public Offering or (ii)
May 31, 1998. If the Proposed Public Offering should occur, the shares of Common
Stock underlying the Warrants will be subject to a further "lock-up" restricting
their sale or transfer for a period of one year from the effective date of the
Proposed Public Offering or such greater period as may be required by any
regulatory agency.
Proposed Public Offering: Reverse Split
The proposed terms for the Proposed Public Offering require that not more
than 10,000,000 shares of the Company's Common Stock be issued and outstanding
prior to the commencement of the public offering. There are presently 38,774,625
shares of the Company's Common Stock issued and outstanding. While the number of
shares outstanding prior to the Proposed Public Offering may be adjusted to
reflect a change in the development and consequent valuation of the Company,
investors in this Private Placement should note that such requirement will
necessitate a reverse split of all of the Company's issued and outstanding
securities. This will necessarily affect the number of Warrants held by the
purchasers thereof, the number of shares of the Company's Common Stock issuable
upon the exercise of the Warrants, and the number of shares issuable upon
conversion of the Debentures. While the exact ratio of the projected reverse
split cannot be determined prior to the finalization of the terms thereof, the
effect of a 1-for-4 reverse split would affect an investor in this Private
Placement, as follows: (i) the number of Warrants included in each Unit (and the
number of shares purchasable upon the exercise of the Warrants) would be reduced
from 50,000 to 12,500; (ii) the number of shares of Common Stock issuable upon
conversion of the Debentures would be reduced to the extent that the market
price of the Common Stock increases to reflect the decrease in the number of
shares of the Company's Common Stock issued and outstanding after the reverse
split.
Arbitrary Offering Price
The price at which the Units are being offered hereby was arbitrarily
determined by the Company and the Placement Agent based on consideration of a
number of factors. The offering price bears no relationship to any objective
criteria of value and should not be regarded as an indication of future market
price of the Company's securities.
Broad Discretion in Use of Proceeds
The net proceeds from this Private Placement have been generally allocated
by management of the Company for the various uses specified under "USE OF
PROCEEDS." As a result, purchasers of Units in this Offering will be entrusting
their funds to management, who will have broad discretion in determining
specific expenditures of the funds. Accordingly, this uncertainty increases the
risk of an investment in the Company since investors will not have an
opportunity to review and evaluate the specific expenditures which may be made
by the Company. See "USE OF PROCEEDS."
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Additional Interest Income -- Original Issue Discount
For federal income tax purposes, the issue price of a Unit (in general,
the price paid therefor) must be allocated among the Debenture and the shares of
Common Stock underlying the Warrants (the "Underlying Shares") in proportion to
their respective fair market values. The portion allocated to the Debenture and
the Underlying Shares will become the respective tax basis for each class of
asset. The excess of the face amount of the Debenture over the basis assigned
thereto will constitute original issue discount. The amount of that original
issue discount will be amortized over the life of the Debenture, and will
constitute additional interest income to the investor. Consequently, the
investor will be required to report additional interest income during the period
he holds the Debenture which will be greater that the 10% interest rate payable
on the Debenture. The Company has not at this time determined what the fair
market value of the shares of Common Stock is likely to be, or, as a result, how
much original issue discount will be attributed to the Debentures, although it
will make such determination in connection with its annual information reporting
obligations to the Internal Revenue Service. Each investor is urged to consult
his own tax advisor with respect to the foregoing matters.
Dependence on Key Personnel
The Company believes that its success depends to a significant extent on
the efforts and abilities of certain of its senior management, in particular
those of Terence C. Byrne, President and Chief Executive Officer; and Louis V.
Muro, Vice President in charge of Engineering. The loss of Mr. Byrne, or Mr.
Muro could have a material adverse affect on the Company's business, prospects,
operating results, and financial condition. The Company does not presently have
key man life insurance policies, but intends to try to obtain such coverage in
the amount of $1,000,000 for Mr. Byrne and $500,000 for Mr. Muro. There can be
no assurance that such policies will be available to the Company on commercially
reasonably terms, if at all. Additional, the ability of the Company to realize
its business plan could be jeopardized if any of its senior management becomes
incapable of fulfilling his obligations to the Company and a capable successor
is not found on a timely basis. There can however be no assurance that, in such
event, the Company will be able to locate and retain a capable successor to any
member of its senior management.
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). O/V III and OTRP are New Jersey corporations
affiliated with each other through common control. The loss of either or both of
these two customers would have an adverse effect on the Company. See BUSINESS:
"Dependence on Major Customer".
Control by Present Officers
Terence C. Byrne, the Company's President and Chief Executive Officer,
owns of record and controls beneficially by way of irrevocable voting proxies
11,619,430 shares of the Company's Common Stock. Louis V. Muro owns of record
4,681,191 shares of the Company's Common Stock. Accordingly, Messrs. Byrne and
Muro collectively control an aggregate of 16,300,621, or 42%, of the currently
issued and outstanding Common Stock of the Company. They are therefore in a
position to substantially influence the election of a majority of the Company's
directors and otherwise control the Company. The Company is not aware of any
other written or oral voting agreements respecting the Company's Common Stock.
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Experience of Management
Although Management has general business and engineering experience,
potential investors should be aware that no member of management has been
directly involved in administering a tire disintegration, recycling, or tire
disintegration equipment manufacturing, business.
Uncertainty of Product and Technology Development: Technological Factors
The Company has not completed development and testing of the TCS-1 System.
The Company's success will depend upon the TCS-1 System's meeting targeted
performance and cost objectives and its timely introduction into the
marketplace. The Company continues to be required to commit the bulk of its
time, effort, and resources to finalizing the development of the TCS-1 System.
Although the Company anticipates that the development of the TCS-1 System will
be successfully concluded prior to the end of 1997, such an outcome will be
subject to all of the risks inherent in the development of a new product and
technology (including unanticipated delays, expenses, and difficulties, as well
as the possible insufficiency of funding to complete development). There can be
no assurance as to when, or whether, the Company's efforts to complete the
development of the TCS-1 System will be successful. In addition, there can be no
assurance that the TCS-1 System will satisfactorily perform the functions for
which it is designed, that it will meet applicable price or performance
objectives, or that unanticipated technical or other problems will not occur
which would result in increased costs or material delays in development. There
can be no assurance that, despite testing by the Company, problems will not be
encountered in the TCS-1 System after the commencement of commercial manufacture
and sales, resulting in loss or delay in market acceptance.
Protection of Tirex Proprietary Technology and Potential Infringement
The success of the Company's proposed business depends in part upon its
ability to protect its proprietary technology and the proposed TCS-1 System
which will utilize such technology. On December 18, 1996, the Company filed
patent applications with the United States Patent and Trademark Office in the
United States and with the proper authorities in Canada. Because the Company had
previously filed "preliminary patent applications" on December 19, 1995, the
priority date of its definitive patent application is retroactive to such
earlier date. Prior to such filings, the Company relied on trade secrets,
proprietary know-how and technological innovation to develop its technology and
the designs and specifications for the TCS-1 System. Except where the terms of
their employment agreements would make it redundant or, in the sole discretion
of management, it is determined that because of the non-technical nature of
their duties, such agreements are not necessary or appropriate, the Company has,
and will continue to, enter into confidentiality and invention assignment
agreements with all employees and consultants which limit access to, and
disclosure or use of, the Company's proprietary technology. There can be no
assurance, however, that the steps taken by the Company to deter
misappropriation or third party development of its technology and/or processes
will be adequate, that others will not independently develop similar technology
and/or processes or that secrecy will not be breached. In addition, although the
Company believes that its technology has been independently developed and does
not infringe on the proprietary rights of others, there can be no assurance that
the Company's technology does not and will not so infringe or that third parties
will not assert infringement claims against the Company in the future. Moreover,
there can be no assurance that the Company will be granted a patent pursuant to
its application or, that if a patent is granted, the Company will have the
resources to defend it by bringing patent infringement or other proprietary
rights actions.
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Limited Public Market
To date there has been only a limited and sporadic public market for the
Company's Common Stock. There can be no assurance that an active and reliable
public market will develop or, if developed, that such market will be sustained.
Purchasers of the securities offered hereby may, therefore, have difficulty in
selling the shares of Common Stock issuable upon the conversion of the
Debentures or the exercise of the Warrants. As a result, investors may find it
impossible to liquidate their investment in the Company should they desire to do
so. The Company's Common stock is currently traded in the over-the-counter
market and quoted on the NASD Over-the-Counter Electronic Bulletin Board. The
Company expects to apply for inclusion in NASDAQ. As at the date hereof,
however, the Company is not eligible for inclusion in NASDAQ or for listing on
any national stock exchange. All companies applying and authorized for listing
with NASDAQ are required to have not less than $4,000,000 in total assets and
$2,000,000 in capital and surplus. Unless the Company is able to increase its
net worth substantially, either through the accumulation of surplus out of
earned income or successful capital raising financing activities, it will never
be able to meet the eligibility requirements of NASDAQ. In order to qualify for
listing on a national stock exchange similar minimum criteria respecting, among
other things, the Company's net worth and/or income from operation must be met.
Accordingly, market transactions in the Company's common stock are subject to
the "Penny Stock Rules" of the Securities and Exchange Act of 1934, which are
discussed in more detail, below, under "Applicability of Penny Stock Rules to
Broker-Dealer Sales of Company Common Stock". These rules could make it
difficult to trade the Common Stock of the Company because compliance with them
can delay and/or preclude certain trading transactions. This could have an
adverse effect on the ability of an investor to sell any shares of the Company's
Common Stock, issuable upon the exercise of the Warrants or the conversion of
the Debentures purchased hereunder, as well as on the price obtainable for such
shares of Common Stock.
Applicability of "Penny Stock Rules" to Broker-Dealer Sales of Company Common
Stock
The Securities and Exchange Commission has adopted special regulations
(referred to herein as the "Penny Stock Rules") which define a security that has
a market price of less than $5 and is not listed on a national stock exchange or
quoted on NASDAQ as a "Penny Stock". These regulations subject all broker-dealer
transactions involving such securities to the special Penny Stock Rules set
forth in Rule 15g- 9 of the Securities Exchange Act of 1934 (the "34 Act"). It
may be necessary for the Selling Shareholders to utilize the services of
broker-dealers who are members of the NASD. The current market price of the
Company's Common Stock is substantially less than $5 per share and such stock
can, for at least for the foreseeable future, be expected to continue to trade
in the over-the-counter market at a per share market price of less than $5 (see
"Price Range of Securities"). Accordingly, any broker-dealer sales of the shares
being offered hereunder, as well as any subsequent market transactions in the
Company's Common Stock, will be subject to the Penny Stock Rules. These Rules
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their shares in
the secondary market, if such a market should ever develop.
The Penny Stock Rules also impose special sales practice requirements on
broker-dealers who sell such securities to persons other than their established
customers or "Accredited Investors." Among other things, the Penny Stock Rules
require that a broker-dealer make a special suitability determination respecting
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. In addition, the Penny Stock Rules require that a
broker-dealer deliver, prior to any transaction, a disclosure schedule prepared
in accordance with the requirements of the Commission relating to the penny
stock market. Disclosure also has to be made about commissions payable to both
the broker-dealer and the registered representative and the current quotations
for the securities. Finally, monthly statements have to be sent to any holder of
such penny stocks disclosing recent price information for the penny stock
29
<PAGE>
held in the account and information on the limited market in penny stocks.
Accordingly, for so long as the Penny Stock Rules are applicable to the
Company's Common Stock, it will be difficult to trade such stock because
compliance with such Rules can delay and/or preclude certain trading
transactions. This could have an adverse effect on the liquidity and/or price of
the Company's Common Stock.
Regulatory and Environmental Considerations
The Company does not expect that its equipment manufacturing operations
will be subject to any unusual or burdensome governmental regulations. However,
the Company is currently making preparations to enter into a five-year tire
shredding project in Quebec (see "Proposed Tire Shredding Operations"). These
operations and the businesses of the Company's customers may involve, to varying
degrees and for varying periods of time, the storage or "stockpiling" of scrap
tires which, with their size, volume and composition, can pose a particularly
serious environmental problem. Among the numerous problems relating to
stockpiling scrap tires, is the fact that when stockpiled above ground, tires
create serious fire, public health, and environmental hazards ranging from
fires, which generate large and dense clouds of black smoke and are extremely
difficult to extinguish, to the creation of vast breeding grounds for mosquitoes
and vermin. As a result, many states have either passed or have pending
legislation regarding discarded tires including legislation limiting the storage
of used tires to specifically designated areas. For reasons including, but not
limited to the problems described above, the Company and the purchasers of its
TCS-1 Systems will be subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental, health, and labor agencies. Compliance with applicable
environmental and other laws and regulations governing the business of the
Company may impose a financial burden upon the Company that could adversely
affect its business, financial condition, prospects, and results of operations.
Likewise, the burden of compliance with laws and regulations governing the
installation and/or operation of TCS-1 Systems could discourage potential
customers from purchasing a TCS-1 System which would adversely affect the
Company's business, prospects, results, and financial condition. Actions by
federal, state, and local governments concerning environmental or other matters
could result in regulations that could increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 System and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that it will be able to operate in compliance with
such regulations. In this regard, it has retained environmental attorneys in
Montreal to advise it with respect to compliance with local environmental
regulations applicable to its proposed tire shredding operations. It has also
engaged a consultant to advise purchasers of its TCS-1 Systems with respect to
compliance with local environmental regulations applicable to the installation
and operation of the TCS-1 System. To date, the Company has not had to make
significant capital expenditures relating to environmental compliance because it
has not yet commenced operations. However, the inception of equipment
manufacturing and, possibly, tire shredding operations together with continually
changing compliance standards and technology, may affect the Company's future
capital expenditure requirements relating to environmental compliance. See
BUSINESS.
Production and Supply
The Company intends to begin manufacturing the TCS-1 System on a
commercial basis within the current fiscal year. The Company will be dependent
on arrangements with its subcontractors for the manufacture and assembly of the
principal components incorporated into the TCS-1 System (see BUSINESS
"Agreements With Subcontractors", below). It will therefore be substantially
dependent on the
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ability of such subcontractors to satisfy performance and quality specifications
and to dedicate sufficient production capacity for all TCS-1 System scheduled
delivery dates. The Company believes that all of its subcontractors have the
requisite manufacturing capabilities and the willingness to dedicate sufficient
amounts of their manufacturing capacity to allow the Company to meet all TCS-1
System delivery dates, currently scheduled or expected to be scheduled within
the next two years. However, no assurance can be given that this will in fact be
the case and failure on the part of the Company's subcontractors in these
regards would adversely affect the Company's ability to manufacture and deliver
TCS-1 Systems on a timely and competitive basis. In such event the Company would
have to replace or supplement its present subcontractors. There can be no
assurance that should it be necessary to do so, the Company would be able to
find capable replacements for its subcontractors on a timely basis and on terms
beneficial to the Company, if at all; The Company's inability to do so would
have a material adverse effect on its business (see BUSINESS: "Production and
Supply").
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
Technological Changes
To date, the market for tire disintegration equipment has not, to the best
of management's knowledge, been characterized by rapid changes in technology.
However, there can be no assurance that new products or technologies, presently
unknown to the Company, will not, at any time in the future and without warning,
render the Company's tire disintegration technology less competitive or even
obsolete. Moreover, the technology upon which the Company's tire disintegration
system is based, could be susceptible to being analyzed and reconstructed by an
existing or potential competitor. Although the Company has filed a patent
application respecting its proprietary disintegration system, there cannot, at
this time be any guarantee that a patent will, in fact, be granted pursuant to
such application. Moreover, even in the event that the Company is granted a
patent, the Company may not have the financial resources to successfully defend
such patent by bringing patent infringement suits against parties that have
substantially greater resources than are available to the Company. The Company
must continue to create innovative new products reflecting technological changes
in design, engineering, and development, not only of new tire disintegration
machinery, but of products, and machinery capable of producing products, which
incorporate and recycle the rubber, steel, and/or fiber by-products which will
be produced by the operation of the TCS-1 System. Failure to do so, could
prevent to Company from gaining and maintaining a significant market for its
products. This may require a continuing high level of product development,
innovation, and expenditures. To the extent that the Company does not respond
adequately to such technological advances, its products may become obsolete and
its growth and profitability may be adversely affected.
Competition
Although management believes that the Tirex Technology has distinct
advantages over other existing tire disintegration methods, the Company will
face competition from other equipment manufacturers, virtually all of whom will
be larger than the Company, and will have substantially more assets and
resources than the Company has. Management intends to meet such competition by
developing technological innovations which will make the TCS-1 System more
economical and efficient than other tire disintegration methods. To do so, the
Company will have to raise sufficient funding to complete and continue its
development program and to employ highly qualified personnel. There cannot
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however be any assurance that the Company will be able to raise the capital
necessary to enable it to do so or that it will be able to locate or retain such
personnel.
No Dividends and None Anticipated
The Company has not paid any cash dividends, nor does it contemplate or
anticipate paying any dividends upon its Common Stock in the foreseeable future.
Shares Available for Resale
Excluding any options that could be exercised, there were 38,774,625
shares of the Company's Common Stock issued and outstanding as of the date of
this Memorandum. 15,948,127 shares of such shares are "restricted securities"
within the meaning of Rule 144 of the Securities Act ("Rule 144") and thus may
be sold only in compliance with an exemption from registration under the
Securities Act or pursuant to a registration statement under the Securities Act.
All of such shares will become eligible for resale under Rule 144 between the
date hereof and July 18, 1998. A sale of shares by shareholders, whether
pursuant to Rule 144 or otherwise, may have a depressing effect upon the market
price of the Common Stock.
Authorization of Preferred Stock
The Company's Amended Certificate of Incorporation authorizes the issuance
of "open" stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to designate and issue
the "open" stock as preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Convertible Debentures, Warrants, and
Common Stock. Also, the voting power and percentage of stock ownership of the
shareholders of the Company's outstanding capital stock can be substantially
diluted by such preferred stock issuance. In addition, the issuance of such
preferred stock may have the effect of rendering more difficult or discouraging
an acquisition of the Company or changes in control of the Company. The Company
does not have any provisions in its Certificate of Incorporation which would
have an anti-takeover effect. However, certain provisions in the employment
agreements of certain of the Company's officers could have such effect.
Moreover, the Company may adopt anti-takeover measures in the future. Such
measures could include, but may not necessarily be limited to, the issuance of
preferred stock with anti-takeover provisions to discourage bidders from making
offers at a premium to the market price. In addition, the mere existence of an
anti-takeover device could have a depressive effect on the market price of the
Company's Common Stock.
Affiliated Persons To Be Paid Out Of Offering Proceeds
The Company does not intend to spend any of the proceeds from this
offering or from the RPM Offering on payments to affiliates unless the maximum
proceeds from both offerings are received (see "USE OF PROCEEDS", above). In
such event, the Company has budgeted $134,000 from the Maximum Combined Proceeds
for salaries to Affiliates. However, the following should be noted: The Company
intends to expend all of the proceeds from this Private Placement and from the
RPM Offering during the six months following the closing thereof. Because of its
limited financial resources, the Company has met, and during the period
preceding the Proposed Public Offering the Company may continue to meet, a
substantial portion of its salary obligations to its executive officers and its
in-house corporate counsel by issuing to them unregistered shares of its Common
Stock at a 50% discount from the average market price
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of the stock during the period when such unpaid salaries were earned. The
Company has entered into employment agreements with its four executive officers
which call for annual salaries in the approximate aggregate amount of $515,000.
If all of the following factors occur: (i) the Company spends all of the
proceeds from this Private Placement within six months; (ii) during such
six-month period, the Company receives no cash resources other than the proceeds
from this Private Placement; and (iii) the Company discontinues its established
practice of paying part of its executives' salaries in stock instead of cash and
pays 100% of its salary obligations in cash, then the Company could expend up to
$257,500 on salaries to affiliates. If this entire amount was taken from the
Combined Maximum Proceeds, it would constitute approximately 192% thereof. As
noted above, if the Maximum Combined Proceeds are raised, the Company's present
budget allocates a total of $134,000 to salaries to affiliates. Such amount
would constitute less than 10% of the Maximum Combined Proceeds. For further
details respecting the Company's compensation of its executive officers,
reference is made to ITEM 10. "EXECUTIVE COMPENSATION" of the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1997, enclosed as an
exhibit hereto.
- --------------------------------------------------------------------------------
PRICE RANGE OF SECURITIES
- --------------------------------------------------------------------------------
The Company's Common Stock, is traded on a limited basis in the
over-the-counter market and quoted on the NASD's OTC Electronic Bulletin Board
(the "OTC Bulletin Board"). The following table sets forth representative high
and low bid prices by calendar quarters as reported by the NASD's OTC Electronic
Bulletin Board System (the "OTC Bulletin Board") during the last two fiscal
years and the subsequent interim period through October 20, 1997. The level of
trading in the Company's Common Stock has been limited and the bid prices
reported may not be indicative of the value of the Common Stock or the existence
of an active market. The OTC market quotations reflect inter-dealer prices
without retail markup, mark-down, or other fees or commissions, and may not
necessarily represent actual transactions. The shares of Common Stock underlying
the Warrants and issuable upon conversion of the Debentures are subject to
restrictions on transferability.
Bid Prices
Period Common Stock
------ ------------
Low High
--- ----
Fiscal Year Ended June 30, 1996
September 30, 1995 0.125 0.75
December 31, 1995 0.125 0.375
March 31, 1996 0.125 0.28
June 30, 1996 0.10 0.56
Fiscal Year Ended June 30, 1997
September 30, 1996 0.19 0.45
December 31, 1996 0.13 0.44
March 31, 1997 0.23 0.58
June 30, 1997 0.18 0.44
Fiscal Year Ending June 30, 1998
October 20, 1997 0.13 0.46
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SHAREHOLDERS AND DIVIDENDS
- --------------------------------------------------------------------------------
Shareholders
As of September 25, 1997, the number of holders of record of the Common
Stock, $.001 par value, of the Company was 311.
Dividends
The Company has paid no cash dividends and has no present plan to pay cash
dividends in the foreseeable future, intending instead to reinvest its earnings,
if any. Payment of future cash dividends will be determined from time to time by
the Board of Directors, based upon its future earnings, if any, financial
condition, capital requirements and other factors. The Company is not presently
subject to any contractual or similar restriction on its present or future
ability to pay such dividends.
- --------------------------------------------------------------------------------
BUSINESS
- --------------------------------------------------------------------------------
History
The Tirex Corporation (hereinafter, the "Company" or "Tirex") was
incorporated in Delaware on August 19, 1987 under the name "Concord Enterprises,
Inc." Its name was changed to "Stopwatch Inc." on June 20, 1989(1) and to the
"Tirex America Inc." on March 10, 1993. On July 11, 1997, in order to encompass
the current and projected international scope of its operations, the Company's
name was changed to "The Tirex Corporation". The Company, directly and through
its subsidiary "Tirex Canada Inc.",(2) is presently engaged in the business of
developing, manufacturing, selling, and leasing a cryogenic tire disintegration
system (the "TCS-1 System") which integrates proprietary disintegration
technology with established conventional mechanical and technologies. It is also
currently conducting negotiations with C.G. Tire, Inc., a wholly-owned
subsidiary of Continental General Tire Inc., respecting a five-year tire
shredding project for the province of Quebec. In addition, the Company is
exploring, with the Montreal operation of Solutia Inc. (a successor to part of
the business of Monsanto Canada Inc.), the feasibility of
- ----------
(1) For a discussion of the merger with Stopwatch, the healthcare business
which was intended, but was never commenced, by Stopwatch, and the reasons
for the termination of the Stopwatch business plan, reference is made to
Item 1 of Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1988, its transition report on Form 10-K for the
transition period ended June 30, 1989, and its annual report on Form
10-KSB for the fiscal year ended June 30, 1995.
(2) Unless context necessarily requires otherwise, references hereinafter to
the "Company" refer to The Tirex Corporation and its subsidiary, Canadian
Corporation 3143619 (known and doing business as "Tirex Canada Inc."),
collectively.
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expanding the Company's operations to include thermoplastic/rubber compounding
operations at the former Monsanto Montreal facility.
The Company acquired its proprietary tire disintegration technology (the
"Tirex Technology") in the fall of 1992(3). Since the beginning of 1993, it has
devoted the bulk of its efforts to completing the design and development, and
commencing the manufacture, of the TCS-1 System and raising the financing
required for such project. In August of 1995, the Company moved its corporate
headquarters to Quebec and formed its subsidiary, 3143619 Canada Inc. (known and
doing business, and hereinafter referred to, as "Tirex Canada Inc.").
Construction of the first full scale prototype of the TCS-1 began in February of
1997 and is expected to be completed by the end of November 1997. The Company
began taking orders on the TCS-1 System in October of 1995 and, to date, has
received deposits of $25,000 each on five Systems. The Company has located and
entered into written and oral agreements with various engineering and
manufacturing subcontractors and component suppliers, which Management believes
will supply it with sufficient production capacity to meet all current and
projected orders, on a timely basis, commencing upon satisfactory completion of
testing operations of the initial TCS-1 System (see "Products and Services"
below).
The Scrap Tire Disposal Business
Overview
If both this Private Placement and the RPM Offering are successfully
completed, the Company expects to complete the construction, and initiate
testing, the first production model of its proprietary cryogenic scrap tire
disintegration system (the "TCS-1 System") before the end of 1997. It intends
immediately thereafter to initiate full scale marketing and manufacturing
operations. The TCS-1 System comprises a complete, turn-key, environmentally
safe, cryogenic tire disintegration system designed to: (i) disintegrate scrap
tires, using substantially less energy than is required by existing ambient
methods (which shred and/or chop tires at "ambient" or normal room temperatures)
or other currently available cryogenic methods (which reduce the temperature of
the materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
Scrap Tire Disposal Problems and Development of New Uses for Scrap Tires
The Company's management believes that there is a need to find
alternatives to conventional methods for disposing of the vast amounts of solid
waste which are continually being dumped into fast disappearing land-fill space
or burnt in incinerators. Even though scrap tires represent only about 1.2% of
the total tonnage of solid waste annually produced in North America, the
disposal of scrap tire can pose serious environmental problem. Among the
numerous problems relating to landfilling or stockpiling scrap tires, is the
fact that whole tires cannot be successfully buried in landfills because the
combination of their size, configuration, and weight causes buried tires
eventually to work their way up to the surface. Moreover, when stockpiled above
ground, tires can create serious fire, public health, and environmental
- ----------
(3) For discussions in detail of the Company's acquisition of the Tirex
Technology and the associated corporate and management changes which took
place between the autumn of 1992 and January of 1995, reference is made to
the discussions thereof included in Item I of the Company's annual reports
of Forms 10-KSB for the fiscal years ended June 30, 1995 and June 30,
1996.
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hazards ranging from dump fires which generate large and dense clouds of black
smoke and are very difficult to extinguish, to the creation of vast breeding
grounds for mosquitoes and vermin. According to the Scrap Tire Management
Council ("STMC") "Scrap Tire Use/Disposal Study - 1996 Update", current
estimates for scrap tire stockpiles run from approximately 700 million to 800
million, which would correspond to a tire-to person ratio in the United States
of America between 2.5 and 3.0.
As a result, many states have either passed or have pending legislation
regarding discarded tires, including legislation limiting the dumping of used
tires to specifically designated areas. Also in recognition of the serious
environmental problems created by discarded tires, there has been a shift from
the dumping or landfilling of waste tires to development of various market
applications. According to the STMC, there are currently three major markets for
scrap tires:
(a) using scrap tires as "tire derived fuel" or "TDF" which comprises
burning the tires, either whole or after reduction to approximately
two inch chips;
(b) exporting scrap tires for refitting and re-use as tires; and
(c) disintegrating scrap tires into their components (rubber, steel
wire, and fiber) and recycling the salvageable steel and rubber into
new products;
The STMC 1996 update report indicated that the largest use presently being
made of scrap tires is burning them as tire derived fuel. From 1994 to 1996,
this usage grew 50% to 152 million tires burned in 1996. The second largest use
of scrap tires was exporting them (15 million in 1996). But, while ground rubber
represented only the third largest use of scrap tires, the STMC study indicated
that this area enjoyed "the biggest surge" with an increase of "177% over 1994".
As a result, approximately 190 pounds of crumb rubber were produced in 1996 (vs.
69 million pounds in 1994) In addition, 210 million pounds of tire buffings (a
by-product from the retreading industry were also processed for an overall
market demand for size reduced rubber (crumb rubber and buffings) of around 400
million pounds at the end of 1996. A more detailed discussion is included.
The Company believes that modern waste disposal problems combined with the
considerable depletion of natural, non-renewable resources, such as raw material
used for tire manufacture, the decreasing availability of many cultivated raw
materials, and the resulting increases in the costs thereof, will make the
recycling of waste products such as used tires into reusable raw materials a
critical imperative for society and for the economy. The Company also believes,
however, that because present market conditions demonstrate that the capital and
operating costs of currently available tire recycling systems are high, and,
because of the inefficiency of the technologies being used, the by-products
therefrom, expensive to produce, that tire recycling will not be an economically
viable industry until such problems are addressed. The Company believes that the
TCS-1 System will successfully address these problems. The TCS-1 System has been
designed not only to cost less in terms of initial capital outlay required, but
to cut maintenance, operating, and energy costs drastically and to significantly
increase the quantity and quality of the by-products yielded by the recycling
process.
The Company believes that the advent of a greater and more dependable
supply of high quality rubber crumb could contribute to and encourage the
continuance of the kind of huge growth in the market for rubber crumb which is
currently occurring. Should the TCS-1 System be developed by the Company, the
Company hopes to participate in such market. (See "Potential Markets" below).
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Products and Services
Proposed Product
The TCS-1 System
The TCS-1 System comprises a complete, turn-key, environmentally safe,
cryogenic tire disintegration system which incorporates proprietary
disintegration and cryogenic technology with established conventional mechanical
and technological techniques. While the TCS-1 System is still in the research
and development stage, substantial progress has been made during and since the
end of the fiscal year ended June 30, 1997 with initial engineering design and
development nearing completion. Construction of the first full scale production
model began in February of 1997 and is expected to be completed by the end of
1997. A three to six month test phase is scheduled to begin immediately upon
completion of such production model for the purpose of optimizing the
performance of the System and eliminating any problems which may arise under
operating conditions. This will also allow the Company to definitively test the
limits of the System's production capabilities.
The TCS-1 System is designed to: (i) disintegrate scrap tires, using
substantially less energy than is required by existing ambient methods (which
shred and/or chop tires at "ambient" or normal room temperatures) or other
currently available cryogenic methods (which reduce the temperature of the
materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
The principle features of the TCS-1 System which management believes make
it superior to other existing tire recycling systems on the market today
include:
* A cooling process which management believes will substantially
reduce the cost of refrigerants.
* A multiple stage tire disintegration unit which: (i) will not
subject the tire to shredding or hammer-milling operations; (ii)
will be environmentally safe; and (iii) is capable of yielding
rubber powder in a wide range of particle size, a capability which
Management believes will enable it to meet a variety of market
demands.
* The ability to produce steel, fiber cord, and rubber powder with
only insignificant intermingling.
* Highly efficient utilization of energy resulting in low energy
requirements and usage (more than 90% of the cold air generated will
be used to cool the tires).
* Low capital cost.
* Low maintenance requirements.
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Construction and Design of the TCS-1 System
The functions and mechanisms of the proposed TCS-1 System have been
designed for the exclusive purpose of disintegrating automobile and truck tires,
which basically consist of the following elements:
* Two types of rubber. The sidewalls of tires are constructed of
material containing a higher percentage of natural, as opposed to
synthetic, rubber which is used in the treads. Management believes
that natural rubber, which is more flexible than synthetic rubber,
is capable of being reused in a significantly wider range of
products than is synthetic rubber. The TCS-1 System has been
designed to take advantage of these differences to produce a
separate rubber powder reclaimed exclusively from the sidewalls.
Management believes that such "sidewall" rubber powder will have a
higher market value than rubber produced today from a mixture of
tread and sidewall rubber.
* Steel beads, which consist of steel wires tightly wound together to
a diameter of approximately 3/8 of an inch. These beads are imbedded
around the rims of the tire treads;
* Steel belting, which incorporates a thin layer of steel wires laid
out in a "herring bone" pattern and which underlies the entire
surface of the tread area, and
* Fiber threads which are incorporated into the rubber used throughout
the tire.
The TCS-1 System will comprise four main sections consisting of
separation, cryogenic, disintegration, and product handling systems. An internal
computer will monitor all essential wear points as well as certain other aspects
of the System.
The principal feature of the TCS-1 System will be the Company's
proprietary, non-shredding disintegration mechanism which will, under cryogenic
conditions, disintegrate used tires into: (i) two types of rubber powder (rubber
from the sidewalls of the tire will be processed separately from the tread
rubber); (ii) steel wire sections; and (iii) fiber cord sections. The steel and
fiber yielded by the System will normally contain insignificant amounts of
rubber.
The basic components of the TCS-1 System will include:
(a) a tire preparation assembly which will remove the steel beads, clean
the tires, separate sidewalls from the tread, and cut both treads
and sidewalls;
(b) a refrigeration unit, approximately eight feet wide, sixteen feet
high, and 40 feet long;
(c) a completely enclosed cryogenic tire disintegration unit
approximately 20 feet wide, 16 feet high and 40 feet long;
(d) two freezing chambers, each ten feet wide, twenty feet high, and
twelve feet long;
(e) a fiber baler used to bundle fibers into bales with steel bonds; and
(f) miscellaneous conveyors and fiber separation equipment
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In April of 1997, the Company replaced its original, one-quarter scale
model with a new, larger sized (1/2 scale) working prototype of the TCS-1
System's proprietary disintegration unit. This scale model disintegration
mechanism will be used to run test operations to discover, identify, and cure
any problems which may arise, as well as to test the limits of the System's
productive capacity, under operating conditions. This will enable the Company's
engineering team to design and develop, under operating conditions, the
components of the disintegration mechanism for the full-scale production model
of the TCS- 1 System, which is presently under construction. The scale model
disintegration mechanism is also being used to produce rubber crumb for the
purpose of testing the nature, quality, and potential marketability thereof.
The foregoing production schedule may not be met unless the Company
completes and closes a Private Placement of its securities in an amount of not
less than $700,000. Any failure or delay in the Company's ability to obtain such
financing will be directly reflected in a commensurate delay or failure in the
completion of the construction, and the commencement of the testing, of the
production model.
Economy of Operation
The TCS-1 System has been designed to substantially reduce the amount of
energy and equipment maintenance required to disintegrate tires, to increase the
ease and efficiency of separating the steel, rubber, and fiber components of
tires, and to produce what Management believes will be more saleable and more
highly valued by-products than are produced by other systems currently
available. Test operations indicate that the cost of disintegrating a tire using
the TCS-1 System will be about $.50 as compared with current tire disintegration
costs, using other technologies, of up to $2.00 per tire. Additionally all of
the end products which the TCS-1 System is designed to yield are expected to be
saleable
The TCS-1 System has been designed to operate continuously (with minimum
amounts of downtime for maintenance), and to consume approximately 650
horsepower operating at 460 volts, and is designed to require substantially less
energy than is used by presently existing equipment. TCS-1 System will be able
to process both automobile and truck tires in quantities equivalent to 180
automobile tires per hour, or 1,000,000 automobile tires per year.
Projected Functions, Operations, and Capabilities
The following discussion of the functions, operations, and capabilities of
the TCS-1 System are based upon engineering design plans and specifications and
test operations of: (i) the 1/2 scale prototype disintegration mechanism; (ii)
the automated front-end system; and (iii) various other components of the System
which have already been completed and tested separately. This discussion also
assumes that the System, when complete and fully integrated, will function as
planned, of which there can be no assurance. However, because the TCS-1 System
is still in the development stage, the Company cannot, as at the date hereof,
guaranty how long after the completion of the first full-scale production model,
if ever, the System will perform fully in accordance with Management's
expectations.
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Step-by-Step Operations
The projected step-by step operations of the TCS-1 System will encompass
the following:
(a) The two sidewalls will be cut off and the tread will be cut into
lengths of about one foot. (The sidewalls will be kept separate from
the tread sections throughout the process).
(b) The two steel beads which are contained within each tire will be
pulled out;
(c) Sidewall and tread sections will automatically be placed onto
separate conveying systems which will then feed them into the TCS-1
System's freezing chambers through separate air locks. The
temperature of the air within the freezing chambers will be kept at
approximately 170 degrees below zero by constant recirculation
through a refrigeration unit. The sidewall and tread sections will
remain within the freezing chambers until they are cooled to a point
between 90 and 100 degrees below zero (fahrenheit).
(d) The frozen sections will then pass through proprietary
disintegrators where the sidewall and tread rubber will be reduced
to two separate coarse powders. This operation will not involve any
chopping, shredding, or hammer-milling. Therefore, the steel wires
will not be cut or broken. Furthermore, although the fiber threads
may be broken into shorter lengths, they will still retain their
basic shapes and characteristics. No steel powder or fiber fluff
will be produced.
(e) The steel wires will be magnetically removed from the rubber
powders.
(f) The fiber and rubber powder will be passed through screens to
separate the powder from the fiber threads. The fiber threads will
then be conveyed out of the machine to a fiber baler.
(g) The rubber powders will then be conveyed out of the TCS-1 System.
(h) 100% of the rubber powders yielded by the TCS-1 System will pass
through a ten mesh screen. Supplementary grinders will be supplied
for customers desiring finer powders which can pass through 40 mesh
or 80 mesh screens.
Comparison of the Projected TCS-1 System
With Other, Existing Tire Recycling Equipment
There are two types of tire disintegration processes in use today which
produce rubber powder, normally referred to as "crumb": (i) cryogenic systems
and (ii) "ambient" systems. Management believes that the TCS-1 System will have
the distinct advantages over existing systems, as set forth in the comparisons
below. All references to "existing conventional cryogenic and ambient systems"
are to technologies which are widely available and known throughout the
industry. Such technologies include all mechanical, commercially feasible tire
disintegration systems of which the Company has knowledge. There can be no
assurance however that one or more new technologies, or improvements to existing
technologies, presently unknown to management, has not, or in the near future,
will not, become available. While it is conceivable that new technological
breakthroughs could provide benefits and advantages equal to or exceeding those
of the projected TCS-1 System, at this time, the Company is not aware of any
such tire disintegration system or technology.
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Existing Conventional
Cryogenic and Ambient
Systems
Methods
Except for a small number of recyclers who remove the steel beads first, most
conventional cryogenic and ambient systems used today to produce rubber crumb,
feed whole tires into chopping, shredding, grinding, or pulverizing mechanisms,
or a combination of any two or more of such mechanisms. Because the entire tire
is subject to these operations, the steel which makes up the beads as well as
the steel wires embedded in the belting and the fiber components of the tire are
also chopped, shredded, and ground. In both conventional cryogenic and ambient
systems, this initial chopping and shredding is effected at ambient temperatures
(normal climatic conditions). Tires, however, are designed to be tough and
durable at these temperatures. The difficulty in chopping or shredding the tires
at these temperatures is compounded by the fact that all of the steel in the
tire is also being chopped and shredded.
Equipment, Energy and
Maintenance Requirements
Because of the toughness of rubber at ambient temperatures and the fact that
steel, as well as the rubber and fiber, are being chopped or shredded, very
large and powerful equipment and the application of substantial amounts of
energy are required to tear tires apart using conventional cryogenic or ambient
systems. Moreover, since tires are so tough and durable, they have to be
shredded in stages. The stages typically include: (i) initial shredding to
reduce the tire to strips of about 2 x 6 inches; (ii) a second shredding to
reduce such strips to pieces approximately 1 x 2 inches in size; (iii) a third
stage which further reduces the material to pieces of approximately 1/8 to 1/2
inches in size; and a fourth shredding operation which yields a coarse powder.
The foregoing shredding operations will consume a total of approximately one
thousand horsepower or more. Because of the foregoing requirements, the
machinery which
Projected
TCS-1
System
Methods
The projected TCS-1 System will be designed to remove and salvage the steel
beads of the tire before any other operation is commenced. Disintegration of the
tire will be accomplished solely by the exertion of pressure, in a proprietary
manner, on frozen rubber. This disintegration process will take place only after
the tire sections have been cooled to a temperature between 90 and 100 degrees
below zero, fahrenheit, at which point the material will take on a glass-like
brittleness. At no point in the process will the steel or fiber components be
subjected to any chopping, shredding, grinding, or pulverizing procedures which
would destroy the basic integrity of their respective wire-like and cord-like
configurations.
Equipment, Energy and
Maintenance Requirements
The projected TCS-1 System is designed to remove the steel beads from the tires
before any disintegration process commences. Additionally, the rubber will be in
an extremely brittle and easy to break condition during the disintegration
process. Therefore, the equipment required to break down the tires will be
considerably smaller and lighter, and the energy requirements will be
drastically lower than those required by conventional cryogenic or ambient
systems in use today. The TCS-1 System will be comparatively light in terms of
bulk and weight. Moreover, the TCS-1 System will have no shredding or chopping
surfaces that would require continuous sharpening and repairing. This will
result in an additional significant reduction in maintenance expenses.
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is used to construct conventional cryogenic or ambient systems has more bulk
than the TCS-1 System. Moreover, there is great wear and tear on the cutting
edges of the chopping and shredding mechanisms which causes the cutting edge to
require constant maintenance, repair, and blade replacement.
Cooling Techniques
As discussed below, conventional cryogenic systems use liquid nitrogen to cool
the rubber before subjecting it to knife or hammer-mill operations. Liquid
nitrogen is an expensive coolant and none of the systems with which Management
is acquainted make any attempt to recycle any of the cold energy generated
thereby.
Costs and Expenses
As a result of the foregoing, initial capital outlays for the equipment and
continuing energy and maintenance costs are high.
Problems Associated With Tire Disintegration
Methods In Current Use.
The initial operations described above will chop or shred a complete tire until
it is reduced to chips ranging in size from about 2 x 2 inches to 2 x 6 inches.
These chips can be used as "TDF" (tire derived fuel") and possibly as fill to
assist drainage. Unless destined for these limited uses, the chips are normally
then fed into a second shredder which reduces them to 1 x 1 inch or 1 x 2 inch
pieces. They are then fed into a knife or hammer-mill where they are reduced to
rubber "crumb" consisting of particles of rubber, approximately 1/8 to 1/2 inch
in size. At this point, some of the steel will have been broken into small
pieces of wire, free of rubber, but
Cooling Techniques
The TCS-1 System will be designed to use mechanical refrigeration to cool the
tires to the required temperatures. Mechanical refrigeration is normally less
expensive to use than liquid nitrogen and the Company expects this to further
reduce operating costs. Moreover, unlike conventional cryogenic systems which do
not attempt to recover the cold energy from the rubber powder, the TCS-1 System
has been designed to use 90% of the available cold energy to reduce the
temperature of tires entering the system. A specialized cooling chamber makes
this possible.
Costs and Expenses
The foregoing is expected to result in significantly smaller initial capital
requirements and drastically lower continuing energy and maintenance costs.
Avoidance of Problems Associated With Tire
Disintegration Methods in Current Use.
The proposed TCS-1 System has been designed to avoid the problems described
opposite which arise out of current tire disintegration methods by insuring that
the steel and fiber components of the tire are not subjected, at any time, to
chopping, shredding, or hammer or knife-milling operations which destroy the
integrity of the wire or cord-like configurations of the steel and fiber. This
is expected to prevent the creation of steel powder and fiber fluff.
Disintegration will be accomplished solely through the exertion of pressure. The
TCS-1 System disintegration process is not expected to break the steel wires or
to affect their integrity in any way. Based
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much of the steel will remain embedded in the rubber pieces. In addition, since
the fiber will have been subject to the chopping, shredding, and/or pulverizing
operations, much of it will have been broken, and its thread or cord-like
configuration destroyed. The broken, pulverized fibers will have formed a
"fluff" which entraps and holds both rubber and steel particles.
In order for this crumb to be useable, the steel will have to be separated and
removed. The use of strong magnets removes the free steel pieces, but such
magnets also remove all of the rubber particles in which the rest of the steel
is embedded, resulting in a loss of up to 15% of the rubber.
To avoid losing the substantial amounts of steel-bearing rubber which were
magnetically removed, and to obtain a finer crumb (the coarse crumb has very few
uses), the crumb must be subjected to a second re-grinding, which may or may not
be cryogenic. This is normally done in a knife mill capable of disintegrating
the crumb into smaller particles or in a hammer-mill.
In using a hammer or knife-mill for this operation, however, the following
problems arise: (i) running at an efficient speed, the fiber fluff (which is
contained in the rubber crumb) may clog the mechanism; and (ii) the action of
the hammer or knife-mill will heat the rubber to the point where it will become
so soft that instead of being pulverized into a powder, it will simply be
softened and mashed and thereby will further clog the mechanism.
To avoid these problems, the hammer or knife-milling operations can be conducted
at low feed rates, which will reduce the foregoing problems, but which may not
be economically feasible. Conventional cryogenic systems deal with this problem
by using liquid nitrogen to cool the previously chopped and shredded material
before feeding it into the hammer or knife-mill. Some ambient systems do not
freeze the rubber, but instead inject liquid nitrogen directly into the mill to
keep the rubber from softening.
upon performance tests of the TCS-1 System's proprietary disintegration
mechanism, the Company expects that the TCS-1 System's ability to prevent the
creation of steel powder will result in easy and efficient separation and
removal of the steel by magnetic means, without the substantial loss of rubber
powder which occurs with the methods described opposite.
The fiber, which will not lose its thread or cord-like configuration, will be
broken in the disintegration process into lengths of from 1/2 to 4 inches.
Rubber that is attached to the fiber creates a saleable product with unique
properties. Furthermore, tests indicate that, in this form, the fiber can be
easily separated from the rubber crumb by passing it through wire mesh screens.
The salvaged steel wire pieces and fiber threads will be useable and saleable.
Based on the foregoing and on test results, Management believes that: (i) the
rubber powder yielded by the TCS-1 System will contain only an insignificant
amount of fiber and steel; (ii) wastage of salvageable rubber powder will be
reduced from the approximately 30% associated with the use of conventional
cryogenic or ambient systems to an estimated 3%. (iii) instead of unusable steel
powder and fiber fluff, which recyclers must pay to have hauled away and
deposited in landfills, the TCS-1 System will yield clean useable, and saleable
reclaimed steel and fiber as well as two types of rubber powder containing only
insignificant amounts of fiber and steel.
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Knife-milling or hammer-milling operations will create further problems because
all of the fiber and steel, which is mixed in with the rubber crumb, will have
been ground up and pulverized along with the rubber, with the following results:
(i) the steel components of the tires will have been ground or pulverized into a
fine powder, which cannot be allowed to remain as a contaminant in the rubber
powder if the rubber is to have any economic value. The steel must therefore be
removed magnetically. However, the fine steel powder will be thoroughly mixed in
with the rubber powder, the magnetic action which is meant to pull out the
minute particles of steel, will necessarily also draw out substantial amounts of
the surrounding rubber particles. Losses of rubber powder resulting from the
magnetic removal of the steel powder are estimated to amount to approximately
15% of the total rubber powder produced. Such wastage adds substantially to the
cost of useable product yielded by these systems. The steel powder is not
useable for any purpose and has no economic value. It must be transported and
deposited in landfills which again adds to the cost of any useable product
produced. (ii) The thread or cord-like configuration of the fiber will have been
disintegrated into the cotton-like "fluff" described above. This fluff will
attract and hold significant amounts of the powdered rubber and steel.
Separation of the steel and rubber particles from the fiber fluff is nearly
impossible because the fine particles are trapped in the entangling strands and
adhere to them. It is estimated that up to 15% of the rubber powder will be
trapped in the fiber fluff and drawn out with it. The fluff has no current
economic value and actually constitutes a liability because it must be
transported and disposed of, usually as landfill.
The wastage of up to 15% of the rubber powder, which results from losing the
rubber which is trapped in the fiber fluff, together with the additional 15% of
the rubber powder which clings to the pulverized steel particles when they are
removed magnetically, brings total losses of rubber powder to approximately 30%,
which is reflected in a concomitant increase in the cost of the product
produced.
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Recovery Ratio
Current shredding operations recover on average twelve pounds, representing 75%,
of the rubber contained in every twenty pound tire. All of the fiber and steel,
and the balance of the rubber components of each tire are, in most cases, not
reclaimed, for the reasons described above. The result is a loss of
approximately eight pounds of unrecovered, unrecycled rubber, steel, and fiber,
representing 40% of the constituent materials of the tire, which must be
transported and disposed of in landfills or other solid waste disposal
facilities.
Recovery Ratio
For the reasons described above, and based on performance tests of the scale
model prototype of the TCS-1 System's proprietary disintegration mechanism,
Management expects that almost all of the rubber, steel, and fiber components of
the tire will be recovered in useable and saleable condition.
Production and Supply
The Company has been engaged in designing and developing, and intends
within the current fiscal year to begin manufacturing, on a commercial basis,
its proprietary cryogenic tire disintegration system, referred to herein as the
"TCS-1 System". The Company's activities to date have focused on the design and
creation of the TCS-1 System. In connection with these activities, the Company
has been dependent on arrangements with its subcontractors for the manufacture
and assembly of the principal components incorporated into the TCS-1 System (see
"Agreements With Subcontractors", below).
If the Company is able to raise sufficient funding and if no presently
unforeseen problems with the technology develop, the Company expects to commence
manufacturing the TCS-1 System on a commercial basis prior to the end of 1997.
The Company intends to continue to effect all TCS-1 System manufacturing
operations through its subcontractors. It will therefore be substantially
dependent on the ability of such subcontractors to satisfy performance and
quality specifications and to dedicate sufficient production capacity for all
TCS-1 System scheduled delivery dates. The Company believes that all of its
subcontractors have the requisite manufacturing capabilities and the willingness
to dedicate sufficient amounts of their manufacturing capacity to allow the
Company to meet all TCS-1 System delivery dates, currently scheduled or expected
to be scheduled for not less than the next two years. However, no assurance can
be given that this will in fact be the case and failure on the part of the
Company's subcontractors in these regards would adversely affect the Company's
ability to manufacture and deliver TCS-1 Systems on a timely and competitive
basis. In such event the Company would have to replace or supplement its present
subcontractors. There can be no assurance that should it be necessary to do so,
the Company would be able to find capable replacements for its subcontractors on
a timely basis and on terms beneficial to the Company, if at all; The Company's
inability to do so would have a material adverse effect on its business.
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
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Agreements With Subcontractors
The Company has entered into agreements with three machinery
manufacturing, engineering and designing firms located in Quebec. Two of such
firms have accepted unregistered and restricted shares of Company's Common Stock
in payment of part of their fees. The following is a discussion of the principal
terms of the subcontractor agreements:
Agreement with Fedico, Inc.
In January of 1997, the Company entered into an agreement (the "Fedico
Agreement") with Fedico, Inc. of St-Hubert, Quebec ("Fedico"), a machinery
design firm located in Quebec. Prior thereto, Fedico had provided consulting and
other design engineering services to the Company since the spring of 1996.
Pursuant to the terms of the Fedico Agreement, Fedico will act as the project
leader, guiding the over-all design and engineering of the TCS-1 System. In
addition to supervising the over-all assembly and start-up procedures of the
first full-scale production model of the TCS-1 System, Fedico will design,
engineer, and fabricate certain peripheral equipment. The term of the Fedico
Agreement is for seven years, retroactively effective as of September, 1996.
The Agreement provides further that Fedico will:
(a) collaborate with the Company on development of initial specification
requirements, by way of: (i) researching and evaluating the
available applicable technologies; (ii) conceptualizing designs
concepts; (iii) preparing preliminary layout drawings of each
component and of the integration thereof into the TCS-1 System;
(b) prepare detailed preliminary layout designs of each element of the
TCS-1 System;
(c) prepare detailed drawings of each element of the TCS-1 System and
prepare the "bill of materials" which is a complete list of all
components of the System;
(d) be present or available, during the assembly of the TCS-1 System to
correct any problems that may arise;
(e) be present or available during start-up procedures upon completion
of the assembly of the TCS-1 System and correct any problems that
arise during the course of such procedures;
(f) upon commencement of satisfactory operation of the TCS-1 System,
revise all drawings to produce complete, final, "as-built" designs
and prepare a documentation package for the facilitation of the
operation and maintenance of the System.
The Fedico Agreement also provides for the retention of Fedico for a
minimum of five hundred hours per year during the course of such agreement at
reasonable, competitive hourly rates for technicians, draftsmen, and
intermediate engineers, with overtime, on-site services, and travel expenses at
prevailing market rates. The terms of the Fedico Agreement are substantially as
set forth in detail in the Company's annual report on Form 10-KSB for the year
ended June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product Proposed Agreement
with Fedico, Inc.".
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Agreement with Lefebvre Freres Limitee
In January of 1997, the Company entered into an agreement (the "Lefebvre
Agreement") with Lefebvre Freres Limitee ("Lefebvre"), a subsidiary of Lefebvre
Inc., of Montreal, Quebec. Lefebvre, specializes in custom design and
fabrication of industrial machinery. With its sister companies, Foresteel
(specializing in pressure vessels and welding) and Atelier D'Usinage Trempe
(specializing in high precision machining), Lefebvre is widely recognized for
its extensive experience and expertise in designing and constructing equipment
used in the pulp and paper, metallurgy, fiber, power generation, and many other
industries. Lefebvre had been providing the Company with design consulting and
other valuable design engineering services to the Company since the spring of
1996. In recognition of services rendered by Lefebvre prior to the finalization
of the Lefebvre Agreement, it was made retroactively effective as of July 23,
1996. Services provided by Lefebvre prior to January 1997 included the
completion of the initial design specifications for the TCS-1 System's
Disintegration Unit Assembly.
Under the terms of the Lefebvre Agreement, Lefebvre was retained to design
and construct a prototype disintegration unit for the TCS-1 System at
competitive rates. Lefebvre agreed to accept payment of approximately one-third
of its price for the foregoing in 340,160 unregistered shares of the common
stock of the Company. The stock portion of such price was issued to Lefebvre on
January 17, 1997. Prior to such date, that part of the design work on the
disintegration system, which was allocated to the stock portion of the purchase
price, had been completed.
The terms of the Lefebvre Agreement are substantially as set forth in
detail in the Company's annual report on Form 10-KSB for the year ended June 30,
1996. For further details, reference is made to the discussion contained in Item
I of the 1996 10-K under "Proposed Product - Proposed Agreement with Lefebvre
Freres Limitee".
Agreement with Plasti-Systemes, Inc.
In January of 1997, the Company entered into an agreement (the
"Plasti-Systemes Agreement") with Plasti-Systemes, Inc. ("Plasti-Systemes") of
Ville D'Anjou Quebec. Prior to that date, Plasti-Systemes had been providing
consulting services respecting the design, construction, and installation of the
"front-end" of the TCS-1 System under agreed upon terms, but without a written
agreement. The Plasti-Systemes Agreement provides for Plasti-Systemes to design
(including rendering of all necessary engineering drawings), construct, and
install the "front-end" of the TCS-1 System. The Front End System will consist
of a series of mechanisms which will automatically, at the rate of three tires
per minute: (i) clean and debead the tires; (ii) separate the sidewalls from the
treads; (iii) cut both sidewalls and treads into sections ready for processing;
and (iv) transport the beads and tire sections into separate areas for disposal
or processing.
The Plasti-Systemes Agreement, which was made retroactively effective as
of October 16, 1996, covers mechanical work and equipment. Plasti-Systemes
agreed to accept payment of 26% of its total price for the foregoing 255,010
unregistered shares of the common stock of the Company. The stock portion of
such price was issued to Plasti-Systemes on January 17, 1997. Prior to such
date, that part of the design and engineering work on the front-end system,
which was allocated to the stock portion of the purchase price, had been
completed. The terms of the Plasti-Systemes Agreement are substantially as set
forth in detail in the Company's annual report on Form 10-KSB for the year ended
June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product - Proposed
Agreement with Plasti-Systemes, Inc.".
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Proposed Services
TCS-1 System Maintenance:
Technical and Market Support
The Company requires all of its TCS-1 System purchasers to agree to enter
into a Maintenance and Technical and Market Support Agreement (the "Proposed
Maintenance Agreements"). In connection therewith the Company intends to provide
timely, high quality technical support to insure that the TCS-1 System will
perform in conformance with its specifications. Until the test phase of the
first production sized model of the TCS-1 System is completed, the Company will
be unable to finalize the definitive parameters of the services which it intends
to offer under the Proposed Maintenance Agreements. Currently proposed plans
call for the Company, or the Company's designated service provider, to provide,
or be responsible for, all technical and other labor necessary for the
maintenance of the TCS-1 System at a performance level capable of disintegrating
the equivalent of one million automobile tires per year on a twenty-four hour
per day, three hundred sixty-five day per year basis, in accordance with an
operations and performance specifications manual to be furnished to the
customer.
The Proposed Maintenance Agreements are expected to require the Company to
provide (i) regularly scheduled on-site preventive maintenance including but not
be limited to inspection and assessment of wear factors affecting all
constituent components of the System and determination and effectuation of
replacement and/or recalibration requirements and (ii) unscheduled remedial
maintenance, on an as needed basis. Other responsibilities which the Company, or
its authorized service provider, are intended to assume under the Proposed
Maintenance Agreements will include: (i) providing and maintaining computerized
equipment to monitor and document the performance by the operator of the TCS-1
System of all routine maintenance procedures; (ii) reviewing the data retrieved
thereby on a monthly, or more frequent, basis; (iii) immediately advising the
operator of any improper performance of any of such Procedures; (iv) providing
remedial instructions to the Operator's personnel with respect to the proper
performance of certain routine maintenance procedures to be performed by the
TCS-1 System Operator, and; (v) upon request of the Operator, re-training its
personnel. The Proposed Maintenance Agreements are intended also to provide that
the Company, or its authorized service provider, will provide an initial
training period for the operator's personnel as well as continuing training,
seminars and updates, on an as needed basis.
The Proposed Maintenance Agreements are also intended to provide for
additional technical and market support including Pre-Operational Support by way
of, among other things: (i) assistance to the Operator with respect to
procedures and requirements related to obtaining all licenses, permits, and
other requirements for the establishment and operation of a TCS-1 System Plant,
including the development, documentation, and furnishing of all required
technical, environmental, operational, and other information and data; (ii)
instructions and assistance with respect to all applicable federal, state, and
local regulations and requirements respecting the preparation of the site and
the installation and operation of a TCS-1 System at the site.
In addition, the Proposed Maintenance Agreements will require that the
Company, or its authorized service provider establish and maintain laboratory
facilities at which they shall:
(a) test and monitor the quality and properties of the rubber crumb
produced by the TCS-1 System, including but not limited to: (i)
total production rates (ii) the comparative percentages of various
crumb rubber mesh sizes produced, and (iii) wear factors existing or
developing in the disintegration mechanisms, so as to generate a
continual data base for the anticipation and determination of the
maintenance, remediation, and recalibration
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requirements of the disintegration mechanisms and all other
constituent components of the System under actual operating
conditions;
(b) test and monitor, on a continuing basis, oil samples from the TCS-1
System so as to ascertain and monitor the wear factors on the
bearings and on other components of the System;
(c) record and maintain all test data and records for the TCS-1 System
in a monthly log to be furnished to the operator at regular
intervals on a monthly basis, or on request by the operator, and be
available to the Operator at all times to discuss the meaning and
significance of all test results and any remedial or other actions
which such data indicate is necessary or advisable;
(d) creating and developing new products and uses for rubber crumb
produced by the TCS-1 System.
It is intended that the Company, or its authorized service provider will
also be responsible for certain accounting and record keeping services,
including providing accounting software to monitor the operations and output of
the TCS-1 System. It is intended that the Proposed Maintenance Agreements will
also impose obligations upon the Company, or its authorized service providers to
stock replacement parts for the TCS-1 System in order to minimize any
interruptions in the continual operation of the System.
The monthly maintenance fee for all services to be provided by the
Company, or its authorized service provider under the Proposed Maintenance
Agreements is presently expected to be $9,500 per month.
Negotiations With Proposed Service Provider
The Company is presently negotiating with Louis Sanzaro ("Sanzaro"), a
director of the Company and the controlling person of the two entities
(Ocean/Ventures III, Inc. and Oceans Tire Recycling & Processing Co., Inc.)
which have ordered nine of the ten TCS-1 Systems presently on order, to organize
and operate a maintenance company capable of serving as the Company's authorized
service provider and meeting all of the above described responsibilities. Mr.
Sanzaro has worked closely with the Company on the development of the TCS-1
System and the proposed maintenance and technical support program. Mr. Sanzaro
is a highly respected, knowledgeable, and experienced operator of recycling
organizations in New Jersey and the Company believes that he is eminently
qualified to organize and head its maintenance and technical support effort.
While the parties have not yet entered into an agreement respecting the terms
under which Mr. Sanzaro or an organization under his control will direct the
Company's maintenance services, they are currently in negotiations respecting
such arrangements. Currently, however, the Company expects that the service
provider to be organized and operated by Mr. Sanzaro will be paid a flat fee of
$4,000 per month to cover all of the services described above. The service
provider is also expected to furnish, at no additional cost, all equipment
necessary to effect the provision of such services.
Proposed Tire Shredding Operations
The Company has taken preliminary steps to enter a new related business
segment. Plans for these proposed operations include on-site scrap tire
shredding operations in Quebec under a five-year, government sponsored stockpile
abatement program (the "Quebec Program") which will fund the clean-up
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of scrap tire stockpiles at the rate of Cdn $1.00 (approximately $0.72 U.S., at
current exchange rates) for every tire recycled and removed. In connection
therewith, the Company is presently engaged in negotiations with CG TIRE, Inc.
("CGT"), a wholly owned subsidiary of Continental General Tire Inc. ("General
Tire")(4) and Recyc-Quebec, the Canadian government agency involved in designing
and managing the Quebec Used Tire Program. According to Recyc-Quebec, there
could be more than 30 millions tires accumulated in about 40 stockpiles in the
province of Quebec. As it is always the case for stockpile estimates in North
America however, these numbers are only approximate.
In order to qualify to participate in the Quebec Program and receive the
Cdn $1.00 per tire payment, recycling operations must take place in Quebec and
must be effected by a recycling company located in Quebec. The Company is
located in Quebec and it has been advised by Recyc-Quebec that the on-site
shredding operations which the Company proposes to conduct will qualify as a
"recycling activity" for purposes of the Quebec Program. The Company is seeking
a long-term commitment from the Quebec government for a total of Cdn $20,000,000
(approximately $14,400,000 U.S., at current exchange rates) to be allocated to
tipping fees of Cdn $1.00 per tire for the Company. In connection therewith,
meetings have been held and discussions have occurred by and among the Company,
CGT, Mr. Bernard Landry (the Vice-Premier of Quebec), and Mr. Albert Leblanc
(the President of Recyc-Quebec). While the Company is reasonably optimistic
about the outcome of such meetings and discussions, it is unable to give any
assurance that it will in fact be successful in obtaining the firm commitment
from the government which it will require in order to commence operations in
this area. Moreover, even if the Company is able to move forward with this
project, there can be no assurance at this time that it will be profitable.
The Company is currently negotiating the terms of an agreement with CGT
which, while not finalized, presently contemplates that: (i) CGT would be
obligated to accept, for a tipping fee of Cdn $0.25 (approximately $0.18 U.S.)
per tire to be paid to CGT, up to 4 million tires per year in 2 inch chips; (ii)
The Company would be responsible for delivery of the tires to CGT in North
Carolina, in accordance with an agreed upon schedule and other terms. Current
plans contemplate that the Company would be responsible for acquiring the tires
from various Quebec stockpile owners, reducing the whole tires into 2" X 2"
chips with mobile shredders, and removing the tire chips from the sites by means
of truck transportation to a train off-loading facility in Quebec for transport
by train to CGT's facility near Charlotte, North Carolina.
On August 12, 1997, the Company entered into an agreement with Mr. Richard
Grenier (the "Grenier Agreement") for the purchase of approximately 4.5 million
scrap tires presently owned by Mr. Grenier and stockpiled on his property in
St-Jean-Chrystostome, Quebec, for an aggregate purchase price of Cdn $175,000
(approximately $126,000 U.S., or $0.028 per tire, at current exchange rates).
Payment terms required a nonrefundable downpayment of Cdn $15,000 (approximately
$10,800 U.S. at current exchange rates) upon execution, with the balance payable
at the closing of the Grenier Agreement, which must take place on or before
October 31, 1997. The Grenier Agreement also provides that the Company will have
access to the property on which the tires are stockpiled and will be permitted
to conduct the shredding of the tires thereat. The Company will acquire only the
tire inventory and not the land on which it is stored nor any piece of equipment
situated thereon. The Company is currently in negotiations, and has received a
letter of intent from, the owner of another Quebec stockpile (the "Ganby
Stockpile") of approximately 500,000 tires, to acquire such tires free of
charge. In addition the Company is engaged in negotiations with the owner of the
largest scrap tire stockpile in Quebec (the "Franklin Stockpile"), located in
Franklin, just a few miles north of the NY State border, to secure supply for up
to 25 million additional tires. The Company is unable to state at this time
whether it will be able to close on the Grenier
- ----------
(4) General Tire is the fourth largest tire manufacturer in the world. It has
denominated CG TIRE, Inc. as "The Continental General Tire Recycling
Effort")
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Agreement within the required time period or what the eventual outcome of its
negotiations respecting the Ganby and Franklin Stockpiles will be.
The Company has retained Avery de Billy, a Montreal law firm specializing
in environmental law, to advise it with respect to any environmental liabilities
which the Company may incur in connection with these proposed operations and to
assist the Company with meeting all regulatory requirements and standards and
obtaining all permits and legal certificates required in connection therewith.
Sales and Marketing
Sales
The O/V III Agreements
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III, Inc.("O/V III")
of Toms River, New Jersey ("O/V III"). This agreement modified the terms of, and
replaced, a prior agreement between the parties dated June 6, 1995 (the "Prior
O/V III Agreement").(4) O/V III is under common ownership and control with the
solid waste recycling firm, Ocean County Recycling Center, Inc. Under the terms
of the L&P Agreement, O/V III Agreement, O/V III will purchase and lease the
various components which comprise the constituent parts of the TCS-1 System. The
Agreement provides for lease and purchase arrangements for eight Systems at an
aggregate lease and purchase price of three million dollars ($3,000,000) each.
Pursuant to the terms of the O/V III Agreement, certain non-proprietary
equipment (the "NonProprietary Equipment") will be purchased by O/V III for a
total purchase price of $2,250,000. Such equipment includes, but may not be
limited to: (i) all bailing systems contained in the TCS-1 System, including all
associated ancillary equipment and conveyance and exit belts, chutes and/or
other components combined or integrated therewith, and (ii) freezing chambers
and cryogenic systems.
The other constituent components of the TCS-1 System comprise equipment
which is proprietary to the Company (the "Proprietary Equipment"). Such
Proprietary Equipment is, under the terms of the O/V III L&P Agreement, subject
to a five year operating lease, with monthly lease payments of $12,500 each. The
Proprietary Equipment consists of (i) the disintegration system including but
not limited to all grinders contained therein, and (ii) the separation systems,
including but not limited to: (a) a magnetic separator; (b) a fiber/crumb
separator; (c) fiber collector; (d) crumb rubber sizing system; and (e) all
integrated conveyance and exit belts, chutes, and other components.
The O/V III L&P Agreement calls for the delivery of the first System by
October 1998, with seven additional Systems scheduled for delivery every three
months thereafter, through July 2000. The Agreement requires a downpayment of
$25,000 for each System to be paid not less than fourteen months prior to the
anticipated delivery date. In an effort to assist the Company at this early
stage of its development, to date, O/V III has prepaid $25,000 down payments on
five Systems. Other payment terms for each of the eight systems subject to the
O/V III L&P Agreement, call for a $50,000 payment six months
- ----------
(4) Reference is made to the detailed discussion of the terms of the Prior O/V
III Agreement included in the subtopic "Sales and Marketing" under the
caption, "The O/V III Agreements" in Item I of the Company's annual report
of Form 10-KSB for the fiscal year ended June 30, 1996, attached as an
Exhibit hereto.
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prior to the anticipated delivery, an additional $100,000 to be paid three
months prior to the anticipated delivery date, and $1,825,000 on O/V III's
acceptance of the System.
Pursuant to the terms of the L&P Agreement, O/V III also entered into
certain ancillary agreements with the Company, consisting of the following:
(a) a royalty agreement (the "Royalty Agreement") pursuant to which O/V
III will pay the Company a royalty of three percent (3%) of the
gross proceeds from all sales of rubber crumb fiber and steel from
scrap tires disintegrated through the utilization of the TCS-1
System;
(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the Company and
option to purchase up to 40% of the rubber crumb, yielded by the
disintegration of scrap tires in the TCS-1 System, at negotiated
prices. The Company is currently exploring the feasibility of
vertically integrating its operations so as to include the rubber
crumb brokerage business and/or the value-added rubber crumb product
development business. It obtained the rubber crumb purchase option
in connection with the foregoing.
The parties also agreed that they would enter into a maintenance and
technical support agreement (the "Maintenance and Technical Support Agreement")
pursuant to which the Company or its designated service provider ("Service
Provider") will provide or be responsible for all technical and other labor
necessary for the maintenance of the TCS-1 System at a performance level capable
of disintegrating the equivalent of one million automobile tires per year on a
twenty-four hour per day, three hundred sixty-five day per year basis. Services
to be provided shall include but not be limited to the following: (i) regularly
scheduled on-site preventive maintenance, which shall include but not be limited
to inspection and assessment of wear factors affecting all constituent
components of the System and determination and effectuation of replacement
and/or recalibration requirements, and (ii) unscheduled remedial maintenance, on
an as needed basis. Both scheduled and unscheduled service maintenance will
include adjustments and replacement of parts, as deemed necessary by the Service
Provider. The Company is presently in negotiations with Louis Sanzaro, a
principal of O/V III, with respect to the possibility of Mr. Sanzaro's
establishing an equipment maintenance company to serve as the Company's Service
Provider for all Systems sold by the Company, including but not limiting to the
eight Systems to be purchased by O/V III;
Agreements with Oceans Tire Recycling & Processing Co., Inc.
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a New Jersey corporation under common control with O/V III.
Pursuant to the OTRP L&P Agreement, OTRP will purchase the first production
model TCS-1 System. Under the terms of the Agreement, the anticipated delivery
date for this System was September 15, 1997. The parties have agreed however to
waive delivery at such date and to reschedule a new delivery date. OTRP will
accept delivery at the Company's facility in Montreal to allow initial test
phase operations to be conducted under supervision of both the Company and OTRP.
This will also create an opportunity for OTRP's personnel to be trained by the
Company's technical staff in the operation of the TCS-1 System.
The terms of the OTRP L&P Agreement, pursuant to which the constituent
components of the TCS-1 System will be leased and or purchased, are
substantially identical to those of the O/V III L&P Agreement, as described
above. The only significant differences are in the purchase price and payment
terms. The purchase price for the Non-Proprietary Equipment is $1,225,000 and
the terms of the 60-
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month operating lease call for monthly lease payments of $8,770 each.
Accordingly, the aggregate lease/purchase price under the OTRP L&P Agreement is
$1,751,200. OTRP has obtained "pre-commencement" sale and lease-back financing
from an outside source for the Non-Proprietary Equipment being purchased under
the Agreement. Pursuant thereto, OTRP has been making lease payments since April
of 1997. The terms of OTRP's lease financing arrangements provide for the lessor
to deliver the purchase price payments directly to the Company, to be used to
fund the construction of the first TCS-1 production model. To date,
approximately $605,000 of such financing has been paid to the Company and used
for such purpose.
Pursuant to the terms of the OTRP L&P Agreement, upon execution thereof,
the parties also entered, or agreed to enter, into the same types of ancillary
agreements as are described above with respect to the O/V III L&P Agreement,
i.e., a maintenance and technical support agreement, a royalty agreement, and a
rubber crumb purchase option agreement. The terms of all of such ancillary
agreements are identical to those described above in connection with the O/V III
Agreements.
The Recycletron Inc. Agreements
On July 8, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "Recycletron L&P Agreement") with Recycletron Inc.
("Recycletron") of Montreal, Quebec. Pursuant to the Recycletron L&P Agreement,
Recycletron will purchase one TCS-1 System, with delivery scheduled for the end
of the second quarter of 1998. The terms of the Recycletron L&P Agreement,
pursuant to which the constituent components of the TCS-1 System will be leased
and or purchased, are substantially identical to those of the O/V III L&P
Agreement, as described above. The only significant differences are in the
purchase price and payment terms. The purchase price for the Non-Proprietary
Equipment is $2,000,000 and the terms of the 60-month operating lease call for
monthly lease payments of $12,500 each. Accordingly, the aggregate
lease/purchase price under the Recycletron L&P Agreement is $2,750,000. Upon
execution of the Agreement, Recycletron paid a $25,000 down payment. Other
payment terms require additional payments of $100,000 six months prior to the
anticipated delivery date, $125,000 prior to the anticipated delivery date, and
$1,750,000 upon Recycletron's acceptance of the System.
Pursuant to the terms of the Recycletron L&P Agreement, upon execution
thereof, the parties also entered, or agreed to enter, into the same types of
ancillary agreements as are described above with respect to the O/V III L&P
Agreement, i.e., a maintenance and technical support agreement, a royalty
agreement, and a rubber crumb purchase option agreement. The terms of all of
such ancillary agreements are identical to those described above in connection
with the O/V III Agreements.
Backlog
As of September 18, 1997, the Company's backlog amounted to $28,501,200.
Backlog includes firm orders under executed Equipment Lease and Purchase
Agreements. The amount shown includes the aggregate of: (i) the full purchase
price for those parts of the TCS-1 System which will be sold by the Company, and
(ii) total lease payments under the five-year operating lease which forms part
of every Equipment Lease and Purchase Agreement. The $28,501,200 backlog
presently booked includes: (i) one TCS-1 System ordered by OTRP for an aggregate
lease/purchase price of $1,751,200, for which the Company has already received
prepayment of $605,000 toward the purchase price; (ii) eight systems ordered by
O/V III for an aggregate lease/purchase price of $3,000,000 each, for which the
Company has already received over $130,000 by way of prepayments of the $25,000
downpayments (due for each system fourteen months before the scheduled delivery
date of such System) on five of the eight Systems
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ordered by O/V III; and (iii) one TCS-1 System ordered by Recycletron for an
aggregate lease/purchase price of $2,750,000, for which the Company has received
a $25,000 down payment. The foregoing ten TCS-1 Systems are scheduled for
delivery between November 1997 and July 2000, with two of such Systems (the OTRP
and Recycletron Systems) scheduled for delivery during the current fiscal year.
The balance of the ten Systems currently on order are scheduled for delivery
between November 1998 and July 2000.
The Company has not included in its backlog any revenues which may result
from the Royalty Agreements which all TCS-1 System purchasers must enter into
with the Company. These Royalty Agreements entitle the Company to receive a
royalty in the amount of 3% of the gross revenues from sales of rubber crumb
produced by the TCS-1 System. The Company has also not included an additional
$5.7 million dollars in revenues which it expects to receive under the Proposed
Maintenance Agreements to be signed in connection with the ten Systems already
on order (see "Proposed Services", above in this Item I).
Although the stated backlog may be used as a guideline in determining the
value of orders which are presently scheduled for delivery during the period
indicated, it is subject to change by reason of several factors including
possible cancellation of orders, change in the terms of the contracts, and other
factors beyond the Company's control and should not be relied upon as being
necessarily indicative of the Company's revenues or of the profits which the
Company might realize when the results of such contracts are reported.
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). Both O/V III and OTRP are under the control of
Louis Sanzaro. The loss of either of these two customers would have a major
adverse effect on the Company. However, the Company also believes that while Mr.
Sanzaro's companies comprise the initial TCS-1 System purchasers, future sales
efforts will be widespread and, as the Company matures and its business
develops, it will not be dependent upon the business of one or more major
customers.
Marketing and Distribution
Potential Markets
The Company believes that the potential market for its TCS-1 System can be
expected to directly reflect the level of demand for economical, high quality
rubber crumb derived from the recycling of scrap tires.
The following discussion of the potential markets for rubber crumb assumes
that the TCS-1 System will be capable of economically producing high quality
recycled rubber crumb, in a variety of sizes, capable of being used in a wide
range of products. While this accurately reflects management's present
expectations, it should be noted that the TCS-1 System is still in the research
and development stage. Further, because development of the TCS-1 System is at an
early stage, the Company cannot give any assurance with respect to if, or when,
it will in fact be able to complete the design and construction of the TCS-1
System in accordance with its plans and specifications or that, if completed,
the TCS-1 System will
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perform as expected. Therefore, even if the demand for rubber crumb should
increase in accordance with the Company's expectations, there can be no
assurance that a concomitant development of demand for the TCS-1 System will
develop.
Effect of Environmental Concerns
on Development of New Markets for Scrap Tires
Until approximately 1990, low tipping fees made landfills the most popular
option for the disposal of scrap tires. In fact, according to the Scrap Tire
Management Council (the "STMC"), until that time, management and market
development efforts for scrap tires were non-existent or minimal. This was
reflected in the fact that in 1990, only 25 million (approximately 11%) of the
scrap tires generated annually in the United States were marketed for any
purpose whatsoever. The remaining 89% were dumped or stockpiled. However, within
the past few years, changes in the market for scrap tires has been swift and
dynamic, resulting in significant market application alternatives to the
landfilling and stockpiling of scrap tires.
The STMC reported in its "Scrap Tire Use Disposal Study - 1996 Update"
(which was published in April of 1997 and is referred to herein as the "STMC
Study"), that significant progress has been achieved with respect to development
of scrap tire management alternatives to landfilling and stockpiling. In 1996,
market applications were found for 76% of all scrap tires (or 202 million
tires). This means, however, that even as of 1996, 64 million additional tires
(or 24% of the annually generated scrap tires that year) were still being
landfilled or stockpiled in the United States alone.
Notwithstanding the foregoing progress, in most developed countries, the
traditional dumping of tires in landfills has been completely banned or the
number of tires legally permitted to be dumped has been substantially reduced.
Unfortunately, such measures often have the effect of simply exacerbating the
problem of illegal tire dumping and above ground stockpiling. Increasingly in
the United States, individual states sponsor scrap tire management programs. By
1994, 48 states had legislated laws governing and regulating proper handling,
recovery, reuse, and disposal of discarded scrap tires. To date, over 34 of such
states have provided at least some of the funding needed to build and support
the tire recycling infrastructure which is or will be required to assure that
the state's annual generation of scrap tires, as well as its already stockpiled
tires, will be recovered, reused, and recycled. In Canada, most provinces have
similar regulations. As a result of this proliferation of state regulations and
the influence of the environmental movement, national attention has increasingly
focused on the need to develop alternative methods of scrap tire disposal.
Market for Rubber Crumb
Rubber is a valuable raw material and the Company believes that recycling
this valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet underpadding,
increasing resiliency in running track surfaces and gymnasium floors, and
absorbing shock and lessening the potential for injuries as a ground cover for
playgrounds and other recreational areas.
Recycling tires into reusable rubber crumb (or "ground rubber") was, as of
1996, the third largest use of scrap tires. "Rubber Crumb" is the end product of
the tire disintegration processes discussed in, "Products and Services" below.
The ideal rubber crumb is a powder, which can be produced in various particulate
sizes, ranging from relatively coarse to very fine, and which is not
significantly contaminated
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by fiber and metal particles. As noted above, the STMC Study reported that the
largest use presently being made of scrap tires is burning them as tire derived
fuel, with export (for refitting and reuse as tires) taking second place.
However, as noted above, the use of scrap tires for ground rubber experienced an
enormous surge during the last two years, increasing two hundred and
seventy-seven percent (277%) from 4,500,000 tires in 1994 to 12,500,000 tires in
1996. Historically, most rubber crumb available and sold in the market was
derived not from recycled scrap tires, but from tire "buffings". This situation
has recently improved significantly, however, with tire buffings now
representing 52% and scrap tires representing 48% of source material for rubber
crumb. According to the STMC, the demand for rubber crumb for various uses could
experience further substantial increases over the next two to five years, with
expected overall growth in sales of rubber crumb from 25% to 33%. The Company
believes that because the supply of buffings is limited, the main source of an
increased supply of rubber crumb must come from scrap tires.
At present, there are at least seven general categories of markets for
rubber crumb of various sizes and grades. These consist of the following:
* Rubber Modified Asphalt ("RMA", 168 million pounds in 1996): Rubber
crumb can be blended with asphalt to modify the properties of
asphalt used in highway construction. Rubber crumb can be used
either as part of the asphalt rubber binder, seal coat, cape seal
spray, or joint and crack sealant (generally referred to as
"asphalt-rubber") or as an aggregate substitution (rubber modified
asphalt concrete or "RUMAC"). At present, the cost of using
asphalt-rubber and RUMAC is somewhat higher than conventional
materials. However, the service life of such products has proved in
some cases to be two to three times that of conventional asphalt
pavements. While the use of ground rubber in asphalt pavement has a
large potential market, certain technical issues must be addressed
before the potential can be reached. The ability to recycle asphalt
pavement containing ground rubber and the development of standards,
particularly for materials testing and the environment are the key
issues to be addressed. In general, asphalt-rubber, or the "wet
process", has proven to be the most successful product, representing
approximately 95% of the RMA market in 1996, according to the STMC.
States using RMA to a significant degree include Arizona, California
and Florida, with lesser activity in Kansas and Texas.
* Bound Rubber Products (134 million pounds in 1996): Ground or
powdered scrap tire rubber is formed into a set shape, usually held
together by an adhesive material such as urethane or epoxy. Examples
of such applications are injection molded products and extruded
goods such as railroad crossing pads; dock bumpers, patio floor
blocks, flooring material, roof walkway pads, and carpet underlay.
* New Tire Manufacturing (48 million pounds in 1996): Fine rubber
crumb or powder reclaimed from scrap tires can be used as a low
volume filler material in both the tread and the sidewalls of new
tires. The percentage of recycled rubber that can be used in new
tires is somewhat in excess of 1.5%.
* Athletic and Recreational Applications (24 million pounds in 1996):
Coarse rubber crumb can be used in several applications, such as in
running track material, grass surfaced playing areas, or as a
substitute for playground surfaces. The use of rubber crumb for
these purposes will generally make playing surfaces and running
tracks more resilient and less rigid, but capable of maintaining
traction and shape.
* Molded and Extruded Plastics and Rubber (18 million pounds in 1996):
Finely ground scrap tire rubber can be placed into production molds
to form products for the automotive industry, such as sound
insulation, step pads, truck and trailer liners, matting and drip
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irrigation pipes. Management believes that there are significant
potential markets for these applications which may result from
continuing research and development of products using a surface
modified rubber. There has also been increasing interest on the part
of automotive manufacturers in the purchase of products which
contain recycled rubber.
* Friction Material (8 million pounds in 1996): Coarse rubber crumb is
used in friction brake materials for brake pads and brake shoes.
Possibilities for Market Expansion and Added Value
Through Availability of More, and Higher Quality, Product
Notwithstanding the recent growth in the use of scrap tires for ground
rubber, this application represented only 6% of the market for scrap tires in
1996. The Company attributes this limited market penetration principally to the
lack of available high quality product. The TCS-1 System, however, has been
specifically designed to address this problem through the economical production
of high quality crumb rubber than is, to the best of management's knowledge,
currently being produced from scrap tires. The Company believes that increases
in the amount and quality of available crumb, at economically reasonable prices,
creatively marketed, will inspire new uses for rubber crumb and expand the range
and variety of products composed, in whole or in part, of such product.
Moreover, the Company believes that as the demand for rubber crumb recycled from
scrap tires increases, this market value will increase in proportion to the
quantity of product sold and will that the product will be come inherently more
valuable.
The Company believes that growth in the market for rubber crumb will
directly reflect a number of factors, including but not limited to: (i) the
amount of rubber crumb available; (ii) the cost of available rubber crumb; (iii)
the quality and characteristics of available crumb; and (iv) the availability of
suitable substitutes for rubber crumb.
There can be no assurance at this time, however, that the availability of
rubber crumb quality which the Company expects that the TCS-1 will be able to
produce, will necessarily lead to a significant expansion of the market for such
product, or if it does, that the Company will necessarily benefit from such
expansion.
Distribution
The Company's objective is to market and distribute its products
worldwide, through national and international distributors and sales
representatives. However, to a large extent the Company has to date
concentrated, and is continuing to concentrate, its efforts on completing the
design, development, and construction of the first production model of the TCS-1
System and raising adequate financing to support such efforts. It has,
therefore, not yet commenced a full scale marketing campaign and does not intend
to do so until the production model is complete and adequate funding is
available to cover the costs thereof. During the last two fiscal years and the
subsequent period, the Company has however taken initial steps to prepare a
foundation for a world-wide marketing program. In connection therewith, the
Company has taken the following steps during the last fiscal year:
(a) Appointed Vijay Kachru as Vice President of Market Development to
oversee market and product development activities;
(b) Entered into negotiations with Alan Crossley, a director of the
Company, with respect to his serving as Sales and Marketing director
for Europe;
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(c) Obtained the agreement of Louis Sanzaro, a director of the Company
and the principal of Ocean Ventures III, Inc. and Oceans Tire
Recycling & Processing Co., Inc. to accept appointment as the
Company's exclusive sales distributor in the United States and
Puerto Rico (see the discussions under the caption, "Sales"; see
also Item 12. "Certain Relationships and Related Transactions" in
the Company's annual report on Form 10-KSB for the fiscal year ended
June 30, 1997, enclosed as an exhibit hereto).
The Company can make no assurances with respect to the success of its
distribution strategy. Furthermore, the Company has limited resources to achieve
the distribution of its products and no assurances can be given that the Company
will not require additional financing, which may not be available, to achieve
such objective.
Market Research and Development Studies
In January of 1997, the Company retained Gapco Inc., a market research
firm located in Madrid, Spain, headed by Alan Crossley(5). The study indicated
that the tire recycling Industry in Spain is in its infancy but is under
pressure to desist from the current practice of landfilling with unshredded
tires, and concludes that there is therefore a possible opportunity at this time
for the introduction of alternative scrap tire disposal methods.
Similar studies are being conducted in the rest of Europe, India and
Pakistan. The company believes that both India and Pakistan are potential
importers of ground rubber, or rubber crumb. This is based on the fact that
these countries are expanding their tire and auto manufacturing capacities and
are already experiencing supply shortages in rubber and carbon black. Based on
the initial research, the Company believes that the recycling of tires would
eventually gravitate toward production of products that can be assimilated in
industries which manufacture any products which use rubber and plastic in their
manufacture.
Canadian Operations
Tirex Canada
The governments of Canada and, in particular, the province of Quebec, have
officially acknowledged the pivotal role played by business investment in
research and development in ensuring sustained economic growth and long-term
prosperity. In order to encourage such activities, these governments support
research and development programs by granting individuals and businesses tax
incentives that encourage technological development in Quebec. As a result,
Quebec offers the most generous tax incentives for research and development
programs of which the Company is aware. In May of 1995, in an effort to take
advantage of such financial incentives, the Company formed a Canadian
corporation, 3143619 Canada Inc. (referred to herein as "Tirex Canada") in the
Province of Quebec, Canada, for the purpose of completing all research and
development work on the first production model of the TCS-1 System and,
thereafter, to serve as the Company's manufacturing arm. For a discussion of the
initial capitalization of Tirex Canada, the distribution of its shares among the
Company and officers and directors of the Company who are Canadian residents,
the terms of the shareholders agreement pursuant to which such shares are held,
including but not limited to the rights of the Company to regain 100% record
ownership of Tirex Canada, reference is made to the discussion under the caption
"Existing
- ----------
(5) Mr. Crossley, a director of the Company, was appointed as Sales and
Marketing Director for Europe in July of 1997 after the completion of such
study.
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and Proposed Canadian Financing, Manufacturing, and Research and Development
Operations" in Item 1 of the Company's annual report on Form 10-K for the fiscal
year ended June 30, 1996, enclosed as an exhibit hereto.
The Tirex Canada License
Tirex Canada holds an exclusive, ten year license to design, develop, and
manufacture the TCS-1 System in North America. The terms of the said license
require that Tirex Canada may manufacture TCS- 1 Systems only upon and pursuant
to specific purchase orders and requires that Tirex Canada sell all TCS-1
Systems which it manufactures exclusively to the Company.
Canadian Financial Assistance - Grants and Commitments
Transfer of the Company's research and development, and its proposed
manufacturing, activities to Tirex Canada has made the Company eligible for
various Canadian and Quebec government programs which provide grants and tax
incentives for eligible investment, research and development, and
employee-training activities. Canadian and Quebec tax incentives take the form
of deductions and tax credits with respect to eligible research and development
expenditures. Certain tax credits are refundable when they exceed the tax
payable. Thus such credits function effectively as monetary grants. To qualify
for such tax credits, research and development activities must comprise
investigation or systematic technological or scientific research conducted
through pure or applied research, undertaken to advance science and develop new
processes, materials, products or devices or to enhance even slightly existing
processes, materials products or devices.
Refundable tax credits are calculated as a percentage of eligible research
and development expenses. They are called "refundable" because to the extent
that the amount of the tax credit exceeds the taxes payable, they are paid over
or "refunded" to the taxpayer. During the last fiscal year, virtually all of the
activities connected with the development and construction of the first
production model of the TCS-1 System qualified as eligible expenses. Moreover,
some approved, anticipated tax credits for contemplated research and development
expenditures can serve as "receivables" for the collateralization of debt. In
this regard, the Company received the following grants and commitments since
moving its operations to Quebec in the summer of 1995:
(a) On March 22nd, 1996, the Ministry of Industry, Trade, and Commerce
of Quebec (the "Quebec MITC") accepted a feasibility study,
conducted by Techtran: Technology Transfer Institute, a
technology-based consulting and project financing organization
specializing in the development, financing, and project
implementation of new technologies. To qualify for financial aid
under this program, studies must be carried out by independent
Quebec consulting firms, be related to eligible projects to be
established in Quebec, and be done in respect of admissible
projects. To be deemed "admissible", projects must address one of
the industrial sectors under the responsibility of the Quebec
Ministry of Industry, Commerce, Science and Technology (the "Quebec
MICST") while being consistent with the government industrial
development policy. The development of the TCS-1 System was
confirmed as an "admissible project" in this regard when the
Techtran Feasibility Study was accepted by the Quebec MITC. In
connection therewith, the Company received a total of $36,800
Canadian dollars, from the Quebec MITC in refundable tax credits,
representing reimbursement of 40% of Company's costs for the said
study.
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(b) On May 6, 1996, the Company received a commitment for a contribution
of up to $500,000 Canadian dollars (approximately $360,000 United
States dollars at current exchange rates) under the Industrial
Recovery Program for Southwest Montreal for the development of the
TCS-1 System. Such commitment comprises repayable loans in an
aggregate amount not to exceed the greater of (i) approximately US
$370,370 or (ii) twenty percent of the total costs actually paid by
the Company in connection with the development of the TCS-1 System.
To date, the Company has received a total of $450,000 Canadian
dollars (approximately $326,000 United States dollars at current
exchange rates) under such loan commitment. The balance will be
available to the Company upon completion of the project.
(c) On October 16, 1996, the Company obtained an "Agreement for
Financial Assistance For Technology Development" (the "Recyc-Quebec
Agreement") from La Societe Quebecoise de Recuperation et de
Recyclagez ("Recyc-Quebec"). Pursuant thereto, Recyc-Quebec, a
provincial government organization, has agreed to provide the
Company with financial assistance consisting of the grant of an
amount equal to fifty percent of the total eligible expenses of the
development of the first full scale, production model of the TCS-1
System (the "Project"), up to an amount of seventy five thousand
Canadian dollars (Cdn $75,000) (approximately fifty-four thousand
United States dollars [US $54,000] at current exchange rates). To
date the Company has received 50,000 Canadian dollars (approximately
thirty- eight thousand, four hundred United States dollars [US
$38,400] at current exchange rates) under this agreement. Such
payment was based upon Recyc-Quebec's receipt and acceptance of the
Company's proofs of payment of eligible expenses in the approximate
amount of Cdn $ 76,800 (approximately US $56,064). The Company will
be able to obtain the balance of 25,000 Canadian dollars
(approximately nineteen thousand, two hundred United States dollars
[$19,200] at current exchange rates) after it has paid 100% of all
eligible expenses related to the Project and a final report
respecting the achievements of the Project has been delivered to and
accepted by Recyc-Quebec.
Research and Development
The Company's technical expertise has been an important factor in its
development and is expected to serve as a basis for future growth. Since its
inception, the Company has devoted substantial resources to the design and
development of the TCS-1 System as well as to raising the financing necessary
for such activities. The Company expended approximately $600,000 on research and
development activities during the fiscal year ended July 1997, (virtually ) all
of which funds were applied to the design, development, and construction of the
first TCS-1 production model.
Research and Development activities during the fiscal year ended June 30,
1997, focused on completion of the engineering design of the TCS-1 System and
redesign of the front end system to increase automation and optimize
performance.
All of such activities were carried out by the Company's engineering and
technical staff, consisting of Louis V. Muro, Vice President in Charge of
Engineering, and John Carr, Program Director, who devoted 100% of their time to
such projects. Such activities were conducted in conjunction with the Company's
outside Consultant, Bentley Environmental Engineering Inc., and the Company's
outside subcontractors, Plasti-Systemes, Fedico, Inc., and Lefebvre Freres,
Limitee.
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Although the basic design and development of the TCS-1 is expected to be
brought to completion by the end of 1997, the Company intends to continue to
seek to refine and enhance its tire disintegration technology and to enhance it
to comply with emerging regulatory or industry standards or the requirements of
a particular customer. The Company also intends to endeavor to develop new
products and uses for the rubber crumb produced by the operation of the TCS-1
System.
Employees
During the fiscal year ended June 30, 1997, the Company had seven
employees including its officers: Terence C. Byrne, Louis V. Muro, John
Threshie, and Vijay Kachru, its in-house Corporate and Securities Counsel, its
Technical Program Director, and one secretary-receptionist. All of the foregoing
persons devote their full time to the business and affairs of the Company. The
Company also utilizes the services of several part-time consultants to assist
them with market research and development and other matters. The Company intends
to hire additional personnel, as needed.
Patent Protection
On December 18, 1996, the Company filed patent applications in the United
States and Canada based on provisional priority under preliminary patent
applications filed on December 19, 1995. Prior to such filings, the Company
relied on trade secrets, proprietary know-how and technological innovation to
develop its technology and the designs and specifications for the TCS-1 System.
The Company has entered into confidentiality and invention assignment agreements
with certain employees and consultants which limit access to, and disclosure or
use of, the Tirex technology. There can be no assurance, however, that the steps
taken by the Company to deter misappropriation or third party development of its
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes or that secrecy will not be
breached. In addition, although the Company believes that its technology has
been independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. The Company believes that the steps it has
taken to date will provide some degree of protection and that the issuance of a
patent pursuant to its application will materially improve this protection.
However, no assurance can be given that this will be the case or that the
Company will in fact be granted a patent. No assurance can be given, in the
absence of a final court determination, that any particular patent is valid and
enforceable or that any patent may not be the subject of patent infringement
claims. The Company has no present knowledge of any information which would
adversely affect the issuance of a patent pursuant to its current application
or, should a patent be granted, the validity thereof.
On or about September 13, 1996, the Company received a letter from
attorneys for a New York based recycling company respecting its filing for
worldwide patent protection for a tire recycling process utilizing a natural air
freezing system and claiming that, upon issuance of its Canadian patent, the
Company's recycling process would be the subject of a patent infringement claim.
The Company responded to such letter on September 20, 1996 stating its position
that any such claim would be completely without merit. The Company has received
no further communications respecting this matter. Since that time, a member of
the Company's engineering staff and the Company's patent agent have examined the
patent which was involved in this matter and have concluded that the
specifications thereof are different from those of the patent for which the
Company has applied and that no meritorious patent infringement claim could
arise in connection therewith.
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Competition
The Company knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 System, which are
presently being sold or used anywhere in the world, nor is it aware of any
patents relating to the Technology. However, the Technology and the TCS-1
System, if and when developed, may reasonably be expected to compete with
related or similar processes, machines, apparata or devices for tire
disintegration, cryogenic or otherwise. Moreover prospective competitors which
may enter the field may be considerably larger than the Company in total assets
and resources. This could enable them to bring their own technologies to more
advanced stages of development with more speed and efficiency than Company will
be able to apply to the TCS-1 System. Additionally, manufacturers of presently
available equipment may be in a position to operate research and development
departments dedicated continually to improving conventional systems and to
developing new and improved systems. There can be no assurance that the
Company's Technology or the TCS-1 System, if developed, can successfully compete
with existing systems or with any improved or new systems which may be developed
in the future.
Government Regulation
While the Company's equipment manufacturing operations may not be directly
subject to extraordinary government regulations, the operations of the
purchasers and operators of such equipment may be subject to extensive and
rigorous government regulation designed to protect the environment. The
Company's proposed rubber crumb re-grinding, and on-site tire shredding,
operations will, however be directly subject to these types of government
regulation. As a result, the business of the Company will be directly or
indirectly subject to, and may be affected by, government regulations.
Management does not expect that the operation of the TCS-1 Systems, the
re-grinding operations, or the on-site tire shredding will result in the
emission of air pollutants, the disposal of combustion residues, or the storage
of hazardous substances (as is the case with other tire recycling processes such
as pyrolysis). However, establishing and operation any of the foregoing types of
plants for tire recycling will require numerous permits and compliance with
environmental and other government regulations, both in the United States and
Canada and in most other foreign countries. Moreover, the Company is currently
making preparations to enter into a five-year tire shredding project in Quebec
(see "Proposed Tire Shredding Operations"). These operations, as well as the
businesses of TCS-1 System operators, may involve, to varying degrees and for
varying periods of time, the storage or "stockpiling" of scrap tires which, with
their size, volume and composition, can pose a particularly serious
environmental problem. Among the numerous problems relating to stockpiling scrap
tires, is the fact that when stockpiled above ground, tires create serious fire,
public health, and environmental hazards ranging from fires, which generate
large and dense clouds of black smoke and are extremely difficult to extinguish,
to the creation of vast breeding grounds for mosquitoes and vermin. As a result,
many states have either passed or have pending legislation regarding discarded
tires including legislation limiting the storage of used tires to specifically
designated areas. For reasons including, but not limited to the problems
described above, the Company and the purchasers of its TCS-1 Systems will be
subject to various local, state, and federal laws and regulations including,
without limitation, regulations promulgated by federal and state environmental,
health, and labor agencies.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company may impose a financial burden upon the
Company that could adversely affect its business, financial condition,
prospects, and results of operations. Likewise, the burden of compliance with
laws and regulations governing the installation and/or operation of TCS-1
Systems could discourage potential customers from purchasing a TCS-1 System
which would adversely affect the Company's business, prospects, results, and
financial condition. Actions by federal, state, and local governments concerning
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environmental or other matters could result in regulations that could increase
the cost of producing the recyclable rubber, steel, and fiber which are the
by-products from the operation of the TCS-1 System and make such by-products
less profitable or even impossible to sell at an economically feasible price
level.
The process of obtaining required regulatory approvals may be lengthy and
expensive for both the Company and for its TCS-1 System customers. Moreover,
regulatory approvals, if granted, may include significant limitations on either
the Company's or its customer's operations. The EPA and comparable state and
local regulatory agencies actively enforce environmental regulations and conduct
periodic inspections to determine compliance with government regulations.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
System customers to operate profitably and in compliance with such regulations.
In this regard, it has retained environmental attorneys in Montreal to advise it
with respect to compliance with local environmental regulations applicable to
its proposed tire shredding operations. It has also engaged a consultant to
advise purchasers of its TCS-1 Systems with respect to compliance with local
environmental regulations applicable to the installation and operation of the
TCS-1 System. To date, the Company has not had to make significant capital
expenditures relating to environmental compliance because it has not yet
commenced operations. However, the inception of equipment manufacturing and,
possibly, tire shredding operations together with continually changing
compliance standards and technology, may affect the Company's future capital
expenditure requirements relating to environmental compliance. Moreover, since
all government regulations are subject to change and to interpretation by local
administrations, the effect of government regulation could conceivably prevent,
or delay for a considerable period of time, the development of the Company's
business as planned and/or impose costly requirements on the Company or on its
TCS-1 System customers, which could cause or result in competitive advantages to
the Company's competitors or make the Company's or its TCS-1 customers'
businesses less profitable, or unprofitable, to operate.
Properties
The Company's corporate headquarters are located at 740 St. Maurice, Suite
201, Montreal, Quebec, H3C 1L5. The Company occupies a 1988 square foot suite in
a modern office building located in the commercial and business district of
South West Montreal. All of such facility is devoted to executive offices,
reception, and conference areas including six executive offices. The Company
occupies these premises under a three-year lease, dated June 23, 1997, (expires
on June 30,2000) with Les Immeubles 740 Saint-Maurice Inc. The lease provides
for monthly rental payments of 2,825 Canadian Dollars (approximately 2,034
United States Dollars at current exchange rates). Rental payments are inclusive
of all taxes, utilities, and any other applicable fees or charges. The lease is
renewable for an additional three years at market rates then prevailing.
The Company intends during the present fiscal year to rent or purchase a
manufacturing and storage facility of approximately 100,000 square feet to be
used for assembling and warehousing the TCS- 1 Systems, as they are manufactured
by the Company.
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LEGAL PROCEEDINGS
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The Company is the defendant in an action, commenced on June 18, 1997, in
the United States District Court for the District of New Jersey, entitled Great
American Commercial Funding Corp. vs. Tirex America Inc. The action arises out
of a certain "placement fee agreement", executed by the Company in February of
1996, under which the Company, among other things, undertook to pay the
plaintiff a "placement fee" in the amount of $250,000 and to grant to the
plaintiff an option to acquire 400,000 shares of the company's common stock, at
a price of $0.01 per share, in the event, and only in the event, that plaintiff
succeeded in obtaining financing acceptable to the Company. Although the amount
and terms of the "financing" were not mentioned in the documents, it was clearly
understood by the parties that the Company was then seeking to obtain, and that
the agreement contemplated, financing in an amount (assumed necessarily to be in
the multi-million dollar range), adequate to fund the design and development of
the TCS-1 System and to enable the Company to initiate manufacturing such
Systems on a commercial basis. Under the Agreement: (i) the plaintiff did not
undertake to do anything other than "attempt" to secure financing acceptable to
the Company and (ii) the Company had absolute discretion whether or not to
accept any and all "financing" proposals.
Several months elapsed after the Company signed the Agreement without
plaintiff ever introducing the Company to any third party which was ready,
willing, and able to produce the kind and type of financing which the plaintiff
knew the defendant was seeking and needed. However, plaintiff did recommend a
firm in Long Island which was engaged in the business of equipment lease
financing. The Company then introduced one of its customers to the such lease
financing firm. The customer ultimately entered into a lease financing
arrangement with such firm, pursuant to which the Company was able to obtain
some limited amounts of pre-delivery funds, but only because the customer agreed
to do so, and the customer's principals fully collateralized any and all advance
payments/loans made by or through the lease financing firm. Because the advances
made to the Company pursuant to that lease-financing arrangement clearly did not
in any way constitute the type of financing contemplated by the parties or the
Agreement, the Company believes it has no financial obligation to the plaintiff
pursuant to said "placement fee agreement".
The Company has filed an Answer denying any liability to the plaintiff in
light, among other things, of the foregoing facts, and asserting, among other
things, that: (i) the agreement was induced by plaintiff's material
misrepresentations; (ii) enforcement thereof would be clearly unconscionable in
the circumstances; (iii) plaintiff never introduced the Company to any third
party which was ready, willing, and able to produce the type of financing which
the plaintiff knew the Company was seeking and needed; and (iv) the so-called
"placement fee agreement" was merely an offer for a unilateral contract which
was terminated or revoked, and notice of such revocation was timely communicated
to plaintiff before it rendered any substantial performance in reliance upon the
offer. The Company and its litigation counsel, Sheldon A. Weiss, believe that
the plaintiffs complaint is without merit and that the Company ultimately will
prevail in this litigation.
The Company is unaware of any other pending or threatened legal
proceedings to which Company is a party or of which any of its assets is the
subject. No director, officer, or affiliate of the Company, or any associate of
any of them, is a party to or has a material interest in any proceeding adverse
to the Company.
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<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
Description of Securities Being Offered Hereby
Common Stock
The authorized capital stock of the Company consists of fifty million
shares (50,000,000) shares, par value $.001 per share, of which thirty-five
million (35,000,000) shares are designated Common Stock par value $.001 per
share, and fifteen million (15,000,000) shares are designated Open Stock, par
value $.001 per share. There are presently thirty-eight million, seven hundred
seventy-four thousand, six hundred twenty-five (38,774,625) shares of Common
Stock issued and outstanding. The Open Stock may be issued from time to time, in
one or more classes, or one or more series within any class thereof, in any
manner permitted by law, as determined from time to time by the Company's Board
of Directors, and stated in the resolution or resolutions providing for the
issuance of such shares adopted by the Company's Board of Directors, each class
or series to be appropriately designated, prior to the issuance of any shares
thereof, by some distinguishing letter, number designation or title. All shares
of stock in such classes or series may be issued for such consideration and have
such voting powers, full or limited, or no voting powers, and shall have such
designations, preferences and relative, participating, optional, or other
special rights, and qualifications, limitations or restrictions thereof,
permitted by law, as shall be stated and expressed in the resolution or
resolutions, providing for the issuance of such shares adopted by the Company's
Board of Directors pursuant to authority vested in the Company's Certificate of
Incorporation. The number of shares of stock of any class or series within any
class, so set forth in such resolution or resolutions may be increased (but not
above the total number of authorized shares) or decreased (but not below the
number of shares thereof then outstanding) by further resolution or resolutions
adopted by the Company's board of directors pursuant to authority vested in it
in the Company's Certificate of Incorporation.
The Company's Board of Directors may determine the times when, the terms
under which, and the consideration for which, the Company shall issue, dispose
of or receive subscriptions for its shares, including treasury shares, or
acquire its own shares. The consideration for the issuance of the shares shall
be paid in full before their issuance and shall not be less than the par value
per share. Upon payment of such consideration, such shares shall be deemed to be
fully paid and nonassessable by the Company.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote of each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of the Company.
65
<PAGE>
Debentures
The Debentures bear interest at an annual rate of 10%, payable upon
maturity. They are due and payable on the first to occur of: (i) the completion
and closing of an underwritten public offering of the securities of the Company,
yielding gross proceeds to the Company of not less than $8,000,000 (the
"Proposed Public Offering"); (ii) the completion and closing of any debt or
equity financing of the Company in excess of $4,500,000; or (iii) one year from
the issuance date of the Debenture. If a Debenture is not converted, it may be
redeemed by the holder any time after Maturity at 100% of the principal amount
of the Debenture plus all interest accrued thereon. Redemptions effected after
March 31, 1998, however, will be made at a premium of 125% of the principal
amount of the Debenture plus all interest accrued thereon. The Debentures are
convertible, in whole or in part, at any time prior to maturity at a conversion
rate, prior to March 31, 1998, equal to 85% and, after March 31, 1998, equal to
75% of the average of the closing bid price of the Common Stock, as reported by
the National Association of Securities Dealers, Inc. Small Cap Market System
("NASDAQ"), during the five-day period preceding the Company's receipt of a
notice of conversion from a Debenture holder. In the event the Company's Common
Stock is not then traded on the NASDAQ Small Cap Market, the conversion price
will be equal to 85% of the average of the closing bid prices of the Common
Stock, as traded in the over-the-counter market and quoted in the OTC Electronic
Bulletin Board of the NASD, during the five-day period preceding the Company's
receipt of a notice of conversion from a Debenture holder. In the event that the
Proposed Public Offering is not declared effective on or before March 31, 1998,
the Debentures shall be convertible after Maturity at a conversion rate of 75%
of the average of the closing bid prices of the Common Stock, as traded in the
over-the-counter market and quoted in the OTC Electronic Bulletin Board of the
NASD, during the five-day period preceding the Company's receipt of a notice of
conversion. The Debentures have no voting rights. Each of the shares of Common
Stock issuable upon conversion of the Debentures (the "Conversion Shares") will
have one vote. The Company has agreed to file a registration statement under the
Securities Act covering the Conversion Shares as promptly as practicable after
the expiration of the offering period of the Private Placement being made
hereunder (the "Offering Period") and to use its best efforts to cause such
registration statement to be declared effective by the Commission. In the event
the Company fails to fulfill the foregoing obligation to register the Conversion
Shares, the Debenture holders will have demand and piggy-back registration
rights, as set forth above under "THE OFFERING". The Debentures and Warrants
comprising the Units are not separable or transferable under any conditions
prior to March 31, 1998. In the event that any portion of a Debenture is
converted prior to March 31, 1998, the holder thereof shall lose the right to
exercise his or her warrants in proportion, on a pro rata basis, to the
percentage of the principal amount of the Debenture which has been converted.
For Example: (i) The holder of one Unit will be the owner of one Debenture in
the principal amount of $25,000 and 50,000 Warrants; (ii) Prior to March 31,
1998, such holder converts $5,000 (or 20%) of the principal amount of the
Debenture; (iii) As a result of the foregoing, such holder will lose the right
to convert 10,000 (or 20%) of the 50,000 Warrants held by him or her.
The Warrants
Each Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock at a price of $.001 commencing on the earlier of: (i) the
effectiveness with the Commission of the registration statement relating to the
Proposed Public Offering or (ii) May 31, 1998. The Warrants have no voting
rights. The Company shall include the Underlying Shares in the registration
statement pertaining to the shares issuable upon conversion of the Debentures
and shall use its best efforts to keep such registration statement effective at
all times until: (i) all of the Debentures, which are eligible for conversion,
are converted, and the delivery of a prospectus is no longer required in
connection with any resale of the shares issued on such conversion, and there
are no unpaid, unconverted debentures outstanding, and (ii)
66
<PAGE>
all of the Warrants have been exercised and the delivery of a prospectus is no
longer required in connection with resale of any of the Underlying Shares.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
Directors and Executive Officers
The following sets forth the names and ages of all directors and executive
officers of Company and the date when each director was appointed, and all
positions and offices in Company held by each such person. Each director will
hold office until the next annual meeting of shareholders and until his or her
successor has been elected and qualified:
Date
Offices Appointed
Name Age Held Director
---- --- ---- --------
Terence C. Byrne 39 President, January. 18, 1995
Treasurer & Director
Louis V. Muro 63 Vice President January 1, 1996
of Engineering &
Director
John G. Hartley 50 Director February 21, 1995
John L. Threshie, Jr. 43 Secretary,
Vice President June 1, 1996
of Operations &
Director
Louis Sanzaro 47 Director January 17, 1997
Alan Crossley 49 Director January 17, 1997
Vijay Kachru 46 Vice President of September 1, 1996
Market Development
Family Relationships
No family relationship has ever existed between any director, executive
officer of Company or any person contemplated to become such.
67
<PAGE>
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer, and significant employee
of Company:
TERENCE C. BYRNE. Mr. Byrne has served as President, Treasurer, and a
Director of Company since January 18, 1995. He holds a Bachelor's degree in
Economics from Villanova University in Philadelphia. Mr. Byrne has been the
controlling shareholder and an officer and director of Bartholemew & Byrne,
Inc., a consulting firm specializing in corporate finance and general business
consulting, since its founding in January 1993. From September 1992 through
August 1993, he directed European marketing and business development for Pacer
Systems Corporation, a public company engaged in the business of systems
engineering for high tech industries. From July 1989 to August 1992, Mr. Byrne
served as president of Digital Optronics Corporation, a public company which,
until August 1992, was engaged in the business of manufacturing digital optronic
measuring devices, principally for the defense industry. From November 1988
(prior to being acquired by Digital Optronics) until March 1992, Mr. Byrne also
served as president and a director of Byrne Industries, Inc.("BII"), a
wholly-owned subsidiary of Digital Optronics, Inc. BII was, until the drastic
down-turn in the defense industry in March of 1991, in the business of
manufacturing electronic defense equipment as a sub-contractor to major
multi-billion dollar defense industry companies, such as Lockheed Aviation.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company
from January 18, 1995 until January 1, 1996 when he was appointed as a Director
and as Vice President In Charge of Engineering. Mr. Muro served as a Director of
Company from December 29, 1992 until January 18, 1995. He also served as
Company's Secretary from December 29, 1992 until March 1994 when he was
appointed President of Company, a position he held until January 18, 1995. Mr.
Muro received a B.S. degree in Chemical Engineering from Newark College of
Engineering in 1954, since which time he has continually been employed as a
chemical engineer. From 1974 to 1993 Mr. Muro as been the sole shareholder of
Ace Refiners Corp. of New Jersey, a precious metals refinery. From 1971 to 1974,
he worked as an independent consultant and from 1964 until 1971, he was director
of research and development for Vulcan Materials Corporation in Pittsburgh,
Pennsylvania, a public company engaged in the business of recovering useable tin
and clean steel from scrap tin plate. From 1960 to 1964, Mr. Muro was the sole
proprietor of Space Metals Refining Co. in Woodbridge, New Jersey, a company
involved in the purification of scrap germanium to transistor grade metal. From
1959 to 1960 he was employed by Chemical Construction Co., of New Brunswick, New
Jersey, where he developed a process for the waste-free production of urea from
ammonia, carbon dioxide and water. From 1954 to 1959, Mr. Muro worked in the
research and development department at U.S. Metals Refining Co. in Carteret, New
Jersey where he was involved with the refinement of precious metals.
JOHN G. HARTLEY. Mr. Hartley holds a Bachelor of Science Degree in
Economics from Manchester University in England. He has acted as a director of
Pacer Systems Inc. since 1985. Pacer Systems is a publicly held company with
offices in Boston, Massachusetts and is engaged in the business of Systems
Engineering for high tech industries. Since 1993, Mr. Hartley has also served as
a consultant to Moore Rowland International, an investment banking firm
headquartered in Monaco.
JOHN L. THRESHIE, JR. Mr. Threshie holds a Bachelor of Arts Degree from
the University of North Carolina at Chapel Hill. He was an independent
representative for Primerica Financial Services from 1991 through 1994. From
1988 to 1990, Mr. Threshie was an advertising account supervisor for Ammirati &
Puris Inc., an advertising firm in New York, assigned to the BMW of North
America account. From 1982 to 1988, Mr. Threshie was a senior account executive
at Saatchi & Saatchie, Inc. in New York, assigned to the Toyota Account.
68
<PAGE>
LOUIS SANZARO. Mr. Sanzaro holds a degree in marketing from Marquette
University. He is the President and a member of the Board of Directors of the
nation-wide, Construction Material Recycling Association. Since 1986, he has
served as President and CEO of Ocean County Recycling Center, Inc. ("Ocean
County Recycling"), in Tom's River, New Jersey. Ocean County Recycling is in the
business of remanufacturing construction and demolition debris for reuse as a
substitute for virgin materials in the construction and road building
industries. In addition, since 1989, Mr. Sanzaro has served as Vice President
and Chief Operating Officer of Ocean Utility Contracting Co., Inc., a New Jersey
Company engaged in the installation of sewer and water main pipelines and the
construction of new roadway infrastructure. From 1973 until 1990, Mr. Sanzaro
was the President and Chief Executive Officer of J and L Excavating and
Contracting Co., Inc., a company engaged in the construction of residential,
commercial, industrial, and government building. Mr. Sanzaro was a member of the
Board of Directors of the New Jersey state-wide Utility Transportation
ALAN CROSSLEY. Mr. Crossley holds a degree in Economics from Cambridge
University in England and an MBA degree from INSEAD in France. In addition to
serving as a Director of the Company, Mr. Crossley will participate in
developing and will have charge of implementing the Company's projected
marketing operations in Europe and Asia. Since 1986, Mr. Crossley has served as
president of FAISLESA, Arganda del Rey in Madrid, Spain. FAISLESA, a company
which Mr. Crossley established in 1986 as a venture capital project, is a
manufacturer and applicator of thermal insulants and water-proofing products for
the construction industry. FAISLESA runs a network of regional distributors
throughout Spain and has its own application crews in the Madrid area. Mr.
Crossley has full executive responsibility in all areas of manufacturing,
marketing, research, and administration of FAISLESA. Mr. Crossley's previous
business experience includes his work as a Eurocurrency trader in the
International Division of S.G. Warburg and Co. Ltd., Merchant Bankers in London
from 1968 to 1970, a management consultant for McKinsey and Company, Inc. in
Brazil, France, Germany, Holland, Italy, Spain, Switzerland, the UK and the
United States from 1971 to 1977, Managing Director of Satlan, S.A., a Madrid
firm involved in International trading of petroleum products and various
commodities from 1977 to 1980 and, President of Gapco, S.A., a Madrid commercial
and financial consulting firm (1980-1994).
VIJAY KACHRU. Ms. Kachru holds a Bachelor's degree in English Literature
and has attended business management, marketing, and behavioral sciences courses
at McGill University in Montreal. She was appointed Vice President In Charge of
Market Development for the Company on September 1, 1996. From 1992 until she
joined the Company, Ms. Kachru worked as an independent consultant in the area
of market research and market development. Pfizer Canada, CP Rail marketing
division and Techtran Technology Transfer Company were among her clients during
this period. From 1989 until 1992, Ms. Kachru was a training specialist for CP
Rail System where she designed and implemented a drug and alcohol abuse control
program throughout North America. From 1981 to 1989, Ms. Kachru worked as a
consultant with, among others, Proudfoot Consulting Firm on projects with Bell
Canada, Alberta Great Telephone, Firestone Bridgestone, East Midland Electric
Board in England, Columbus McKennin, and International Paper.
EXHIBIT 20(b)
- --------------------------------------------------------------------------------
ADDENDUM DATED MARCH 6, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
DATED NOVEMBER 28, 1997
- --------------------------------------------------------------------------------
The Tirex Corporation
(the "Company")
85 Units
PLACEMENT AGENT
H.J. MEYERS & CO., INC.
1895 Mt. Hope Avenue
Rochester, New York 14620
(716) 256-4600
March 6, 1998
- --------------------------------------------------------------------------------
<PAGE>
ADDITIONAL FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
In addition to the filings of the Company with the Securities and Exchange
Commission (the "Commission"), attached to the Confidential Private Offering
Memorandum, dated November 5, 1997, of the Tirex Corporation (the "Company"), as
Exhibits, the following Commission filings are available upon request without
charge. Requests should be directed to John Threshie, Secretary, The Tirex
Corporation, 740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5. Telephone:
(514) 878-0727; Facsimile: (514) 878-9847.
Quarterly Report on Form 10-QSB for the fiscal quarter ended December 31, 1997.
Current Report on Form 8-K of Registrant, dated February 3, 1998.
2
<PAGE>
ADDENDUM, DATED MARCH 6, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
of November 28, 1997
Name of Offeree________________________ Copy No. _____
- --------------------------------------------------------------------------------
85 Units
$25,000 per Unit
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
THE FOLLOWING IS AN ADDENDUM TO THE CONFIDENTIAL PRIVATE PLACEMENT OFFERING
MEMORANDUM, DATED NOVEMBER 28, 1997, OF RPM INCORPORATED AND THE TIREX
CORPORATION (THE "OFFERING MEMORANDUM") EXCEPT WHERE THIS ADDENDUM MODIFIES THE
OFFERING MEMORANDUM, IT IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
DESCRIPTIONS OF THE COMPANY AND ITS BUSINESS APPEARING IN THE OFFERING
MEMORANDUM AND THE EXHIBITS THERETO, FOR A COPY OF WHICH HAS BEEN PROVIDED TO
YOU.
1. Completion of Merger of RPM Incorporated into Tirex Acquisition Corp.
Continuation of Offering by the Tirex Corporation
On January 20, 1998, RPM Incorporated ("RPM") was merged with and into
Tirex Acquisition Corp. ("TAC"), a wholly-owned subsidiary of the Tirex
Corporation ("Tirex"). The merger was effected after an initial closing of a
private placement of the securities of RPM (the "Private Placement") made
pursuant to the Offering Memorandum which this Addendum modifies and to which
this Addendum is attached. The said merger (the "RPM Merger") was effected upon
completion of sales of 30.5 Units yielding gross proceeds in the amount of
$314,150. In effectuation of the RPM Merger: (i) Tirex exchanged one share of
its common stock for every issued and outstanding share of RPM common stock and
assumed RPM's liabilities and obligations under its 10% subordinated,
convertible debentures in the aggregate principal amount of $305,000; (ii) All
of the proceeds from the Private Placement remained in RPM when it was merged
into TAC, which was the surviving entity. Since the RPM Merger, Tirex has
continued to offer and sell, directly, the balance of the securities which had
originally been offered by RPM in the Private Placement, with the exchange of
RPM common stock for Tirex common stock and Tirex's assumption of the RPM
debentures being deemed to have occurred concurrently with the RPM Merger. All
of the Units sold in the Private Placement, as continued by Tirex subsequent to
the merger, consist of 10,000 shares of Tirex's common stock and one Tirex 10%
convertible debenture in the principal amount of $10,000. On January 23, 1998
Tirex closed on sales of an additional 8.5 Units, which yielded net proceeds of
$78,795, and on February 17, 1998, a third closing on sales of an additional 5.5
Units, yielding net proceeds of $50,985, was held. Completion of the Private
Placement, if it occurs, would yield additional gross proceeds in the amount of
$417,150.
The remainder of 40.5 Units will continue to be offered by Tirex until
March 31, 1998, unless Tirex and the Placement Agent agree to extend the
offering period.
3
<PAGE>
2. Other Material Changes
On January 28, 1998 Tirex authorized the issuance of 600,000 shares of
Common Stock to Louis V. Sanzaro pursuant to the terms of his consulting
agreement (the "L. Sanzaro Consulting Agreement"), executed at such date and
deemed by the parties to be effective as of January 1, 1997. Total compensation
under the L. Sanzaro Consulting Agreement consists of the said 1,000,000 shares
of Common Stock, 600,000 of which have been issued, as described above, and the
balance of 400,000 of which will be issued at such time as the parties agree.
On January 28, 1998, Tirex authorized the issuance of an aggregate of
4,000,000 shares to two of its executive officers and to its corporate attorney,
at a price of $.001 per share, as follows: Terence C. Byrne - 2,000,000, Louis
V. Muro - 1,000,000, and Frances Katz Levine - 1,000,000. Such sales were made
pursuant to the exercise of options granted to such persons and subsequently
amended, as follows: On September 3, 1997, Registrant granted to the foregoing
individuals options to purchase the respective number of shares set forth above
at an exercise price equal to the full market price of the Common Stock at such
date, as follows: Terence C. Byrne - 2,000,000, Louis V. Muro - 1,000,000, and
Frances Katz Levine - 1,000,000 (the "1997 Options"). Such bonuses were granted
for the fiscal year ended June 30, 1997 pursuant to the terms of their
respective employment agreements with Registrant. On January 13, 1998,
Registrant granted to each of these persons a bonus (the "1998 Bonus"), under
the terms of their respective employment agreements, for the fiscal year which
will end on June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of
amendments to the terms of the 1997 Options, reducing the option exercise price
$.001 per share.
Effective February 3, 1998, the certificate of incorporation of Tirex was
amended so as to change the amount of capital stock, which Tirex is authorized
to issue, from 70,000,000 shares of Common Stock, par value $.001 per share to
69,900,000 shares of Common Stock, par value $.001 per share and 100,000 shares
of Open Stock, par value $.001 per share, and to invest in the Board of
Directors the power to designate the Open Stock in one or more classes and/or
series, with such rights and preferences as the Board of Directors shall
determine.
Management has agreed with the Placement Agent to obtain the Agreement of
all Officers, Directors, and 5% or more shareholders of Tirex to refrain from
selling any of the shares of Common Stock held by them during the period which
shall commence as at the Closing of this Offering and which shall end 60 days
after the effective date of a Registration Statement which includes the shares
of Common Stock issuable upon exercise of the Warrants and conversion of the
Debentures, which are included in the Units.
I have read this Addendum in conjunction with the Offering Memorandum, a
copy of which was furnished to me together with this Addendum.
Dated: ____________________ __________________________
Signature of Investor
4
<PAGE>
- --------------------------------------------------------------------------------
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
- --------------------------------------------------------------------------------
RPM INCORPORATED
("RPM")
To Be Merged With and Into A Subsidiary of
THE TIREX CORPORATION
(The "Company")
85 Units
PLACEMENT AGENT
H.J. MEYERS & CO., INC.
1895 Mt. Hope Avenue
Rochester, New York 14620
(716) 256-4600
November 28, 1997
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
Exhibits .................................................................. 4
List of Filings with the Securities and Exchange Commission ............... 5
Cover Page ................................................................ 6
Investor Notices .......................................................... 7
Jurisdictional Notices and Representations ................................ 11
Available Information ..................................................... 12
Concurrent Offering and Proposed Merger ................................... 13
Confidentiality ........................................................... 14
Independent Evaluation .................................................... 14
Use of Proceeds ........................................................... 15
Terms of the Offering ..................................................... 18
General .......................................................... 18
Restrictions on Transferability .................................. 18
Investor Suitability Standards ................................... 18
Plan of Distribution ............................................. 19
Further Information .............................................. 19
Subscription Payments ............................................ 19
The Offering .............................................................. 20
Securities Offered ............................................... 20
The Merger ....................................................... 21
Minimum Purchase ................................................. 22
Capital Stock Outstanding
Prior to Offering ....................................................... 22
Risk Factors .............................................................. 22
Use of Proceeds ........................................................... 22
Risk Factors .............................................................. 22
Development Stage Company
No Assurance as to Future Profitable Operations ................ 23
No Guarantee of Product Acceptance in Market ..................... 23
Need for Substantial Additional Capital .......................... 23
Possibility of Material Changes in Offering
Terms; NASD Review ............................................. 24
Risk of Company's Inability to
Repay Debentures ............................................... 24
No Collateral Security ........................................... 24
Restricted Securities ............................................ 24
Proposed Public Offering; Reverse Split .......................... 25
Arbitrary Offering Price ......................................... 25
Broad Discretion in
Use of Proceeds ................................................ 25
Additional Interest Income
Original Issue Discount ........................................ 25
Dependance on Key Personnel ...................................... 26
2
<PAGE>
Dependance on Major Customer .................................... 26
Control by Present Officers ..................................... 26
Experience of Management ........................................ 26
Uncertainty of Product and
Technology Development: Technological Factors ................ 27
Protection of Tirex Proprietary Technology
and Potential Infringement ................................... 27
Limited Public Market ........................................... 27
Applicability of "Penny Stock Rules to
Broker-Dealer Sales of Company Common Stock ................... 28
Regulatory and Environmental Considerations ..................... 29
Production and Supply ........................................... 29
Technological Changes ........................................... 30
Competition ..................................................... 30
No Dividends and None Anticipated ............................... 31
Shares Available for Resale ..................................... 31
Authorization of Preferred Stock ................................ 31
Affiliated Persons to be
Paid Out of Proceeds ...................................................... 31
Price Range of Securities
of The Tirex Corporation ................................................ 32
Shareholders .............................................................. 33
Dividends ................................................................. 33
Business of RPM ........................................................... 33
Business of The Tirex Corporation ......................................... 34
History ................................................................... 34
The Scrap Tire Disposal Business ................................. 35
Products and Services ............................................ 36
Proposed Product - The TCS-1 System ............................ 36
Proposed Services
TCS-1 System Service and Support ............................. 47
Proposed Tire Shredding Operations ............................... 49
Sales and Marketing .............................................. 50
Sales .......................................................... 50
Backlog ........................................................ 53
Dependence on Major Customer ................................... 54
Marketing and Distribution ..................................... 54
Canadian Operations .............................................. 58
Tirex Canada ................................................... 58
The Tirex Canada License ....................................... 58
Canadian Financial Assistance
Grants and Commitments ....................................... 58
Research and Development ......................................... 60
Employees ........................................................ 60
Patent Protection ................................................ 60
Competition ...................................................... 61
Government Regulation ............................................ 62
Properties ....................................................... 63
Legal Proceedings ......................................................... 63
RPM Incorporated ................................................. 63
The Tirex Corporation ............................................ 63
3
<PAGE>
Description of Securities.................................................. 64
Management of RPM.......................................................... 66
Principal Shareholders of RPM.............................................. 68
Management of The Tirex Corporation........................................ 69
- --------------------------------------------------------------------------------
EXHIBITS
- --------------------------------------------------------------------------------
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
September 30, 1997...........................................................A
Annual Report of the Company on Form 10-KSB for the fiscal year ended
June 30, 1997................................................................B
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
March 31, 1997...............................................................C
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
December 31, 1996............................................................D
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
September 30, 1996...........................................................E
Current Report of the Company on Form 8-K, dated July 11, 1997.................F
Current Report of the Company on Form 8-K, dated June 24, 1997.................G
Current Report of the Company on Form 8-K, dated March 7, 1997.................H
Current Report of the Company on Form 8-K, dated February 5, 1997..............I
Current Report of the Company on Form 8-K, dated January 10, 1997..............J
Current Report of the Company on Form 8-K, dated December 22, 1996.............K
Merger Agreement...............................................................L
Form of 10% Convertible Subordinated Debenture.................................M
Form of Securities Purchase Agreement..........................................N
Form of Lock-Up Agreement......................................................O
Escrow Agreement...............................................................P
Consulting Agreement, Dated June 9, 1997,
Among, RPM, Tirex, et al....................................................Q
4
<PAGE>
- --------------------------------------------------------------------------------
LIST OF FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
RPM has never filed a Registration Statement or any Reports with the
Securities and Exchange Commission (the "Commission"). In addition to the
filings made by Tirex with the Commission and attached to this Offering
Memorandum as Exhibits, the following Commission filings are available upon
request without charge. Requests should be directed to John Threshie, Secretary,
The Tirex Corporation, 740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5.
Telephone: (514) 878-0727; Facsimile: (514) 878-9847.
Annual Reports on Forms 10-KSB for the fiscal years ended June 30, 1995 and
1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1995,
December 31, 1995, and March 31, 1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1994,
December 31, 1994, and March 31, 1995.
Registration Statement on Form S-8, as amended, filed with the Commission on
August 27, 1997, Registration No. 333 - 34369.
Registration Statement on Form S-8, filed with the Commission on March 31, 1997,
Registration No. 333 - 23759.
Registration Statement on Form S-8, filed with the Commission on July 22, 1996,
Registration No. 333 - 5310.
Registration Statement on Form S-8, filed with the Commission on June 20, 1996,
Registration No. 333 - 5090.
Current Report on Form 8-K of Registrant, dated December 31, 1995.
Annual Reports on Forms 10-K of Registrant for the years ended June 30, 1989,
1990, 1991, 1992, 1993, and 1994.
Transition Report on Form 10-K of Registrant for the transition period January
1, 1989 through June 30, 1989.
Annual Report on Form 10-K of Registrant for the year ended December 31, 1988.
Registration Statement on Form S-18, as amended, File No. 33-17598-NY.
5
<PAGE>
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
November 28, 1997
Name of Offeree________________________ Copy No. _____
- --------------------------------------------------------------------------------
85 Units
$10,300 per Unit
RPM INCORPORATED
A Privately Held Corporation Which, Upon Completion of this Offering,
Will Merge With and Into a Newly Formed Subsidiary of
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
RPM Incorporated, a Delaware corporation ("RPM"), is offering to sell through
H.J. Meyers & Co., Inc., as placement agent (the "Placement Agent"), up to 85
units (the "Units") of its securities (the "Offering" or the "Private
Placement") ) at a price of $10,300 per Unit. The Units are being offered only
to "accredited investors", as that term is defined in Rule 501(a) of the
Securities Act of 1933, as amended (the "Securities Act"), with the requisite
investment sophistication and ability to bear the economic risk of an investment
in the Units, including the possibility of the loss of the entire investment.
Each Unit consists of one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 (the "Debenture") and 10,000 shares (the "RPM
Shares") of the common stock of RPM, $.0001 par value ("RPM Common Stock"). RPM
has entered into an Agreement and Plan of Merger (the "Merger Agreement") with
The Tirex Corporation ("Tirex" or the "Company") and a newly formed subsidiary
of Tirex that provides, subject to certain legal conditions, that upon an
initial closing of this Offering (the "Initial Closing") to take place after the
sale of not less than 30 Units: (i) RPM will merge with and into the Tirex
subsidiary; (ii) each of the Debentures sold by RPM prior thereto will be
assumed by Tirex and become convertible into shares of Tirex common stock; and
(iii) all of the RPM Shares sold by RPM prior thereto will be exchanged for the
same number of shares of the common stock of Tirex ("Tirex Common Stock"). The
consummation of the transactions contemplated by the Merger Agreement are a
condition to the Initial Closing of this Offering. Accordingly, an investment in
the Units offered hereby will necessarily be an investment in Tirex and not in
RPM. All sales of the Units offered hereby, made after the Initial Closing and
the Merger, will be made directly by Tirex and Tirex's assumption of the
Debentures and the exchange of RPM Shares for shares of Tirex Common Stock will
be deemed to have occurred concurrently with the Merger. For further information
concerning the securities being offered hereunder, see page 20, "The Offering".
The Units will be offered and sold on behalf of RPM by the Placement Agent, a
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"). The Placement Agent may also utilize the services of other
broker-dealers ("Selected Dealers") who are members of the NASD in connection
with the offer and sale of the Units. The first 30 Units will be offered and
sold on a "best efforts, all-or-none" basis. The remaining 55 Units will be
offered and sold on a "best efforts" basis.
================================================================================
Proceeds to
Price to Placement Agent RPM or
Investors Commissions(1) Tirex(2)
--------- -------------- --------
Per Unit (Investors) ............. $ 10,300 $ 1,030 $ 9,270
Minimum .......................... 309,000 30,900 278,100
Maximum .......................... 875,500 87,550 787,950
================================================================================
(1) Before deduction of expenses of the offering payable by RPM or Tirex, as the
case may be,, estimated to be approximately $266,000 (for the Minimum) and
$761,000 (for the Maximum). See "PLAN OF DISTRIBUTION."
(2) The Offering is for the sale of a minimum of 30 Units (the "Minimum") and a
maximum of 85 Units (the "Maximum"). Prior to the sale of the Minimum, all
proceeds from the sale of the Units being offered hereby will, upon payment by
the subscribers thereof, be placed in an escrow account (the "Escrow Account")
with Harter, Secrest & Emery, 700 Midtown Tower, Rochester, NY 14604, as escrow
agent (the "Escrow Agent"). All proceeds will be promptly refunded in full,
without interest or deduction, unless at least 30 Units have been sold on or
before December 31, 1997 (the "Offering Period"); provided however, that RPM or
Tirex, as the case
6
<PAGE>
may be, and the Placement Agent, in their sole discretion, may agree to extend
such Offering Period for one or more 30-day periods. If at least the Minimum of
30 Units have been subscribed for on or before the termination of the Offering
Period, the proceeds being held in the Escrow Account will be released to Tirex,
and proceeds of subscribers for additional Units received following receipt of
the Minimum, but prior to the expiration of the Offering Period, will be paid
from the Escrow Account to Tirex in one or more subsequent closings.
The Offering of the Units is being made in reliance upon the availability
of an exemption from the registration provisions of the Securities Act by virtue
of the intended compliance of RPM or Tirex, as the case may be, with the
provisions of ss. 4(2) and Rule 506 of Regulation D thereof. Accordingly,
solicitation of offers or sales shall not be made to any person unless RPM or
Tirex, as the case may be, has reasonable grounds to believe and does believe,
immediately prior to making such sale, that such person, either alone or
together with one or more of his purchaser representatives (if any), has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Units described in this
Memorandum. See "Terms of the Offering." There are restrictions on the transfer
of Units.
PLACEMENT AGENT:
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 10008
(716) 256-4600
The Units are offered hereby on a "best efforts, minimum-maximum basis."
RPM expects to hold the Initial Closing of this Offering at any time after the
30 Unit Minimum has been subscribed for. Subsequently, Tirex may hold one or
more additional closings, at any time, from time to time, on or prior to
December 31, 1997 (unless extended by mutual agreement of RPM or Tirex, as the
case may be, and the Placement Agent for one or more additional 30-day periods)
or such earlier date as the 85 Unit Maximum has been subscribed for. The
Placement Agent has agreed only to use its "best efforts" and has not committed
to sell, or buy for its own account, any of the Units offered hereby.
This Memorandum does not contain all of the information that would normally
appear in a prospectus for an offering registered under the Securities Act or
that may be necessary to make an informed investment decision regarding an
investment in the Units. The RPM and Tirex will furnish additional information
to interested offerees upon request. Purchasers of the Units will be required to
acknowledge at the time of purchase that they have requested and received all
information necessary to make an informed decision to purchase the Units.
SEE "INVESTOR NOTICES" AND "JURISDICTIONAL NOTICES AND REPRESENTATIONS."
- --------------------------------------------------------------------------------
INVESTOR NOTICES
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY STATE OR REGULATORY AGENCY UNDER ANY SECURITIES
LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION PROVIDED IN SUCH
LAWS AND THE RULES AND REGULATIONS THEREUNDER, AND MAY NOT BE RESOLD OR
TRANSFERRED IN THE ABSENCE OF THE SATISFACTION OF CERTAIN CONDITIONS, INCLUDING
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO RPM OR TIREX, AS THE CASE MAY BE, THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM CONSTITUTES AN OFFER ONLY TO
THE PERSON OR ENTITY WHOSE NAME APPEARS ON THE COVER PAGE (THE "OFFEREE"). THE
UNITS ARE BEING OFFERED ONLY TO INVESTORS WHO QUALIFY AS "ACCREDITED INVESTORS",
AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D, AS PROMULGATED UNDER THE
SECURITIES ACT. ALL INVESTORS MUST MEET CERTAIN SUITABILITY STANDARDS
7
<PAGE>
ESTABLISHED BY RPM OR TIREX, AS THE CASE MAY BE, SUBJECT TO THE RIGHT OF RPM AND
TIREX TO REJECT SUBSCRIPTIONS, IN WHOLE OR IN PART. THE MINIMUM SUBSCRIPTION
WILL BE $10,300, UNLESS OTHERWISE APPROVED BY RPM AND/OR TIREX IN THEIR SOLE
DISCRETION. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. THESE SECURITIES ARE HIGHLY SPECULATIVE AND SHOULD ONLY BE
PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEFORE PURCHASING SUCH SECURITIES.
THE UNITS OFFERED HEREBY WILL BE SOLD SUBJECT TO THE PROVISIONS OF A
SECURITIES PURCHASE AGREEMENT (THE "SECURITIES PURCHASE AGREEMENT") CONTAINING
CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND CONDITIONS. ANY INVESTMENT IN THE
UNITS OFFERED HEREBY SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW OF
THE PROVISIONS OF THE SECURITIES PURCHASE AGREEMENT. RPM AND TIREX RESERVED THE
RIGHT IN ITS DISCRETION TO ACCEPT OR REJECT, IN WHOLE OR PART, ANY PROPOSED
INVESTMENT IN THE UNITS.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE MERITS OF, OR GIVEN APPROVAL TO, ANY
SECURITIES OFFERED HEREBY, OR UPON THE TERMS OF THE OFFERING, NOR HAVE THEY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ANY OTHER SELLING
LITERATURE. THE SECURITIES ARE OFFERED BY RPM (PRIOR TO THE ABOVE DESCRIBED
MERGER) AND BY TIREX (AFTER THE ABOVE DESCRIBED MERGER) PURSUANT TO EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES
OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DESCRIBED HEREIN ARE BEING OFFERED PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND APPLICABLE STATE
SECURITIES LAWS RELATING TO TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING OR
SOLICITATION. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHOM
THE OFFERING IS MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES
DESCRIBED HEREIN.
INVESTMENT IN THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY
A PERSON WHO OR ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF HIS, HER OR ITS
ENTIRE INVESTMENT. POTENTIAL INVESTORS ARE HEREBY CAUTIONED THAT SUCH INVESTORS,
SHOULD THEY INVEST IN THE SECURITIES DESCRIBED HEREIN, COULD BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF SUCH AN INVESTMENT FOR A SUBSTANTIAL AND/OR INDEFINITE
PERIOD OF TIME. AN INVESTOR WHO PURCHASES THE SECURITIES DESCRIBED HEREIN SHALL
BE REQUIRED TO REPRESENT THAT HE, SHE OR IT IS ABLE TO SUSTAIN SUCH A LOSS, IS
FAMILIAR WITH AND UNDERSTANDS THE TERMS OF THE OFFERING OF SUCH SECURITIES AND
THAT HE, SHE OR IT MEETS CERTAIN SUITABILITY STANDARDS.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OF
SECURITIES DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE). IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT
8
<PAGE>
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RPM OR TIREX OR ANY OTHER PERSON. NO
PERSON OR ENTITY SHOULD CONSIDER INVESTING IN THE SECURITIES DESCRIBED HEREIN
UNTIL SUCH PERSON HAS FULLY READ AND UNDERSTOOD THE CONTENTS OF THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND ALL DOCUMENTS INCORPORATED HEREIN BY
REFERENCE).
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO
TRANSFERABILITY AND RESALE. SUCH SECURITIES MAY NOT BE RESOLD OR OTHERWISE
DISPOSED OF BY AN INVESTOR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO
TIREX, REGISTRATION UNDER THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS MEMORANDUM SPEAKS AS OF
THE DATE HEREOF. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF RPM OR TIREX AFTER THE DATE HEREOF.
THE SALE OF THE SECURITIES DESCRIBED HEREIN IS SUBJECT TO THE PROVISIONS
OF, AND EACH OF THE INVESTORS PURCHASING SECURITIES WILL BE REQUIRED TO EXECUTE,
A SECURITIES PURCHASE AGREEMENT. ANY PURCHASE OF THE SECURITIES DESCRIBED HEREIN
BY AN INVESTOR SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW HEREOF
AND OF THE PROVISIONS OF SUCH SECURITIES PURCHASE AGREEMENT, IN THE FORM
ATTACHED HERETO AS EXHIBIT N. IN THE EVENT THAT ANY OF THE TERMS, CONDITIONS OR
OTHER PROVISIONS OF SUCH AGREEMENT ARE INCONSISTENT WITH OR CONTRARY TO A
DESCRIPTION OR THE TERMS SET FORTH IN THIS MEMORANDUM, SUCH AGREEMENT SHALL
CONTROL. IN PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN SUCH AGREEMENT SHALL BE DEEMED TO SUPPLEMENT AND
REPLACE WHERE INCONSISTENT ANY INFORMATION CONTAINED HEREIN.
NO OFFERING LITERATURE OR ADVERTISING SHALL BE EMPLOYED IN THE OFFERING OF
THE SECURITIES DESCRIBED HEREIN, EXCEPT THE INFORMATION CONTAINED HEREIN
(INCLUDING THAT WHICH HAS BEEN INCORPORATED BY REFERENCE). THE DELIVERY OF THIS
MEMORANDUM DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS MEMORANDUM IS SUBMITTED IN CONNECTION WITH THE OFFERING OF THE
SECURITIES DESCRIBED HEREIN AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER
PURPOSE. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, EACH POTENTIAL INVESTOR
AGREES THAT HE, SHE OR IT WILL NOT DIVULGE THE CONTENTS HEREOF TO ANY PERSON OR
ENTITY AND WILL RETURN IT (WITH ALL RELATED DOCUMENTS OR MATERIALS) TO RPM OR
TIREX, AS THE CASE MAY BE, UPON REQUEST IF SUCH INVESTOR DOES NOT AGREE TO
PURCHASE ANY OF THE SECURITIES. ANY REPRODUCTION OR DISTRIBUTION OF THIS
DOCUMENT WITHOUT THE PRIOR WRITTEN CONSENT OF RPM OR TIREX, AS THE CASE MAY BE,
IS PROHIBITED.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM
AS LEGAL, TAX OR ACCOUNTING ADVICE, BUT SHOULD CONSULT THEIR LEGAL
9
<PAGE>
COUNSEL, ACCOUNTANTS AND BUSINESS ADVISORS ABOUT LEGAL, TAX AND ACCOUNTING
MATTERS CONCERNING AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN.
PROSPECTIVE INVESTORS ARE URGED TO READ THIS MEMORANDUM CAREFULLY. ALL
PROSPECTIVE INVESTORS WILL HAVE AN OPPORTUNITY TO TALK WITH REPRESENTATIVES OF
RPM AND TIREX TO VERIFY ANY OF THE INFORMATION INCLUDED HEREIN AND TO OBTAIN
ADDITIONAL INFORMATION REGARDING RPM AND TIREX. CERTAIN PROVISIONS OF VARIOUS
DOCUMENTS AND RECORDS ARE BRIEFLY SUMMARIZED IN THIS MEMORANDUM. SUCH SUMMARIES
ARE NOT AND DO NOT PURPORT TO BE COMPLETE AND REFERENCE MUST BE MADE DIRECTLY TO
SUCH DOCUMENTS AND RECORDS FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND
OBLIGATIONS OF THE PARTIES. COPIES OF SUCH DOCUMENTS, IF NOT INCLUDED HEREWITH,
ARE AVAILABLE, UPON REQUEST, FROM RPM AND TIREX, RESPECTIVELY, WITHOUT CHARGE
AND WILL BE MADE AVAILABLE TO PROSPECTIVE INVESTORS FOR INSPECTION DURING NORMAL
BUSINESS HOURS, UPON REQUEST TO RPM OR TIREX, AS THE CASE MAY BE.
EXCEPT AS HEREIN DISCUSSED, NO PERSON HAS BEEN AUTHORIZED BY RPM OR TIREX
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION CONCERNING EITHER RPM OR
TIREX OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE
OFFERING DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RPM OR
TIREX. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF RPM AND TIREX AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED.
ANY ESTIMATES OR FORECASTS AS TO EVENTS THAT OCCUR IN THE FUTURE ARE BASED
UPON THE BEST JUDGMENT OF THE RESPECTIVE MANAGEMENTS OF RPM AND TIREX AS OF THE
DATE OF THIS MEMORANDUM. WHETHER SUCH ESTIMATES OR FORECASTS MAY BE ACHIEVED
WILL DEPEND UPON TIREX ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE
AVAILABILITY OF FUNDS, INCLUDING FUNDS FROM THE SALE OF THE SECURITIES OFFERED
HEREBY. THERE IS NO GUARANTEE THAT ANY OF THESE FORECASTS WILL BE ATTAINED.
ACTUAL RESULTS WILL VARY FROM THE FORECASTS AND SUCH VARIATIONS MAY BE MATERIAL.
NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF RPM OR TIREX SINCE THE DATE HEREOF, OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
MEMORANDUM.
RPM OR TIREX, AS THE CASE MAY BE, MAY ACCEPT OR REJECT ANY OFFER TO
PURCHASE THE SECURITIES DESCRIBED HEREIN, IN WHOLE OR IN PART, FOR ANY REASON,
AND EITHER RPM OR TIREX, AS THE CASE MAY BE, MAY WITHDRAW OR CANCEL THE OFFERING
WITHOUT NOTICE. AFFILIATES OF RPM AND TIREX MAY ACQUIRE SECURITIES IN THIS
OFFERING.
RPM, TIREX, AND H.J. MEYERS & CO., INC. (THE "PLACEMENT AGENT"), RESERVE THE
RIGHT TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE AMOUNT OF SECURITIES
SUCH INVESTOR DESIRES TO PURCHASE.
10
<PAGE>
THE COMPLETION OF EACH PURCHASE AND SALE OF THE WILL BE AT A PLACE AND TIME
SPECIFIED BY RPM OR TIREX, AS THE CASE MAY BE, AND THE PLACEMENT AGREEMENT AND
IN ACCORDANCE WITH THE PROVISIONS IN THE FORM OF SECURITIES PURCHASE AGREEMENT.
- --------------------------------------------------------------------------------
JURISDICTIONAL NOTICES AND REPRESENTATIONS
- --------------------------------------------------------------------------------
The following information is specifically directed to residents in each of
the states noted below. Each prospective investor is urged to review all of the
following information with specific focus on the particular information provided
for the state in which such investor resides:
FOR CALIFORNIA RESIDENTS
THE SALE OF SECURITIES WHICH ARE THE SUBJECT OF THIS MEMORANDUM HAS NOT
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
FOR CONNECTICUT RESIDENTS
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION SET FORTH IN SECTION 36b-21(9)(A) OF SAID ACT AND
REGULATIONS PROMULGATED THEREUNDER. THE SECURITIES CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36b-16 OF SAID ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE PURSUANT TO SECTION 36b-21 OF SAID ACT.
FOR FLORIDA RESIDENTS
EACH PURCHASER HEREUNDER HAS THE RIGHT TO RESCIND HIS PURCHASE PURSUANT TO
CHAPTER 517, FLORIDA STATUTES, FOR A PERIOD OF THREE DAYS FOLLOWING THE LAST TO
OCCUR OF HIS RECEIPT OF NOTIFICATION OF THIS RIGHT OF RECISION OR HIS PAYMENT OF
THE PURCHASE PRICE FOR THE SHARES.
FOR ILLINOIS RESIDENTS
THE OFFERING AND SALE OF THE SECURITIES OFFERED HEREBY HAS NOT BEEN
REGISTERED UNDER SECTION 5 OF THE ILLINOIS SECURITIES LAW, AND SUCH SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT UNDER SAID LAW OR IN A TRANSACTION WHICH IS
OTHERWISE IN COMPLIANCE WITH SAID LAW.
11
<PAGE>
FOR NEW JERSEY RESIDENTS
THE SECURITIES REFERRED TO IN THIS MEMORANDUM WILL BE SOLD TO AND ACQUIRED
BY THE HOLDERS IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE NEW JERSEY
STATE UNIFORM SECURITIES LAW, SECTION 49-3-50(b)(12). THEREFORE, THE DEPARTMENT
OF LAW AND PUBLIC SAFETY, DIVISION OF LAW, BUREAU OF SECURITIES HAS NOT PASSED
ON THE ADEQUACY OF THE DISCLOSURE IN THE OFFERING LITERATURE OR ON THE MERITS OF
THIS OFFERING.
FOR NEW YORK RESIDENTS
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE ATTORNEY GENERAL OF NEW YORK OR
ANY OFFICIAL OF SIMILAR CAPACITY OF ANY STATE PASSED UPON THE ACCURACY,
ADEQUACY, OR COMPLETENESS OF THE MEMORANDUM OR THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR GEORGIA RESIDENTS
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
RPM has never filed a Registration Statement or any Reports with the
Commission. Tirex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is required to file reports, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, and other information
may be inspected and copied at the Commission's public reference room located in
Room 1024 at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th
Floor, New York, New York 10048. The Commission also maintains a web site at
"http:\\www.sec.gov" where such material filed electronically can be examined.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission located in Room 1024 at 450 Fifth
Street, N.W., Washington, D.C. 20549 or, upon request, from Tirex at no charge.
All documents filed by Tirex pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Memorandum and prior to completion or
termination of the Offering shall be deemed to be incorporated by reference in
their entirety herein and to be a part hereof from the date of filing of such
documents.
12
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The information set forth herein should be read together with, and is
qualified in its entirety by reference to the information contained in, the
exhibits hereto and any documents deemed incorporated herein by reference.
Prospective investors should read the exhibits hereto, including financial
statements, in their entirety. To the extent that such information is not
consistent with the information set forth herein, the information herein will be
deemed superseded by the information contained in such exhibits or incorporated
herein by reference.
- --------------------------------------------------------------------------------
CONCURRENT OFFERING AND PROPOSED MERGER
- --------------------------------------------------------------------------------
Concurrent Offering
Concurrently herewith, The Tirex Corporation ("Tirex") is offering to sell,
through the Placement Agent (the "Tirex Offering"), Debentures (the "Tirex
Debentures") and Warrants to purchase shares of the Common Stock of Tirex (the
"Tirex Warrants") on terms which differ materially from the terms pursuant to
which the Units are being offered in this Private Placement. A Confidential
Private Placement Memorandum, dated November 5, 1997, respecting the Tirex
Offering is available upon request from the Placement Agent.
Proposed Merger
RPM has entered into an agreement (the "Merger Agreement") with Tirex and a
newly formed subsidiary of Tirex (the "Tirex Subsidiary") that provides, subject
to certain conditions, that upon an initial closing of this Offering (the
"Initial Closing") to take place after the sale of not less than 30 Units: (i)
RPM will merge with and into the Tirex Subsidiary (the "Merger"); (ii) each of
the Debentures sold by RPM prior to the Initial Closing will be assumed by Tirex
and become convertible into shares of Tirex Common Stock at the conversion ratio
of one share for every $0.20 of the principal amount of the Debenture plus all
accrued, but unpaid, interest thereon; (iii) all of the RPM Shares sold by RPM
prior to the Initial Closing will be exchanged for shares of Tirex Common Stock
on a share-for-share basis; and (iv) 3,000,000 shares, constituting all of the
shares of RPM Common Stock issued and outstanding prior to this Private
Placement, will be exchanged, on a share-for-share basis, in consideration of
RPM's waiver of consulting fees in the amount of $4,000 per month, heretofore
and hereinafter accrued by it pursuant to the terms of a certain five-year
consulting agreement, dated June 9, 1997, among RPM, Dr. Eugene Stricker, Mr.
Mark Schindler, and Tirex. The consummation of the transactions contemplated by
the Merger Agreement are a condition to the Initial Closing of this Offering.
All sales of the Units offered hereby, made after the Initial Closing and the
effectuation of the Merger, which will take place contemporaneously therewith,
will be made directly by Tirex and Tirex's assumption of the Debentures and the
exchange of RPM Shares for shares of Tirex Common Stock will be deemed to have
occurred concurrently with the Merger. Upon the consummation of the Merger, the
net proceeds, after deduction of commissions and offering expenses, from this
Offering, ranging from an estimated minimum of $266,000 to an estimated maximum
of $761,000, will remain in RPM, and Tirex, will have acquired all of the issued
and outstanding common stock of RPM for the following consideration: (i) one
share of Tirex Common Stock for every issued and outstanding share of RPM Common
Stock, and (ii) Tirex's assumption of all of RPM's obligations and liabilities
under the RPM Debentures. Prior to the commencement of this Offering, there were
a total of 3,000,000 shares of RPM Common Stock issued and outstanding. As noted
above, the holders of these shares, as well as
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<PAGE>
the purchasers of the Units offered hereby, will receive one share of Tirex
Common Stock for every share of RPM Common Stock held by them.
Accordingly, if, during the Offering Period, a minimum of 30 Units are
sold, the above described Merger will be effected and the net proceeds from this
offering will thereby inure to the benefit of Tirex. Alternatively, if RPM fails
to sell a minimum of 30 Units during the Offering Period, all funds will be
returned to the subscribers and this Offering will terminate without any Units
having been sold. As a result, any investment in the Units offered hereby will
necessarily constitute an investment in Tirex and not in RPM.
- --------------------------------------------------------------------------------
CONFIDENTIALITY
- --------------------------------------------------------------------------------
The information contained in this Memorandum is confidential and
proprietary to RPM and Tirex, respectively, and is being submitted to
prospective investors solely for such investors' confidential use with the
express understanding that, without the prior written permission of RPM and
Tirex, such prospective investors will not release this Memorandum or discuss
the information contained herein or make reproductions of or otherwise use this
Memorandum for any purpose other than evaluating a potential investment in the
securities described herein. This Memorandum may contain certain financial and
other information (incorporated by reference or otherwise) concerning Tirex
which is material non-public information and should be treated as confidential.
Receipt and acceptance of this Memorandum constitutes the recipient's
acknowledgement that the information contained herein will be maintained in
strict confidence by the recipient and will not be disclosed to any third
parties.
A prospective investor, by accepting delivery of this Memorandum, further
agrees to promptly return to RPM or Tirex, as the case may be, this Memorandum
and any other documents or information furnished if the prospective investor
elects not to purchase any of the securities described herein or upon request of
RPM or the Company, as the case may be.
- --------------------------------------------------------------------------------
INDEPENDENT EVALUATION
- --------------------------------------------------------------------------------
This Memorandum does not purport to be all-inclusive or to contain all of
the information that a prospective investor may desire in evaluating an
investment in the securities of Tirex. Prior to the consummation of the offer
and sale of any of the securities described herein, RPM and Tirex will afford
prospective investors an opportunity to ask questions of and receive answers
from RPM and Tirex, respectively, concerning the terms and conditions of the
securities described herein, RPM, Tirex, or other relevant matters and to obtain
additional information to the extent RPM or Tirex possesses such information or
can acquire it without reasonable effort or expense. Any such questions should
be directed to John L. Threshie at The Tirex Corporation, 740 St. Maurice, Suite
201 Montreal, Quebec #3C 1L5. Telephone: (514) 878-0727; Facsimile: (514)
878-9847.
No person or entity has been authorized to give any information or to make
representations about RPM or Tirex or the Offering and, if given or made, any
such information or representation by any other
14
<PAGE>
person or entity must not be relied upon as having been authorized by RPM or
Tirex. Each prospective investor must conduct and rely on his own evaluation of
RPM and Tirex and the terms of the Offering (including the merits and risks
involved) in making an investment decision with respect to the securities
described herein. Investment in the Units involves a high degree of risk and is
suitable only for investors capable of sustaining a loss of their entire
investment. See "Risk Factors."
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
Upon completion of the sale of not less than 30 of the Units offered
hereby, RPM will be merged with and into a wholly-owned subsidiary of The Tirex
Corporation ("Tirex" or the "Company"). At the time of the Merger, RPM will have
cash assets, representing the net proceeds from the sale of the Units offered
hereby, all of which will inure to the benefit of Tirex. It is estimated that,
after deducting estimated offering expenses and commissions, such net proceeds
will be approximately $266,000 (the "Minimum") assuming the minimum of 30 Units
are sold and $761,000 (the "Maximum") assuming the maximum of 85 Units are sold.
Tirex intends to utilize all of the net proceeds from the Minimum to pay the
costs of completing the first production model of the TCS-1 System. Unless
circumstances require otherwise, to the extent Tirex raises more than the
Minimum, the proceeds will be expended in the order of priority set forth in the
table, below. A discussion of the use of the combined proceeds from this
Offering and from the Tirex Offering which is being made concurrently herewith
(the "Combined Proceeds"), is included below (see "CONCURRENT OFFERING AND
PROPOSED MERGER", above). If both this Offering and the Tirex Offering are fully
subscribed, Tirex expects to use all of the proceeds within six months from the
final closings of both offerings. Tirex will have to seek other financing, for
all items not payable out of the proceeds. Possible alternative financing
sources may include, but not be limited to: (i) Canadian government grants,
loans, and/or refundable tax credits and (ii) debt financing from banks or other
lending institutions. Even if this Offering is completed and closed, there can
be no assurance that the concurrent Tirex Offering will be completed. Nor can
there be any assurance that Tirex will be able to obtain alternative sources of
financing on beneficial terms, if at all. The failure to accomplish either of
the foregoing would have a material adverse effect upon Tirex's ability to
commence business operations on a timely basis, if at all.
Approximate
Application Dollar Amount
--------------- -----------------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
-------------------------
Cryogenic - Freezing
Section $266,000 $273,500
Disintegration System -0- 175,000
Comprehensive Engineering
and Design -0- 175,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) 77,500
-------- --------
Total $266,000 $761,000
Notes to this table follow the "USE OF COMBINED PROCEEDS" table, below.
15
<PAGE>
USE OF COMBINED PROCEEDS
Upon the sale of the minimum of 30 Units offered hereby, RPM will be merged
with and into a wholly-owned subsidiary of Tirex. RPM estimates that at the time
of the Merger, it will have cash assets, representing the proceeds of this
Offering, ranging from a minimum of $266,000 (the "Minimum") to a maximum of
$761,000 (the "Maximum"). For purposes of this discussion, the net proceeds from
this Offering, which Tirex will acquire when it acquires RPM through the Merger,
together with the net proceeds from the Tirex Offering will be referred to as
the "Combined Proceeds". Based upon the foregoing assumptions, Tirex estimates
that the net Combined Proceeds from this Offering and from the Tirex Offering
will range from approximately $479,500 (the "Combined Minimum") to $1,363,000
(the "Combined Maximum"). Unless circumstances require otherwise, to the extent
Tirex obtains more than the Combined Minimum, the proceeds will be expended in
the order of priority set forth in the table, below. If both this Private
Placement and the Tirex Offering are fully subscribed, Tirex expects to use all
of the proceeds within six months from the final closings of both such
Offerings. Tirex will have to seek other financing for all items not payable out
of the Combined Proceeds. Possible alternative financing sources may include,
but not be limited to: (i) Canadian government grants, loans, and/or refundable
tax credits and (ii) debt financing from banks or other lending institutions.
There can be no assurance that, even if this Private Placement is completed and
closed, the Tirex Offering will be completed. Nor can there be any assurance
that Tirex will be able to obtain alternative sources of financing on beneficial
terms, if at all. The failure to accomplish either of the foregoing would have a
material adverse effect upon Tirex's ability to commence business operations on
a timely basis, if at all. Approximate Application Dollar Amount
Approximate
Application Dollar Amount
--------------- -----------------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
------------------------------
Front End of TCS-1 System $ -0- $110,000
Cryogenic - Freezing
Section 213,500 213,500
Disintegration System 125,000 125,000
Comprehensive Engineering
and Design 141,000 243,800
Other Capital Investments
Tire Shredding
Equipment Leases (2)(9) -0- 75,000
Tire Dumps (3)(9) -0- 250,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) -0- 55,700
Salaries to Affiliates (7)(9) -0- 134,000
Consultant Fees (8)(9) -0- 96,000
-------- ---------
Total $479,500 1,363,500
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<PAGE>
Notes:
(1) Tirex has advised RPM that it expects to use the proceeds from this
Private Placement and/or the Tirex Offering to cover the costs of completing the
design engineering and construction of only the first production model TCS-1
System. Tirex has further advised RPM that it believes it will be able to obtain
conventional construction debt financing from banks or other lending
institutions and/or "precommencement" lease financing to cover construction
costs of subsequent systems. There can, however, be no assurance that Tirex will
be able to obtain such financing on commercially reasonable terms, if at all.
(2) Includes total lease payment costs for three tire shredders for a
six-month period. Tire shredders will be required in the event that Tirex
successfully concludes its current negotiations respecting its proposed entry
into the on-site tire shredding business (see the discussion under "BUSINESS:
Proposed Tire Shredding Operations", below). As at the date hereof, there can be
no assurance that such negotiations will be successful, that Tirex will commence
any tire shredding operations, or that if it does, such operations will be
profitable.
(3) $250,000 have been allocated out of the Maximum to cover the costs of
acquiring 25,000,000 scrap tires which Tirex will require in order to meet its
obligations under a proposed contract, which Tirex is currently negotiating with
CG TIRE, Inc., in connection with Tirex's proposed tire shredding operations
(see the discussion under "BUSINESS: Proposed Tire Shredding Operations",
below). As at the date hereof, there can be no assurance that such negotiations
will be successful, that Tirex will commence any tire shredding operations, or
that if it does, such operations will be profitable.
(4) Includes monthly rental payments of approximately $2,000 for six
months. See the discussion under "BUSINESS: Properties".
(5) Includes estimated costs, for a six-month period, of leasing a
manufacturing facility of not less than 100,000 square feet. Such facility will
be used to assemble and operate the first production model TCS-1 System during a
six-month test phase and to assemble and test subsequent TCS-1 Systems.
(6) Includes salaries for a six-month period for one secretarial, two
engineering, and one in-house corporate counsel.
(7) See, "RISK FACTORS: Affiliated Persons To Be Paid Out Of Offering
Proceeds"
(8) Includes fees payable for a six-month period for to one government
liaison consultant, one business and professional organization liaison
consultant, and one consultant who provides advice and guidance respecting
engineering, product development, and tire shredding program management.
(9) Pending the expenditure of the proceeds of this offering, as set forth
above, Tirex may make temporary investments in short-term United States
government obligations or other high-quality short-term interest bearing
securities.
17
<PAGE>
- --------------------------------------------------------------------------------
TERMS OF THE OFFERING
- --------------------------------------------------------------------------------
General
The Offering made hereby consists of up to 85 Units which are being offered
by the Placement Agent on behalf of RPM to certain "accredited investors" as
that term is defined in Section 501(a) of Regulation D of the Securities Act
("Accredited Investors"). The Units are being offered at a price of $10,300 per
Unit. Each Unit consists of one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 and 10,000 shares of the Common Stock of RPM, $.001
par value, per share (the "RPM Shares"). For a detailed description of the
securities comprising the Units, see "The Offering". None of the Units will be
sold unless a minimum of 30 Units offered are purchased and paid for in
accordance with the terms of the Offering. This Offering will remain open until
December 31, 1997, unless extended for one or more additional 30-day periods by
mutual agreement of RPM and/or Tirex and the Placement Agent. Investors will not
have recision rights if the Offering Period is extended prior to the receipt of
subscriptions for the 30 Unit minimum. The number of Units being offered hereby
may be increased upon agreement among RPM, Tirex, and the Placement Agent. RPM
and Tirex each reserve the right to reject any subscription, to accept one
subscription over another, and to allocate available Units among subscribers as
it deems appropriate. In the event that the Minimum of 30 of the Units offered
hereby are sold, RPM will hold an initial closing (the "Initial Closing");
Contemporaneously therewith, RPM will be merged with and into a wholly owned
subsidiary of Tirex and the net proceeds of this offering will thereby inure to
the benefit of Tirex. If RPM fails to sell a Minimum of 30 Units during the
Offering Period, all funds will be returned to the subscribers. Accordingly, any
investment in the Units offered hereby will necessarily constitute an investment
in Tirex and not in RPM.
Restrictions on Transferability
The securities described herein are: (i) not registered under the
Securities Act or the securities laws of any state; and (ii) are being offered
and sold in reliance upon exemptions from the registration provisions of federal
and state securities laws. The RPM Shares and the shares of Tirex Common Stock
for which the RPM Shares will be exchanged upon effectuation of the Merger will
be subject to lock-up Agreements restricting their sale or transfer for a period
ending on the earlier of: (i) one year from the effective date of the Proposed
Public Offering of the common stock of Tirex; or (ii) such longer period as may
be required by any regulatory agency in connection with the proposed public
offering. Investors purchasing such securities will, therefore, not be able to
resell or otherwise transfer such securities in the absence of registration
under the Securities Act or unless an exemption from the registration
requirements thereof is made available. Additionally, all applicable state laws
requiring registration or qualification must also be satisfied before any resale
or transfer of the securities is permitted.
Investor Suitability Standards
An investment in the Units is suitable only for sophisticated investors who
understand and are economically capable of accepting the risks associated with a
speculative investment, including the complete loss of such investment. Units
will only be sold to "Accredited Investors" within the meaning prescribed by
Regulation D and Rule 501 of the Securities Act. Each investor will be required
to represent that: (i) he is an Accredited Investor; (ii) the investment is
suitable for him; (iii) he is purchasing the Units
18
<PAGE>
for investment and not with a view to a distribution or resale, and (iv) he is
purchasing the Units for his own account and not for the account of others. RPM
or Tirex may require additional information with respect to any subscriber.
Subscription information will be used by RPM and/or Tirex to determine whether
or not to accept subscriptions and will be kept confidential and not disclosed
except to counsel, the Placement Agent and, if required, to governmental and
regulatory authorities. RPM and Tirex each reserve the right, in its sole
discretion, to reject any subscription or to accept one subscription over
another.
Plan of Distribution
The Placement Agent is offering the securities described herein on a "best
efforts" basis. None of the Units will be sold unless a minimum of 30 Units are
subscribed and paid for in accordance with the terms of the Offering during an
offering period which expires on December 31, 1997, unless extended for one or
more 30-day periods by mutual agreement of RPM or Tirex, as the case may be, and
the Placement Agent. All proceeds will be deposited in an escrow account with
Harter, Secrest & Emery (by noon of the day following the broker's receipt
thereof), and promptly returned to the subscribers, in full, without interest,
if RPM is not successful in obtaining subscriptions for at least 30 of the
Units. Subscribers will have no right to the return of their funds during the
term of the escrow. Tirex will pay all expenses of this Offering, including
legal and accounting fees and expenses.
Further Information
Upon request, prospective investors will have the opportunity to meet with
and ask questions of the Officers and Directors of Tirex concerning Tirex, its
operations and prospects and the terms and conditions of the Offering. Tirex
will provide prospective investors with such further information as they may
reasonably request to supplement the information contained in this Memorandum.
Prospective investors are urged to avail themselves of this opportunity. All
such additional information is considered confidential and proprietary
information of Tirex and is subject to the confidentiality restrictions
applicable to the Memorandum. See "Independent Evaluation."
Subscription Payments
The purchase price of Units subscribed for must be paid by check or wire
transfer. The minimum investment for each investor is one Unit, although RPM or
Tirex, as the case may be, may, in its discretion, accept subscriptions for
lesser amounts and fractional Units.
19
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
- --------------------------------------------------------------------------------
Securities Offered:
The Units RPM is offering 85 Units, each unit consisting of
one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 (the "Debentures") and
10,000 shares of RPM Common Stock the ("RPM
Shares") on a best efforts, 30 Units or none,
basis to Accredited Investors pursuant to this
Confidential Private Offering Memorandum (the
"Memorandum").
Effects of Possible
Reverse Split Tirex intends to make a public offering of its
Common Stock prior to March 31, 1998 (the
"Proposed Public Offering"). The terms which have
been proposed for such offering will require that
not more than ten million shares of Tirex Common
Stock be issued and outstanding prior to the
commencement of the public offering. There are
presently 38,774,625 shares of Tirex Common Stock
issued and outstanding. The effectuation of such
proposed Public Offering will, therefore, require
a reverse split of the Tirex Common Stock. Such
action will affect the number of shares of the
Common Stock of Tirex held by, or issuable to, the
purchasers of the Units offered hereby, including
the RPM Shares which will be exchanged in the
Merger for shares of Tirex Common Stock. In
addition, the number of shares of Tirex Common
Stock issuable upon conversion of the Debentures
(the "Conversion Shares") will be reduced and the
conversion ratio at which the Debenture will be
convertible will be increased so as to require a
greater amount of the face value of the Debenture
to be converted for each Conversion Share. See
RISK FACTORS: "Proposed Public Offering: Reverse
Split."
Absence of
Registration
Rights The securities comprising the Units, including the
shares of Common Stock issuable upon the
conversion of the Debentures, do not have any
rights to registration under the Securities Act of
1933, as amended.
The Debentures
Interest The Debentures shall bear interest at an annual
rate of 10%, from the date of their issue, payable
semi-annually commencing six months from the issue
date.
Maturity The Debentures shall be due and payable on the
first to occur of: (i) two years from the issue
date or (ii) the completion and closing of a
public offering of its securities by the Maker.
(RPM prior to the Merger or Tirex after the
Merger.)
20
<PAGE>
Conversion
Rights The Debentures shall be convertible, in whole or
in part, at any time prior to maturity, at a
conversion rate of $.20 per share, into the Common
Stock of RPM (prior to the Merger) or the Common
Stock of Tirex (after the Merger) subject to
adjustment after the proposed reverse stock split.
Voting Rights: The Debentures have no voting rights. Each
of the RPM Shares (and each share of Tirex Common
Stock for which the RPM Shares will be exchanged
in the Merger) included in the Units and issuable
upon conversion of the Debentures will have one
vote.
Restrictions
on Transfer The Debentures are not transferable under any
condition prior to March 31, 1998 (see also,
"TERMS OF THE OFFERING: Restrictions on
Transferability").
The Common Stock
Conversion on
Consummation
of Merger Each Unit includes 10,000 shares of RPM Common
Stock. Upon consummation of the Merger, each share
of RPM Common Stock shall automatically be
converted into one share of Tirex Common Stock.
The Merger: RPM has entered into an agreement (the "Merger
Agreement") with Tirex and a newly formed
subsidiary of the Tirex that provides, subject to
certain conditions, that upon an initial closing
of this Offering (the "Initial Closing") to take
place after the sale of not less than 30 Units:
(i) RPM will merge with and into the Tirex
Subsidiary; (ii) each of the Debentures sold by
RPM prior to the Initial Closing will be assumed
by Tirex and become convertible into shares of
Tirex Common Stock at the conversion ratio of one
share for every $0.20 of the principal amount of
the Debenture plus all accrued, but unpaid,
interest thereon; (iii) all of the RPM Shares sold
by RPM prior to the Initial Closing will be
exchanged for shares of Tirex Common Stock on a
share-for-share basis; and (iv) 3,000,000 shares,
constituting all of the shares of RPM Common Stock
issued and outstanding prior to this Private
Placement, will be exchanged, on a share-for-share
basis, in consideration of RPM's waiver of
consulting fees in the amount of $4,000 per month,
heretofore and hereinafter accrued by it pursuant
to the terms of a certain five-year consulting
agreement, dated June 9, 1997, between RPM and
Tirex. The consummation of the transactions
contemplated by the Merger Agreement are a
condition to the Initial Closing of this Offering.
All sales of the Units offered hereby, made after
the Initial Closing and the effectuation of the
Merger, which will occur contemporaneously with
the Initial Closing, will be made directly by
Tirex and Tirex's assumption of the Debentures and
the exchange of RPM Shares for shares of Tirex
Common Stock will be
21
<PAGE>
deemed to have occurred concurrently with the
Merger (see "CONCURRENT OFFERING AND PROPOSED
MERGER", above).
Minimum Purchase: Unless otherwise agreed to by RPM (prior to the
Merger) or by Tirex (after the Merger), the
minimum purchase by each prospective investor is
one Unit (or $10,300).
Capital Stock
Outstanding Prior to
the Offering: 3,000,000 shares of the Common Stock of RPM and
38,774,625 shares of the Common Stock of Tirex
were issued and outstanding prior to the Offering
being made hereunder.
Risk Factors: An investment in the Units involves a high degree
of risk and should only be undertaken by investors
able to lose their entire investment. Prospective
investors should review carefully and consider the
factors described under "Risk Factors."
Use of Proceeds: Tirex plans to use the net proceeds of this
Offering for the completion of the first
production model of the TCS-1 System, general
corporate purposes and for working capital. (See
"Use of Proceeds.")
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
Purchase of the securities offered hereby involves a high degree of
risk and must be considered a speculative investment. An investment in the
securities is suitable only for persons of adequate means, who have no need for
liquidity in their investment, who can afford the loss of their entire
investment and who meet the "Accredited Investor" requirements of Rule 501(a) of
Regulation D, as promulgated under the Securities Act. Prospective investors
should, prior to any purchase of Units, carefully consider the following risk
factors, as well as the other information contained in this Memorandum, attached
hereto as Exhibits and incorporated by reference herein.
Upon completion of the sale of the minimum of 30 of the Units offered
hereby, RPM will be merged with and into a wholly-owned subsidiary of The Tirex
Corporation. Alternatively, if RPM fails to sell the minimum of 30 Units during
the Offering Period, all funds will be returned to the subscribers and the
Offering will terminate without any Units having been sold. As a result, any
investment in the Units offered hereby will necessarily constitute an investment
in Tirex and not in RPM. All of the following Risk Factors pertain to the
business, financial condition, and prospects of Tirex and all references to the
"Company" are to Tirex and not to RPM.
22
<PAGE>
Development Stage Company; No Assurance as to Future Profitable Operations
There is no assurance that the Company will generate net income or
successfully expand its operations in the future. Because it is in the
development stage and has had no significant operations to date, the Company
cannot predict with any certainty the future success or failure of its
operations. Its proposed operations are subject to all of the risks inherent in
the establishment of a new business enterprise, including the absence of any
significant operating history. The likelihood of the success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the formation of a new
business and the competitive environment in which the Company will operate. the
Company has had no significant operating revenues to date and there can be no
assurance of future revenues. There is limited evidence at this time upon which
to base an assumption that the Company's proposed business will prove successful
or that its proposed TCS-1 System will be successfully developed, manufactured,
and marketed. As a consequence, there is no assurance that the Company will be
able to operate profitably in the future. Additionally, the Company has a very
limited business history which investors can analyze to aid them in making an
informed judgment as to the merits of an investment in the Company. Any
investment in the Company should therefore be considered a high risk investment
because investors will be placing their funds at risk in an unseasoned start-up
company.
No Guarantee of Product Acceptance in Market
The first production model of the TCS-1 System has not yet been completed
and there is no history of commercial operations of the TCS-1 System. There can
be no assurance that the TCS-1 System will be accepted in the market for tire
disintegration equipment. Moreover, the Company has not conducted market
research that focuses on the potential demand for the TCS-1 System to the
exclusion of other types of tire disintegration equipment. Therefore, the
Company is not able to estimate with any assurance the potential demand for the
TCS-1 System, if any. There can be no assurance that sufficient market
penetration can be achieved so that projected production levels of the TCS-1
System will be absorbed by the market (see "Business-Sales and Marketing").
Need for Substantial Additional Capital
The Company presently requires funding to complete the development of the
TCS-1 System and to commence manufacturing and marketing operations. The
proceeds from this Offering are expected to permit the Company to operate only
through the end of 1997. The Company anticipates that only limited revenues will
be available to fund its operations without substantial additional capital.
Further, although the Company has signed a Letter of Intent with the Placement
Agent for the Proposed Public Offering of its Common Stock in an amount of not
less than $8,000,000, there can be no assurance that such public offering will
be successfully completed or, even if it is completed, that the Company will
receive adequate financing from the Proposed Public Offering. See "PROPOSED
OFFERING; REVERSE STOCK SPLIT." The Company does not currently have in place,
other current options to fund its continued existence in the event the Proposed
Public Offering does not occur or does not occur within a reasonable time
following this Private Placement. The result of the Company's inability to raise
sufficient funding to accomplish its present goals would have a material adverse
effect upon its business, prospects, operating results, and financial condition.
Moreover, if the Proposed Public Offering does not occur on a timely basis, the
Company may be unable to fund its business plan and may be forced to cease to
operate. In such event, investors will lose their entire investment.
23
<PAGE>
Possibility of Material Changes in Offering Terms; NASD Review
Following the closing of this Private Placement, the Company intends to
effect a public offering of its Common Stock in an amount of not less then
$8,000,000. Should such public offering take place, the Company intends to apply
for inclusion of its Common Stock on the National Association of Securities
Dealers ("NASD") Automated Quotation Small Cap Market ("NASDAQ"). In connection
with such application, the NASD may require that the terms of this Private
Placement be materially modified. Such potential modifications may include, but
may not be limited to, an increase in the time such investors must refrain from
selling the Common Stock acquired in this Private Placement beyond the "lock-up"
dates specified in the Lock-Up Agreement attached hereto and described herein.
See "DESCRIPTION OF THE SECURITIES." By executing the Securities Purchase
Agreement, each investor will acknowledge and agree that such modifications may
occur.
Risk of Company's Inability to Repay Debentures
There is no assurance that the Company will be able to repay the Debentures
which are being offered hereby. Repayment of the Debentures depends in part upon
the completion of the Company's Proposed Public Offering and no assurance can be
given that such offering will be completed. See the Risk Factor, below,
"Proposed Offering; Reverse Split" below. If such public offering is not
completed, the Company will need to generate cash flow from its operations or
find other sources of financing. There are no other financing sources currently
available to the Company and no assurance can be given that additional financing
will be available when needed. It is unlikely that the Company's business will
be able to generate sufficient cash flow to repay the Debentures when they
become due if the Proposed Public Offering is not completed. In such event, the
Company will be unable to repay the Debentures and the investors may be required
to wait a substantial period of time for repayment or may lose their entire
investment.
No Collateral Security
Repayment of the Debentures is not secured by any collateral. The assets
and net worth of the Company are insufficient to collateralize the principal of,
or interest on, the Debentures. If the Company does not complete the Proposed
Public Offering, the Company will be unable to pay the principal or interest on
the Debentures and it will have insufficient cash, assets, or net worth to
satisfy the amount due on the debt. In such event, the principal and interest
may be uncollectible and investors may lose their entire investment in the
Company. See "Need for Substantial Additional Capital."
Restricted Securities
The resale or transfer of the Securities, which comprise the Units being
offered hereby, are specifically restricted and all certificates representing
such securities will bear restrictive legends, as described in "DESCRIPTION OF
SECURITIES." In no event will the securities comprising the Units be
transferable prior to March 31, 1998. The RPM Shares will be "locked up" until
the earlier of: (i) the effective date of the Proposed Public Offering or (ii)
May 31, 1998. If the Proposed Public Offering should occur, the RPM Shares will
be subject to a further "lock-up" restricting their sale or transfer for a
period of one year from the effective date of the Proposed Public Offering or
such greater period as may be required by any regulatory agency.
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<PAGE>
Proposed Public Offering: Reverse Split
The proposed terms for the Proposed Public Offering require that not more
than 10,000,000 shares of Tirex Common Stock be issued and outstanding prior to
the commencement of the public offering. There are presently 38,774,625 shares
of Tirex Common Stock issued and outstanding. While the number of shares
outstanding prior to the Proposed Public Offering may be adjusted to reflect a
change in the development and consequent valuation of the Company, investors in
this Private Placement should note that such requirement will necessitate a
reverse split of all of the Company's issued and outstanding securities. This
will necessarily affect the number of shares of Tirex Common Stock for which the
RPM Shares will be exchanged upon effectuation of the Merger and the number of
shares of Tirex Common Stock issuable (after the Merger) upon conversion of the
Debentures. While the exact ratio of the projected reverse split cannot be
determined prior to the finalization of the terms thereof, a 1-for-4 reverse
split would affect an investor in this Private Placement, as follows: (i) the
number of RPM Shares included in each Unit or the number of shares of Tirex
Common Stock for which the RPM Shares will be exchanged upon effectuation of the
Merger would be reduced from 10,000 to 2,500 and (ii) the number of shares of
Common Stock issuable upon conversion of each $10,000 face amount Debenture
would be reduced from 10,000 to 12,500 and the conversion ratio would be
increased from one share for every $.20, to one share for every $.80, of the
principal amount of the Debenture.
Arbitrary Offering Price
The price at which the Units are being offered hereby was arbitrarily
determined by the Company and the Placement Agent based on consideration of a
number of factors. The offering price bears no relationship to any objective
criteria of value and should not be regarded as an indication of future market
price of the Company's securities.
Broad Discretion in Use of Proceeds
The net proceeds from this Private Placement have been generally allocated
by management of the Company for the various uses specified under "USE OF
PROCEEDS." As a result, purchasers of Units in this Offering will be entrusting
their funds to management, who will have broad discretion in determining
specific expenditures of the funds. Accordingly, this uncertainty increases the
risk of an investment in the Company since investors will not have an
opportunity to review and evaluate the specific expenditures which may be made
by the Company. See "USE OF PROCEEDS."
Additional Interest Income -- Original Issue Discount
For federal income tax purposes, the issue price of a Unit (in general, the
price paid therefor) must be allocated among the Debenture and the RPM Shares in
proportion to their respective fair market values. The portion allocated to the
Debenture and RPM Shares will become the respective tax basis for each class of
asset. Any excess in the face amount of the Debenture over the basis assigned
thereto will constitute original issue discount. The amount of that original
issue discount will be amortized over the life of the Debenture, and will
constitute additional interest income to the investor. Consequently, the
investor will be required to report additional interest income during the period
he holds the Debenture which will be greater that the 10% interest rate payable
on the Debenture. The Company and RPM have not at this time determined what the
fair market value of the shares of Tirex Common Stock, for which the RPM Shares
will be exchanged in the Merger, is likely to be, or, as a result, how much
original issue discount will be attributed to the Debentures, although it will
make such determination in connection with
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its annual information reporting obligations to the Internal Revenue Service.
Each investor is urged to consult his own tax advisor with respect to the
foregoing matters.
Dependence on Key Personnel
The Company believes that its success depends to a significant extent on
the efforts and abilities of certain of its senior management, in particular
those of Terence C. Byrne, President and Chief Executive Officer; and Louis V.
Muro, Vice President in charge of Engineering. The loss of Mr. Byrne, or Mr.
Muro could have a material adverse affect on the Company's business, prospects,
operating results, and financial condition. The Company does not presently have
key man life insurance policies, but intends to try to obtain such coverage in
the amount of $1,000,000 for Mr. Byrne and $500,000 for Mr. Muro. There can be
no assurance that such policies will be available to the Company on commercially
reasonably terms, if at all. Additional, the ability of the Company to realize
its business plan could be jeopardized if any of its senior management becomes
incapable of fulfilling his obligations to the Company and a capable successor
is not found on a timely basis. There can however be no assurance that, in such
event, the Company will be able to locate and retain a capable successor to any
member of its senior management.
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). O/V III and OTRP are New Jersey corporations
affiliated with each other through common control. The loss of either or both of
these two customers would have an adverse effect on the Company. See BUSINESS:
"Dependence on Major Customer".
Control by Present Officers
Control of Tirex. Terence C. Byrne, Tirex's President and Chief Executive
Officer, owns of record and controls beneficially by way of irrevocable voting
proxies 11,619,430 shares of Tirex Common Stock. Louis V. Muro owns of record
4,681,191 shares of Tirex Common Stock. Accordingly, Messrs. Byrne and Muro
collectively control an aggregate of 16,300,621, or 42%, of the currently issued
and outstanding Common Stock of Tirex. They are therefore in a position to
substantially influence the election of a majority of Tirex's directors and
otherwise control Tirex. Tirex is not aware of any other written or oral voting
agreements respecting Tirex's Common Stock.
Control of RPM. Dr. Eugene Stricker, RPM's President, and Mr. Mark
Schindler, RPM's Secretary and Treasurer, each own 1,130,000 shares of RPM
Common Stock, and Mr. Al Pietrangelo, RPM's Assistant Secretary and Assistant
Treasurer, owns 400,000 shares of RPM Common Stock, constituting in the
aggregate 88.7% of the issued and outstanding stock of RPM. Accordingly, these
persons are in a position to substantially influence the election of a majority
of RPM's directors and otherwise control RPM. RPM is not aware of any other
written or oral voting agreements respecting RPM's Common Stock.
Experience of Management
Although Management has general business and engineering experience,
potential investors should be aware that no member of management has been
directly involved in administering a tire disintegration, recycling, or tire
disintegration equipment manufacturing, business.
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Uncertainty of Product and Technology Development: Technological Factors
The Company has not completed development and testing of the TCS-1 System.
The Company's success will depend upon the TCS-1 System's meeting targeted
performance and cost objectives and its timely introduction into the
marketplace. The Company continues to be required to commit the bulk of its
time, effort, and resources to finalizing the development of the TCS-1 System.
Although the Company anticipates that the development of the TCS-1 System will
be successfully concluded prior to the end of 1997, such an outcome will be
subject to all of the risks inherent in the development of a new product and
technology (including unanticipated delays, expenses, and difficulties, as well
as the possible insufficiency of funding to complete development). There can be
no assurance as to when, or whether, the Company's efforts to complete the
development of the TCS-1 System will be successful. In addition, there can be no
assurance that the TCS-1 System will satisfactorily perform the functions for
which it is designed, that it will meet applicable price or performance
objectives, or that unanticipated technical or other problems will not occur
which would result in increased costs or material delays in development. There
can be no assurance that, despite testing by the Company, problems will not be
encountered in the TCS-1 System after the commencement of commercial manufacture
and sales, resulting in loss or delay in market acceptance.
Protection of Tirex Proprietary Technology and Potential Infringement
The success of the Company's proposed business depends in part upon its
ability to protect its proprietary technology and the proposed TCS-1 System
which will utilize such technology. On December 18, 1996, the Company filed
patent applications in the United States and Canada based on provisional
priority under preliminary patent applications filed on December 19, 1995. On
October 23, 1997, the Company's application was allowed and pursuant thereto a
United States Patent on the Company's cryogenic tire disintegration process and
apparata will be issued with priority as of December 19, 1995. Upon issuance of
the said United States patent, the Company will submit the patent examination
papers to the Canadian authorities. The Canadian patent, when issued, will also
have a priority date of December 19, 1995. Prior to filing for patent
protection, the Company relied on trade secrets, proprietary know-how and
technological innovation to develop its technology and the designs and
specifications for the TCS-1 System. Except where the terms of their employment
agreements would make it redundant or, in the sole discretion of management, it
is determined that because of the non-technical nature of their duties, such
agreements are not necessary or appropriate, the Company has, and will continue
to, enter into confidentiality and invention assignment agreements with all
employees and consultants which limit access to, and disclosure or use of, the
Company's proprietary technology. There can be no assurance, however, that the
steps taken by the Company to deter misappropriation or third party development
of its technology and/or processes will be adequate, that others will not
independently develop similar technology and/or processes or that secrecy will
not be breached. In addition, although the Company believes that its technology
has been independently developed and does not infringe on the proprietary rights
of others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. Moreover, there can be no assurance that the
Company will have the resources to defend its patent by bringing patent
infringement or other proprietary rights actions.
Limited Public Market
To date there has been only a limited and sporadic public market for the
Company's Common Stock. There can be no assurance that an active and reliable
public market will develop or, if developed, that such market will be sustained.
Purchasers of the securities offered hereby may, therefore, have
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<PAGE>
difficulty in selling the shares of Tirex Common Stock for which the RPM Shares
will be exchanged in the Merger or which will be issuable upon the conversion of
the Debentures. As a result, investors may find it impossible to liquidate their
investment in the Company should they desire to do so. The Company's Common
stock is currently traded in the over-the-counter market and quoted on the NASD
Over-theCounter Electronic Bulletin Board. The Company expects to apply for
inclusion in NASDAQ. As at the date hereof, however, the Company is not eligible
for inclusion in NASDAQ or for listing on any national stock exchange. All
companies applying and authorized for listing with NASDAQ are required to have
not less than $4,000,000 in total assets and $2,000,000 in capital and surplus.
Unless the Company is able to increase its net worth substantially, either
through the accumulation of surplus out of earned income or successful capital
raising financing activities, it will never be able to meet the eligibility
requirements of NASDAQ. In order to qualify for listing on a national stock
exchange similar minimum criteria respecting, among other things, the Company's
net worth and/or income from operation must be met. Accordingly, market
transactions in the Company's common stock are subject to the "Penny Stock
Rules" of the Securities and Exchange Act of 1934, which are discussed in more
detail, below, under "Applicability of Penny Stock Rules to Broker-Dealer Sales
of Company Common Stock". These rules could make it difficult to trade the
Common Stock of the Company because compliance with them can delay and/or
preclude certain trading transactions. This could have an adverse effect on the
ability of an investor to sell any shares of Tirex Common Stock, as well as on
the price obtainable for such shares of Common Stock.
Applicability of "Penny Stock Rules" to Broker-Dealer Sales of
Company Common Stock
The Securities and Exchange Commission has adopted special regulations
(referred to herein as the "Penny Stock Rules") which define a security that has
a market price of less than $5 and is not listed on a national stock exchange or
quoted on NASDAQ as a "Penny Stock". These regulations subject all broker-dealer
transactions involving such securities to the special Penny Stock Rules set
forth in Rule 15g- 9 of the Securities Exchange Act of 1934 (the "34 Act"). It
may be necessary for the Selling Shareholders to utilize the services of
broker-dealers who are members of the NASD. The current market price of the
Company's Common Stock is substantially less than $5 per share and such stock
can, for at least for the foreseeable future, be expected to continue to trade
in the over-the-counter market at a per share market price of less than $5 (see
"Price Range of Securities"). Accordingly, any broker-dealer sales of the shares
being offered hereunder, as well as any subsequent market transactions in the
Company's Common Stock, will be subject to the Penny Stock Rules. These Rules
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their shares in
the secondary market, if such a market should ever develop.
The Penny Stock Rules also impose special sales practice requirements on
broker-dealers who sell such securities to persons other than their established
customers or "Accredited Investors." Among other things, the Penny Stock Rules
require that a broker-dealer make a special suitability determination respecting
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. In addition, the Penny Stock Rules require that a
broker-dealer deliver, prior to any transaction, a disclosure schedule prepared
in accordance with the requirements of the Commission relating to the penny
stock market. Disclosure also has to be made about commissions payable to both
the broker-dealer and the registered representative and the current quotations
for the securities. Finally, monthly statements have to be sent to any holder of
such penny stocks disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
Accordingly, for so long as the Penny Stock Rules are applicable to the
Company's Common Stock, it will be difficult to trade such stock because
compliance with such Rules can delay and/or preclude certain trading
transactions. This could have an adverse effect on the liquidity and/or price of
the Company's Common Stock.
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<PAGE>
Regulatory and Environmental Considerations
The Company does not expect that its equipment manufacturing operations
will be subject to any unusual or burdensome governmental regulations. However,
the Company is currently making preparations to enter into a five-year tire
shredding project in Quebec (see "Proposed Tire Shredding Operations"). These
operations and the businesses of the Company's customers may involve, to varying
degrees and for varying periods of time, the storage or "stockpiling" of scrap
tires which, with their size, volume and composition, can pose a particularly
serious environmental problem. Among the numerous problems relating to
stockpiling scrap tires, is the fact that when stockpiled above ground, tires
create serious fire, public health, and environmental hazards ranging from
fires, which generate large and dense clouds of black smoke and are extremely
difficult to extinguish, to the creation of vast breeding grounds for mosquitoes
and vermin. As a result, many states have either passed or have pending
legislation regarding discarded tires including legislation limiting the storage
of used tires to specifically designated areas. For reasons including, but not
limited to the problems described above, the Company and the purchasers of its
TCS-1 Systems will be subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental, health, and labor agencies. Compliance with applicable
environmental and other laws and regulations governing the business of the
Company may impose a financial burden upon the Company that could adversely
affect its business, financial condition, prospects, and results of operations.
Likewise, the burden of compliance with laws and regulations governing the
installation and/or operation of TCS-1 Systems could discourage potential
customers from purchasing a TCS-1 System which would adversely affect the
Company's business, prospects, results, and financial condition. Actions by
federal, state, and local governments concerning environmental or other matters
could result in regulations that could increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 System and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that it will be able to operate in compliance with
such regulations. In this regard, it has retained environmental attorneys in
Montreal to advise it with respect to compliance with local environmental
regulations applicable to its proposed tire shredding operations. It has also
engaged a consultant to advise purchasers of its TCS-1 Systems with respect to
compliance with local environmental regulations applicable to the installation
and operation of the TCS-1 System. To date, the Company has not had to make
significant capital expenditures relating to environmental compliance because it
has not yet commenced operations. However, the inception of equipment
manufacturing and, possibly, tire shredding operations together with continually
changing compliance standards and technology, may affect the Company's future
capital expenditure requirements relating to environmental compliance. See
BUSINESS.
Production and Supply
The Company intends to begin manufacturing the TCS-1 System on a commercial
basis within the current fiscal year. The Company will be dependent on
arrangements with its subcontractors for the manufacture and assembly of the
principal components incorporated into the TCS-1 System (see BUSINESS
"Agreements With Subcontractors", below). It will therefore be substantially
dependent on the ability of such subcontractors to satisfy performance and
quality specifications and to dedicate sufficient production capacity for all
TCS-1 System scheduled delivery dates. The Company believes that all of its
subcontractors have the requisite manufacturing capabilities and the willingness
to dedicate sufficient amounts of their manufacturing capacity to allow the
Company to meet all TCS-1 System delivery dates, currently scheduled or expected
to be scheduled within the next two years. However, no assurance can be given
that this will in fact be the case and failure on the part of the Company's
subcontractors in these
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regards would adversely affect the Company's ability to manufacture and deliver
TCS-1 Systems on a timely and competitive basis. In such event the Company would
have to replace or supplement its present subcontractors. There can be no
assurance that should it be necessary to do so, the Company would be able to
find capable replacements for its subcontractors on a timely basis and on terms
beneficial to the Company, if at all; The Company's inability to do so would
have a material adverse effect on its business (see BUSINESS: "Production and
Supply").
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
Technological Changes
To date, the market for tire disintegration equipment has not, to the best
of management's knowledge, been characterized by rapid changes in technology.
However, there can be no assurance that new products or technologies, presently
unknown to the Company, will not, at any time in the future and without warning,
render the Company's tire disintegration technology less competitive or even
obsolete. Moreover, the technology upon which the Company's tire disintegration
system is based, could be susceptible to being analyzed and reconstructed by an
existing or potential competitor. Although the Company has filed a patent
application respecting its proprietary disintegration system, there cannot, at
this time be any guarantee that a patent will, in fact, be granted pursuant to
such application. Moreover, even in the event that the Company is granted a
patent, the Company may not have the financial resources to successfully defend
such patent by bringing patent infringement suits against parties that have
substantially greater resources than are available to the Company. The Company
must continue to create innovative new products reflecting technological changes
in design, engineering, and development, not only of new tire disintegration
machinery, but of products, and machinery capable of producing products, which
incorporate and recycle the rubber, steel, and/or fiber by-products which will
be produced by the operation of the TCS-1 System. Failure to do so, could
prevent to Company from gaining and maintaining a significant market for its
products. This may require a continuing high level of product development,
innovation, and expenditures. To the extent that the Company does not respond
adequately to such technological advances, its products may become obsolete and
its growth and profitability may be adversely affected.
Competition
Although management believes that the Tirex Technology has distinct
advantages over other existing tire disintegration methods, the Company will
face competition from other equipment manufacturers, virtually all of whom will
be larger than the Company, and will have substantially more assets and
resources than the Company has. Management intends to meet such competition by
developing technological innovations which will make the TCS-1 System more
economical and efficient than other tire disintegration methods. To do so, the
Company will have to raise sufficient funding to complete and continue its
development program and to employ highly qualified personnel. There cannot
however be any assurance that the Company will be able to raise the capital
necessary to enable it to do so or that it will be able to locate or retain such
personnel.
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No Dividends and None Anticipated
The Company has not paid any cash dividends, nor does it contemplate or
anticipate paying any dividends upon its Common Stock in the foreseeable future.
Shares Available for Resale
Excluding any options that could be exercised, there were 38,774,625 shares
of Tirex Common Stock issued and outstanding as of the date of this Memorandum.
15,948,127 shares of such shares are "restricted securities" within the meaning
of Rule 144 of the Securities Act ("Rule 144") and thus may be sold only in
compliance with an exemption from registration under the Securities Act or
pursuant to a registration statement under the Securities Act. All of such
shares will become eligible for resale under Rule 144 between the date hereof
and July 18, 1998. A sale of shares by shareholders, whether pursuant to Rule
144 or otherwise, may have a depressing effect upon the market price of the
Common Stock.
Authorization of Preferred Stock
The Company's Amended Certificate of Incorporation authorizes the issuance
of "open" stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to designate and issue
the "open" stock as preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Convertible Debentures, and Common Stock.
Also, the voting power and percentage of stock ownership of the shareholders of
the Company's outstanding capital stock can be substantially diluted by such
preferred stock issuance. In addition, the issuance of such preferred stock may
have the effect of rendering more difficult or discouraging an acquisition of
the Company or changes in control of the Company. The Company does not have any
provisions in its Certificate of Incorporation which would have an anti-takeover
effect. However, certain provisions in the employment agreements of certain of
the Company's officers could have such effect. Moreover, the Company may adopt
anti-takeover measures in the future. Such measures could include, but may not
necessarily be limited to, the issuance of preferred stock with anti-takeover
provisions to discourage bidders from making offers at a premium to the market
price. In addition, the mere existence of an anti-takeover device could have a
depressive effect on the market price of the Company's Common Stock.
Affiliated Persons To Be Paid Out Of Offering Proceeds
The Company does not intend to spend any of the proceeds from this offering
or from the RPM Offering on payments to affiliates unless the maximum proceeds
from both offerings are received (see "USE OF PROCEEDS", above). In such event,
the Company has budgeted $134,000 from the Maximum Combined Proceeds for
salaries to Affiliates. However, the following should be noted: The Company
intends to expend all of the proceeds from this Private Placement and from the
RPM Offering during the six months following the closing thereof. Because of its
limited financial resources, the Company has met, and during the period
preceding the Proposed Public Offering the Company may continue to meet, a
substantial portion of its salary obligations to its executive officers and its
in-house corporate counsel by issuing to them unregistered shares of its Common
Stock at a 50% discount from the average market price of the stock during the
period when such unpaid salaries were earned. The Company has entered into
employment agreements with its four executive officers which call for annual
salaries in the approximate aggregate amount of $515,000. If all of the
following factors occur: (i) the Company spends all of the
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proceeds from this Private Placement within six months; (ii) during such
six-month period, the Company receives no cash resources other than the proceeds
from this Private Placement; and (iii) the Company discontinues its established
practice of paying part of its executives' salaries in stock instead of cash and
pays 100% of its salary obligations in cash, then the Company could expend up to
$257,500 on salaries to affiliates. If this entire amount was taken from the
Combined Maximum Proceeds, it would constitute approximately 192% thereof. As
noted above, if the Maximum Combined Proceeds are raised, Tirex's present budget
allocates a total of $134,000 to salaries to affiliates. Such amount would
constitute less than 10% of the Maximum Combined Proceeds. For further details
respecting Tirex's compensation of its executive officers, reference is made to
ITEM 10. "EXECUTIVE COMPENSATION" of Tirex's annual report on Form 10-K for the
fiscal year ended June 30, 1997, enclosed as an exhibit hereto.
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PRICE RANGE OF SECURITIES
OF
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
The Common Stock of Tirex is traded on a limited basis in the
over-the-counter market and quoted on the NASD's OTC Electronic Bulletin Board
(the "OTC Bulletin Board"). The following table sets forth representative high
and low bid prices by calendar quarters as reported by the NASD's OTC Electronic
Bulletin Board System (the "OTC Bulletin Board") during the last two fiscal
years and the subsequent interim period through November 19, 1997. The level of
trading in the Common Stock of Tirex has been limited and the bid prices
reported may not be indicative of the value of the Common Stock or the existence
of an active market. The OTC market quotations reflect inter-dealer prices
without retail markup, mark-down, or other fees or commissions, and may not
necessarily represent actual transactions.
Bid Prices
Period Common Stock
------ ------------
Low High
--- ----
Fiscal Year Ended June 30, 1996
September 30, 1995 0.125 0.75
December 31, 1995 0.125 0.375
March 31, 1996 0.125 0.28
June 30, 1996 0.10 0.56
Fiscal Year Ended June 30, 1997
September 30, 1996 0.19 0.45
December 31, 1996 0.13 0.44
March 31, 1997 0.23 0.58
June 30, 1997 0.18 0.44
Fiscal Year Ending June 30, 1998
November 19, 1997 0.13 0.46
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SHAREHOLDERS AND DIVIDENDS
- --------------------------------------------------------------------------------
Shareholders
As of September 25, 1997, the number of holders of record of the Common
Stock, $.001 par value, of RPM was 21 and the number of holders of record of the
Common Stock, $.001 par value, of Tirex was 311.
Dividends
Neither Tirex nor RPM has paid any cash dividends, nor does either of such
companies have any present plan to pay cash dividends in the foreseeable future.
Tirex intends to reinvest its earnings, if any. Payment of future cash dividends
will be determined from time to time by the Board of Directors, of Tirex based
upon its future earnings, if any, financial condition, capital requirements and
other factors. Neither Tirex nor RPM is presently subject to any contractual or
similar restriction on its present or future ability to pay such dividends.
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BUSINESS OF RPM
- --------------------------------------------------------------------------------
RPM Incorporated ("RPM") was incorporated in Delaware on August 27, 1996
for the purpose of engaging in the business of providing management and business
consulting services. RPM's principal business activities, throughout its
existence, have been limited to providing management and business consulting
services to Tirex pursuant to a consulting agreement dated June 9, 1997, among
RPM, its principal shareholders, Dr. Eugene Stricker and Mr. Mark Schindler, and
Tirex (the "Consulting Agreement"). The Consulting Agreement is for a five-year
term and provides for monthly payments in the amount of $4,000 to be paid to RPM
in exchange for consulting services to be rendered by Dr. Stricker and Mr.
Schindler. The parties have agreed that the Consulting Agreement will survive
the Merger and the consequent absorption of RPM by the Tirex Subsidiary. The
Merger Agreement provides that all 3,000,000 shares of RPM Common Stock, issued
and outstanding prior to this Private Placement, will be exchanged for a like
number of shares of Tirex Common Stock in consideration of the waiver by RPM,
Dr. Stricker, and Mr. Schindler of all consulting fees theretofore and
thereinafter accrued during the entire five-year term of the Consulting
Agreement (see "CONCURRENT OFFERING AND PROPOSED MERGER", above).
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BUSINESS OF THE TIREX CORPORATION
- --------------------------------------------------------------------------------
NOTE: As described above, an investment in the Units offered hereby will
necesarily be an investment in Tirex and not in RPM. All references to the
"Company", which appear in this Section, are to Tirex and not to RPM.
History
The Tirex Corporation (hereinafter, the "Company" or "Tirex") was
incorporated in Delaware on August 19, 1987 under the name "Concord Enterprises,
Inc." Its name was changed to "Stopwatch Inc." on June 20, 1989(1) and to the
"Tirex America Inc." on March 10, 1993. On July 11, 1997, in order to encompass
the current and projected international scope of its operations, the Company's
name was changed to "The Tirex Corporation". The Company, directly and through
its subsidiary "Tirex Canada Inc.",(2) is presently engaged in the business of
developing, manufacturing, selling, and leasing a cryogenic tire disintegration
system (the "TCS-1 System") which integrates proprietary disintegration
technology with established conventional mechanical and technologies. It is also
currently conducting negotiations with C.G. Tire, Inc., a wholly-owned
subsidiary of Continental General Tire Inc., respecting a five-year tire
shredding project for the province of Quebec. In addition, the Company is
exploring, with the Montreal operation of Solutia Inc. (a successor to part of
the business of Monsanto Canada Inc.), the feasibility of expanding the
Company's operations to include thermoplastic/rubber compounding operations at
the former Monsanto Montreal facility.
The Company acquired its proprietary tire disintegration technology (the
"Tirex Technology") in the fall of 1992(3). Since the beginning of 1993, it has
devoted the bulk of its efforts to completing the design and development, and
commencing the manufacture, of the TCS-1 System and raising the financing
required for such project. In August of 1995, the Company moved its corporate
headquarters to Quebec and formed its subsidiary, 3143619 Canada Inc. (known and
doing business, and hereinafter referred to, as "Tirex Canada Inc.").
Construction of the first full scale prototype of the TCS-1 began in February of
1997 and is expected to be completed by the end of November 1997. The Company
began taking orders on the TCS-1 System in October of 1995 and, to date, has
received deposits of $25,000 each on five Systems. The Company has located and
entered into written and oral agreements with various
- ----------------------
(1) For a discussion of the merger with Stopwatch, the healthcare business
which was intended, but was never commenced, by Stopwatch, and the reasons for
the termination of the Stopwatch business plan, reference is made to Item 1 of
Registrant's annual report on Form 10-K for the fiscal year ended December 31,
1988, its transition report on Form 10-K for the transition period ended June
30, 1989, and its annual report on Form 10-KSB for the fiscal year ended June
30, 1995.
(2) Unless context necessarily requires otherwise, references hereinafter
to the "Company" refer to The Tirex Corporation and its subsidiary, Canadian
Corporation 3143619 (known and doing business as "Tirex Canada Inc."),
collectively.
(3) For discussions in detail of the Company's acquisition of the Tirex
Technology and the associated corporate and management changes which took place
between the autumn of 1992 and January of 1995, reference is made to the
discussions thereof included in Item I of the Company's annual reports of Forms
10-KSB for the fiscal years ended June 30, 1995 and June 30, 1996.
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engineering and manufacturing subcontractors and component suppliers, which
Management believes will supply it with sufficient production capacity to meet
all current and projected orders, on a timely basis, commencing upon
satisfactory completion of testing operations of the initial TCS-1 System (see
"Products and Services" below).
The Scrap Tire Disposal Business
Overview
If both this Private Placement and the RPM Offering are successfully
completed, the Company expects to complete the construction, and initiate
testing, the first production model of its proprietary cryogenic scrap tire
disintegration system (the "TCS-1 System") before the end of 1997. It intends
immediately thereafter to initiate full scale marketing and manufacturing
operations. The TCS-1 System comprises a complete, turn-key, environmentally
safe, cryogenic tire disintegration system designed to: (i) disintegrate scrap
tires, using substantially less energy than is required by existing ambient
methods (which shred and/or chop tires at "ambient" or normal room temperatures)
or other currently available cryogenic methods (which reduce the temperature of
the materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
Scrap Tire Disposal Problems and Development of New Uses for Scrap Tires
The Company's management believes that there is a need to find alternatives
to conventional methods for disposing of the vast amounts of solid waste which
are continually being dumped into fast disappearing land-fill space or burnt in
incinerators. Even though scrap tires represent only about 1.2% of the total
tonnage of solid waste annually produced in North America, the disposal of scrap
tire can pose serious environmental problem. Among the numerous problems
relating to landfilling or stockpiling scrap tires, is the fact that whole tires
cannot be successfully buried in landfills because the combination of their
size, configuration, and weight causes buried tires eventually to work their way
up to the surface. Moreover, when stockpiled above ground, tires can create
serious fire, public health, and environmental hazards ranging from dump fires
which generate large and dense clouds of black smoke and are very difficult to
extinguish, to the creation of vast breeding grounds for mosquitoes and vermin.
According to the Scrap Tire Management Council ("STMC") "Scrap Tire Use/Disposal
Study - 1996 Update", current estimates for scrap tire stockpiles run from
approximately 700 million to 800 million, which would correspond to a tire-to
person ratio in the United States of America between 2.5 and 3.0.
As a result, many states have either passed or have pending legislation
regarding discarded tires, including legislation limiting the dumping of used
tires to specifically designated areas. Also in recognition of the serious
environmental problems created by discarded tires, there has been a shift from
the dumping or landfilling of waste tires to development of various market
applications. According to the STMC, there are currently three major markets for
scrap tires:
(a) using scrap tires as "tire derived fuel" or "TDF" which comprises
burning the tires, either whole or after reduction to approximately
two inch chips;
(b) exporting scrap tires for refitting and re-use as tires; and
(c) disintegrating scrap tires into their components (rubber, steel wire,
and fiber) and recycling the salvageable steel and rubber into new
products;
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The STMC 1996 update report indicated that the largest use presently being
made of scrap tires is burning them as tire derived fuel. From 1994 to 1996,
this usage grew 50% to 152 million tires burned in 1996. The second largest use
of scrap tires was exporting them (15 million in 1996). But, while ground rubber
represented only the third largest use of scrap tires, the STMC study indicated
that this area enjoyed "the biggest surge" with an increase of "177% over 1994".
As a result, approximately 190 pounds of crumb rubber were produced in 1996 (vs.
69 million pounds in 1994) In addition, 210 million pounds of tire buffings (a
by-product from the retreading industry were also processed for an overall
market demand for size reduced rubber (crumb rubber and buffings) of around 400
million pounds at the end of 1996. A more detailed discussion is included.
The Company believes that modern waste disposal problems combined with the
considerable depletion of natural, non-renewable resources, such as raw material
used for tire manufacture, the decreasing availability of many cultivated raw
materials, and the resulting increases in the costs thereof, will make the
recycling of waste products such as used tires into reusable raw materials a
critical imperative for society and for the economy. The Company also believes,
however, that because present market conditions demonstrate that the capital and
operating costs of currently available tire recycling systems are high, and,
because of the inefficiency of the technologies being used, the by-products
therefrom, expensive to produce, that tire recycling will not be an economically
viable industry until such problems are addressed. The Company believes that the
TCS-1 System will successfully address these problems. The TCS-1 System has been
designed not only to cost less in terms of initial capital outlay required, but
to cut maintenance, operating, and energy costs drastically and to significantly
increase the quantity and quality of the by-products yielded by the recycling
process.
The Company believes that the advent of a greater and more dependable
supply of high quality rubber crumb could contribute to and encourage the
continuance of the kind of huge growth in the market for rubber crumb which is
currently occurring. Should the TCS-1 System be developed by the Company, the
Company hopes to participate in such market. (See "Potential Markets" below).
Products and Services
Proposed Product
The TCS-1 System
The TCS-1 System comprises a complete, turn-key, environmentally safe,
cryogenic tire disintegration system which incorporates proprietary
disintegration and cryogenic technology with established conventional mechanical
and technological techniques. While the TCS-1 System is still in the research
and development stage, substantial progress has been made during and since the
end of the fiscal year ended June 30, 1997 with initial engineering design and
development nearing completion. Construction of the first full scale production
model began in February of 1997 and is expected to be completed by the end of
1997. A three to six month test phase is scheduled to begin immediately upon
completion of such production model for the purpose of optimizing the
performance of the System and eliminating any problems which may arise under
operating conditions. This will also allow the Company to definitively test the
limits of the System's production capabilities.
The TCS-1 System is designed to: (i) disintegrate scrap tires, using
substantially less energy than is required by existing ambient methods (which
shred and/or chop tires at "ambient" or normal room temperatures) or other
currently available cryogenic methods (which reduce the temperature of the
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materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
The principle features of the TCS-1 System which management believes make
it superior to other existing tire recycling systems on the market today
include:
* A cooling process which management believes will substantially reduce
the cost of refrigerants.
* A multiple stage tire disintegration unit which: (i) will not subject
the tire to shredding or hammer-milling operations; (ii) will be
environmentally safe; and (iii) is capable of yielding rubber powder
in a wide range of particle size, a capability which Management
believes will enable it to meet a variety of market demands.
* The ability to produce steel, fiber cord, and rubber powder with only
insignificant intermingling.
* Highly efficient utilization of energy resulting in low energy
requirements and usage (more than 90% of the cold air generated will
be used to cool the tires).
* Low capital cost.
* Low maintenance requirements.
Construction and Design of the TCS-1 System
The functions and mechanisms of the proposed TCS-1 System have been
designed for the exclusive purpose of disintegrating automobile and truck tires,
which basically consist of the following elements:
* Two types of rubber. The sidewalls of tires are constructed of
material containing a higher percentage of natural, as opposed to
synthetic, rubber which is used in the treads. Management believes
that natural rubber, which is more flexible than synthetic rubber, is
capable of being reused in a significantly wider range of products
than is synthetic rubber. The TCS-1 System has been designed to take
advantage of these differences to produce a separate rubber powder
reclaimed exclusively from the sidewalls. Management believes that
such "sidewall" rubber powder will have a higher market value than
rubber produced today from a mixture of tread and sidewall rubber.
* Steel beads, which consist of steel wires tightly wound together to a
diameter of approximately 3/8 of an inch. These beads are imbedded
around the rims of the tire treads;
* Steel belting, which incorporates a thin layer of steel wires laid out
in a "herring bone" pattern and which underlies the entire surface of
the tread area, and
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* Fiber threads which are incorporated into the rubber used throughout
the tire.
The TCS-1 System will comprise four main sections consisting of separation,
cryogenic, disintegration, and product handling systems. An internal computer
will monitor all essential wear points as well as certain other aspects of the
System.
The principal feature of the TCS-1 System will be the Company's
proprietary, non-shredding disintegration mechanism which will, under cryogenic
conditions, disintegrate used tires into: (i) two types of rubber powder (rubber
from the sidewalls of the tire will be processed separately from the tread
rubber); (ii) steel wire sections; and (iii) fiber cord sections. The steel and
fiber yielded by the System will normally contain insignificant amounts of
rubber.
The basic components of the TCS-1 System will include:
(a) a tire preparation assembly which will remove the steel beads, clean
the tires, separate sidewalls from the tread, and cut both treads and
sidewalls;
(b) a refrigeration unit, approximately eight feet wide, sixteen feet
high, and 40 feet long;
(c) a completely enclosed cryogenic tire disintegration unit approximately
20 feet wide, 16 feet high and 40 feet long;
(d) two freezing chambers, each ten feet wide, twenty feet high, and
twelve feet long;
(e) a fiber baler used to bundle fibers into bales with steel bonds; and
(f) miscellaneous conveyors and fiber separation equipment
In April of 1997, the Company replaced its original, one-quarter scale
model with a new, larger sized (1/2 scale) working prototype of the TCS-1
System's proprietary disintegration unit. This scale model disintegration
mechanism will be used to run test operations to discover, identify, and cure
any problems which may arise, as well as to test the limits of the System's
productive capacity, under operating conditions. This will enable the Company's
engineering team to design and develop, under operating conditions, the
components of the disintegration mechanism for the full-scale production model
of the TCS- 1 System, which is presently under construction. The scale model
disintegration mechanism is also being used to produce rubber crumb for the
purpose of testing the nature, quality, and potential marketability thereof.
The foregoing production schedule may not be met unless the Company
completes and closes a Private Placement of its securities in an amount of not
less than $700,000. Any failure or delay in the Company's ability to obtain such
financing will be directly reflected in a commensurate delay or failure in the
completion of the construction, and the commencement of the testing, of the
production model.
Economy of Operation
The TCS-1 System has been designed to substantially reduce the amount of
energy and equipment maintenance required to disintegrate tires, to increase the
ease and efficiency of separating the steel, rubber, and fiber components of
tires, and to produce what Management believes will be more
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saleable and more highly valued by-products than are produced by other systems
currently available. Test operations indicate that the cost of disintegrating a
tire using the TCS-1 System will be about $.50 as compared with current tire
disintegration costs, using other technologies, of up to $2.00 per tire.
Additionally all of the end products which the TCS-1 System is designed to yield
are expected to be saleable
The TCS-1 System has been designed to operate continuously (with minimum
amounts of downtime for maintenance), and to consume approximately 650
horsepower operating at 460 volts, and is designed to require substantially less
energy than is used by presently existing equipment. TCS-1 System will be able
to process both automobile and truck tires in quantities equivalent to 180
automobile tires per hour, or 1,000,000 automobile tires per year.
Projected Functions, Operations, and Capabilities
The following discussion of the functions, operations, and capabilities of
the TCS-1 System are based upon engineering design plans and specifications and
test operations of: (i) the 1/2 scale prototype disintegration mechanism; (ii)
the automated front-end system; and (iii) various other components of the System
which have already been completed and tested separately. This discussion also
assumes that the System, when complete and fully integrated, will function as
planned, of which there can be no assurance. However, because the TCS-1 System
is still in the development stage, the Company cannot, as at the date hereof,
guaranty how long after the completion of the first full-scale production model,
if ever, the System will perform fully in accordance with Management's
expectations.
Step-by-Step Operations
The projected step-by step operations of the TCS-1 System will encompass
the following:
(a) The two sidewalls will be cut off and the tread will be cut into
lengths of about one foot. (The sidewalls will be kept separate from
the tread sections throughout the process).
(b) The two steel beads which are contained within each tire will be
pulled out;
(c) Sidewall and tread sections will automatically be placed onto separate
conveying systems which will then feed them into the TCS-1 System's
freezing chambers through separate air locks. The temperature of the
air within the freezing chambers will be kept at approximately 170
degrees below zero by constant recirculation through a refrigeration
unit. The sidewall and tread sections will remain within the freezing
chambers until they are cooled to a point between 90 and 100 degrees
below zero (fahrenheit).
(d) The frozen sections will then pass through proprietary disintegrators
where the sidewall and tread rubber will be reduced to two separate
coarse powders. This operation will not involve any chopping,
shredding, or hammer-milling. Therefore, the steel wires will not be
cut or broken. Furthermore, although the fiber threads may be broken
into shorter lengths, they will still retain their basic shapes and
characteristics. No steel powder or fiber fluff will be produced.
(e) The steel wires will be magnetically removed from the rubber powders.
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(f) The fiber and rubber powder will be passed through screens to separate
the powder from the fiber threads. The fiber threads will then be
conveyed out of the machine to a fiber baler.
(g) The rubber powders will then be conveyed out of the TCS-1 System.
(h) 100% of the rubber powders yielded by the TCS-1 System will pass
through a ten mesh screen. Supplementary grinders will be supplied for
customers desiring finer powders which can pass through 40 mesh or 80
mesh screens.
Comparison of the Projected TCS-1 System
With Other, Existing Tire Recycling Equipment
There are two types of tire disintegration processes in use today which
produce rubber powder, normally referred to as "crumb": (i) cryogenic systems
and (ii) "ambient" systems. Management believes that the TCS-1 System will have
the distinct advantages over existing systems, as set forth in the comparisons
below. All references to "existing conventional cryogenic and ambient systems"
are to technologies which are widely available and known throughout the
industry. Such technologies include all mechanical, commercially feasible tire
disintegration systems of which the Company has knowledge. There can be no
assurance however that one or more new technologies, or improvements to existing
technologies, presently unknown to management, has not, or in the near future,
will not, become available. While it is conceivable that new technological
breakthroughs could provide benefits and advantages equal to or exceeding those
of the projected TCS-1 System, at this time, the Company is not aware of any
such tire disintegration system or technology.
Existing Conventional
Cryogenic and Ambient
Systems
Methods
Except for a small number of recyclers who remove the steel beads first, most
conventional cryogenic and ambient systems used today to produce rubber crumb,
feed whole tires into chopping, shredding, grinding, or pulverizing mechanisms,
or a combination of any two or more of such mechanisms. Because the entire tire
is subject to these operations, the steel which makes up the beads as well as
the steel wires embedded in the belting and the fiber components of the tire are
also chopped, shredded, and ground. In both conventional cryogenic and ambient
systems, this initial chopping and shredding is effected at ambient temperatures
(normal climatic conditions). Tires, however, are designed to be tough and
durable at these temperatures. The difficulty in chopping or shredding the tires
at these
Projected
TCS-1
System
Methods
The projected TCS-1 System will be designed to remove and salvage the steel
beads of the tire before any other operation is commenced. Disintegration of the
tire will be accomplished solely by the exertion of pressure, in a proprietary
manner, on frozen rubber. This disintegration process will take place only after
the tire sections have been cooled to a temperature between 90 and 100 degrees
below zero, fahrenheit, at which point the material will take on a glass-like
brittleness. At no point in the process will the steel or fiber components be
subjected to any chopping, shredding, grinding, or pulverizing procedures which
would destroy the basic integrity of their respective wire-like and cord-like
configurations.
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temperatures is compounded by the fact that all of the steel in the tire is also
being chopped and shredded.
Equipment, Energy and
Maintenance Requirements
Because of the toughness of rubber at ambient temperatures and the fact that
steel, as well as the rubber and fiber, are being chopped or shredded, very
large and powerful equipment and the application of substantial amounts of
energy are required to tear tires apart using conventional cryogenic or ambient
systems. Moreover, since tires are so tough and durable, they have to be
shredded in stages. The stages typically include: (i) initial shredding to
reduce the tire to strips of about 2 x 6 inches; (ii) a second shredding to
reduce such strips to pieces approximately 1 x 2 inches in size; (iii) a third
stage which further reduces the material to pieces of approximately 1/8 to 1/2
inches in size; and a fourth shredding operation which yields a coarse powder.
The foregoing shredding operations will consume a total of approximately one
thousand horsepower or more. Because of the foregoing requirements, the
machinery which is used to construct conventional cryogenic or ambient systems
has more bulk than the TCS-1 System. Moreover, there is great wear and tear on
the cutting edges of the chopping and shredding mechanisms which causes the
cutting edge to require constant maintenance, repair, and blade replacement.
Cooling Techniques
As discussed below, conventional cryogenic systems use liquid nitrogen to cool
the rubber before subjecting it to knife or hammer-mill operations. Liquid
nitrogen is an expensive coolant and none of the systems with which Management
is acquainted make any attempt to recycle any of the cold energy generated
thereby.
Equipment, Energy and
Maintenance Requirements
The projected TCS-1 System is designed to remove the steel beads from the tires
before any disintegration process commences. Additionally, the rubber will be in
an extremely brittle and easy to break condition during the disintegration
process. Therefore, the equipment required to break down the tires will be
considerably smaller and lighter, and the energy requirements will be
drastically lower than those required by conventional cryogenic or ambient
systems in use today. The TCS-1 System will be comparatively light in terms of
bulk and weight. Moreover, the TCS-1 System will have no shredding or chopping
surfaces that would require continuous sharpening and repairing. This will
result in an additional significant reduction in maintenance expenses.
Cooling Techniques
The TCS-1 System will be designed to use mechanical refrigeration to cool the
tires to the required temperatures. Mechanical refrigeration is normally less
expensive to use than liquid nitrogen and the Company expects this to further
reduce operating costs. Moreover, unlike conventional cryogenic systems which do
not attempt to recover the cold energy from the rubber powder, the TCS-1 System
has been designed to use 90% of the available cold energy to reduce the
temperature of tires entering the system. A specialized cooling chamber makes
this possible.
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Costs and Expenses
As a result of the foregoing, initial capital outlays for the equipment and
continuing energy and maintenance costs are high.
Problems Associated With Tire Disintegration
Methods In Current Use.
The initial operations described above will chop or shred a complete tire until
it is reduced to chips ranging in size from about 2 x 2 inches to 2 x 6 inches.
These chips can be used as "TDF" (tire derived fuel") and possibly as fill to
assist drainage. Unless destined for these limited uses, the chips are normally
then fed into a second shredder which reduces them to 1 x 1 inch or 1 x 2 inch
pieces. They are then fed into a knife or hammer-mill where they are reduced to
rubber "crumb" consisting of particles of rubber, approximately 1/8 to 1/2 inch
in size. At this point, some of the steel will have been broken into small
pieces of wire, free of rubber, but much of the steel will remain embedded in
the rubber pieces. In addition, since the fiber will have been subject to the
chopping, shredding, and/or pulverizing operations, much of it will have been
broken, and its thread or cord-like configuration destroyed. The broken,
pulverized fibers will have formed a "fluff" which entraps and holds both rubber
and steel particles.
In order for this crumb to be useable, the steel will have to be separated and
removed. The use of strong magnets removes the free steel pieces, but such
magnets also remove all of the rubber particles in which the rest of the steel
is embedded, resulting in a loss of up to 15% of the rubber.
To avoid losing the substantial amounts of steelbearing rubber which were
magnetically removed, and to obtain a finer crumb (the coarse crumb has very few
uses), the crumb must be subjected to a second re-grinding, which may or may not
be cryogenic. This is normally done in a knife mill capable of disintegrating
the crumb into smaller particles or in a hammer-mill.
Costs and Expenses
The foregoing is expected to result in significantly smaller initial capital
requirements and drastically lower continuing energy and maintenance costs.
Avoidance of Problems Associated With Tire
Disintegration Methods in Current Use.
The proposed TCS-1 System has been designed to avoid the problems described
opposite which arise out of current tire disintegration methods by insuring that
the steel and fiber components of the tire are not subjected, at any time, to
chopping, shredding, or hammer or knife-milling operations which destroy the
integrity of the wire or cord-like configurations of the steel and fiber. This
is expected to prevent the creation of steel powder and fiber fluff.
Disintegration will be accomplished solely through the exertion of pressure. The
TCS-1 System disintegration process is not expected to break the steel wires or
to affect their integrity in any way. Based upon performance tests of the TCS-1
System's proprietary disintegration mechanism, the Company expects that the
TCS-1 System's ability to prevent the creation of steel powder will result in
easy and efficient separation and removal of the steel by magnetic means,
without the substantial loss of rubber powder which occurs with the methods
described opposite.
The fiber, which will not lose its thread or cordlike configuration, will be
broken in the disintegration process into lengths of from 1/2 to 4 inches.
Rubber that is attached to the fiber creates a saleable product with unique
properties. Furthermore, tests indicate that, in this form, the fiber can be
easily separated from the rubber crumb by passing it through wire mesh screens.
The salvaged steel wire pieces and fiber threads will be useable and saleable.
Based on the foregoing and on test results, Management believes that: (i) the
rubber powder yielded by the TCS-1 System will contain only an insignificant
amount of fiber and steel; (ii) wastage of salvageable rubber powder will be
reduced from the approximately 30% associated
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In using a hammer or knife-mill for this operation, however, the following
problems arise: (i) running at an efficient speed, the fiber fluff (which is
contained in the rubber crumb) may clog the mechanism; and (ii) the action of
the hammer or knife-mill will heat the rubber to the point where it will become
so soft that instead of being pulverized into a powder, it will simply be
softened and mashed and thereby will further clog the mechanism.
To avoid these problems, the hammer or knifemilling operations can be conducted
at low feed rates, which will reduce the foregoing problems, but which may not
be economically feasible. Conventional cryogenic systems deal with this problem
by using liquid nitrogen to cool the previously chopped and shredded material
before feeding it into the hammer or knife-mill. Some ambient systems do not
freeze the rubber, but instead inject liquid nitrogen directly into the mill to
keep the rubber from softening.
Knife-milling or hammer-milling operations will create further problems because
all of the fiber and steel, which is mixed in with the rubber crumb, will have
been ground up and pulverized along with the rubber, with the following results:
(i) the steel components of the tires will have been ground or pulverized into a
fine powder, which cannot be allowed to remain as a contaminant in the rubber
powder if the rubber is to have any economic value. The steel must therefore be
removed magnetically. However, the fine steel powder will be thoroughly mixed in
with the rubber powder, the magnetic action which is meant to pull out the
minute particles of steel, will necessarily also draw out substantial amounts of
the surrounding rubber particles. Losses of rubber powder resulting from the
magnetic removal of the steel powder are estimated to amount to approximately
15% of the total rubber powder produced. Such wastage adds substantially to the
cost of useable product yielded by these systems. The steel powder is not
useable for any purpose and has no economic value. It must be transported and
deposited in landfills which again adds to the cost of any useable product
produced. (ii) The thread or cord-like configuration of the fiber will have been
disintegrated into the cotton-like "fluff"
with the use of conventional cryogenic or ambient systems to an estimated 3%.
(iii) instead of unusable steel powder and fiber fluff, which recyclers must pay
to have hauled away and deposited in landfills, the TCS-1 System will yield
clean useable, and saleable reclaimed steel and fiber as well as two types of
rubber powder containing only insignificant amounts of fiber and steel.
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described above. This fluff will attract and hold significant amounts of the
powdered rubber and steel. Separation of the steel and rubber particles from the
fiber fluff is nearly impossible because the fine particles are trapped in the
entangling strands and adhere to them. It is estimated that up to 15% of the
rubber powder will be trapped in the fiber fluff and drawn out with it. The
fluff has no current economic value and actually constitutes a liability because
it must be transported and disposed of, usually as landfill.
The wastage of up to 15% of the rubber powder, which results from losing the
rubber which is trapped in the fiber fluff, together with the additional 15% of
the rubber powder which clings to the pulverized steel particles when they are
removed magnetically, brings total losses of rubber powder to approximately 30%,
which is reflected in a concomitant increase in the cost of the product
produced.
Recovery Ratio
Current shredding operations recover on average twelve pounds, representing 75%,
of the rubber contained in every twenty pound tire. All of the fiber and steel,
and the balance of the rubber components of each tire are, in most cases, not
reclaimed, for the reasons described above. The result is a loss of
approximately eight pounds of unrecovered, unrecycled rubber, steel, and fiber,
representing 40% of the constituent materials of the tire, which must be
transported and disposed of in landfills or other solid waste disposal
facilities.
Recovery Ratio
For the reasons described above, and based on performance tests of the scale
model prototype of the TCS-1 System's proprietary disintegration mechanism,
Management expects that almost all of the rubber, steel, and fiber components of
the tire will be recovered in useable and saleable condition.
Production and Supply
The Company has been engaged in designing and developing, and intends
within the current fiscal year to begin manufacturing, on a commercial basis,
its proprietary cryogenic tire disintegration system, referred to herein as the
"TCS-1 System". The Company's activities to date have focused on the design and
creation of the TCS-1 System. In connection with these activities, the Company
has been dependent on arrangements with its subcontractors for the manufacture
and assembly of the principal components incorporated into the TCS-1 System (see
"Agreements With Subcontractors", below).
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If the Company is able to raise sufficient funding and if no presently
unforeseen problems with the technology develop, the Company expects to commence
manufacturing the TCS-1 System on a commercial basis prior to the end of 1997.
The Company intends to continue to effect all TCS-1 System manufacturing
operations through its subcontractors. It will therefore be substantially
dependent on the ability of such subcontractors to satisfy performance and
quality specifications and to dedicate sufficient production capacity for all
TCS-1 System scheduled delivery dates. The Company believes that all of its
subcontractors have the requisite manufacturing capabilities and the willingness
to dedicate sufficient amounts of their manufacturing capacity to allow the
Company to meet all TCS-1 System delivery dates, currently scheduled or expected
to be scheduled for not less than the next two years. However, no assurance can
be given that this will in fact be the case and failure on the part of the
Company's subcontractors in these regards would adversely affect the Company's
ability to manufacture and deliver TCS-1 Systems on a timely and competitive
basis. In such event the Company would have to replace or supplement its present
subcontractors. There can be no assurance that should it be necessary to do so,
the Company would be able to find capable replacements for its subcontractors on
a timely basis and on terms beneficial to the Company, if at all; The Company's
inability to do so would have a material adverse effect on its business.
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
Agreements With Subcontractors
The Company has entered into agreements with three machinery
manufacturing, engineering and designing firms located in Quebec. Two of such
firms have accepted unregistered and restricted shares of Company's Common Stock
in payment of part of their fees. The following is a discussion of the principal
terms of the subcontractor agreements:
Agreement with Fedico, Inc.
In January of 1997, the Company entered into an agreement (the "Fedico
Agreement") with Fedico, Inc. of St-Hubert, Quebec ("Fedico"), a machinery
design firm located in Quebec. Prior thereto, Fedico had provided consulting and
other design engineering services to the Company since the spring of 1996.
Pursuant to the terms of the Fedico Agreement, Fedico will act as the project
leader, guiding the over-all design and engineering of the TCS-1 System. In
addition to supervising the over-all assembly and start-up procedures of the
first full-scale production model of the TCS-1 System, Fedico will design,
engineer, and fabricate certain peripheral equipment. The term of the Fedico
Agreement is for seven years, retroactively effective as of September, 1996.
The Agreement provides further that Fedico will:
(a) collaborate with the Company on development of initial specification
requirements, by way of: (i) researching and evaluating the
available applicable technologies; (ii) conceptualizing designs
concepts; (iii) preparing preliminary layout drawings of each
component and of the integration thereof into the TCS-1 System;
(b) prepare detailed preliminary layout designs of each element of the
TCS-1 System;
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(c) prepare detailed drawings of each element of the TCS-1 System and
prepare the "bill of materials" which is a complete list of all
components of the System;
(d) be present or available, during the assembly of the TCS-1 System to
correct any problems that may arise;
(e) be present or available during start-up procedures upon completion
of the assembly of the TCS-1 System and correct any problems that
arise during the course of such procedures;
(f) upon commencement of satisfactory operation of the TCS-1 System,
revise all drawings to produce complete, final, "as-built" designs
and prepare a documentation package for the facilitation of the
operation and maintenance of the System.
The Fedico Agreement also provides for the retention of Fedico for a
minimum of five hundred hours per year during the course of such agreement at
reasonable, competitive hourly rates for technicians, draftsmen, and
intermediate engineers, with overtime, on-site services, and travel expenses at
prevailing market rates. The terms of the Fedico Agreement are substantially as
set forth in detail in the Company's annual report on Form 10-KSB for the year
ended June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product Proposed Agreement
with Fedico, Inc.".
Agreement with Lefebvre Freres Limitee
In January of 1997, the Company entered into an agreement (the "Lefebvre
Agreement") with Lefebvre Freres Limitee ("Lefebvre"), a subsidiary of Lefebvre
Inc., of Montreal, Quebec. Lefebvre, specializes in custom design and
fabrication of industrial machinery. With its sister companies, Foresteel
(specializing in pressure vessels and welding) and Atelier D'Usinage Trempe
(specializing in high precision machining), Lefebvre is widely recognized for
its extensive experience and expertise in designing and constructing equipment
used in the pulp and paper, metallurgy, fiber, power generation, and many other
industries. Lefebvre had been providing the Company with design consulting and
other valuable design engineering services to the Company since the spring of
1996. In recognition of services rendered by Lefebvre prior to the finalization
of the Lefebvre Agreement, it was made retroactively effective as of July 23,
1996. Services provided by Lefebvre prior to January 1997 included the
completion of the initial design specifications for the TCS-1 System's
Disintegration Unit Assembly.
Under the terms of the Lefebvre Agreement, Lefebvre was retained to design
and construct a prototype disintegration unit for the TCS-1 System at
competitive rates. Lefebvre agreed to accept payment of approximately one-third
of its price for the foregoing in 340,160 unregistered shares of the common
stock of the Company. The stock portion of such price was issued to Lefebvre on
January 17, 1997. Prior to such date, that part of the design work on the
disintegration system, which was allocated to the stock portion of the purchase
price, had been completed.
The terms of the Lefebvre Agreement are substantially as set forth in
detail in the Company's annual report on Form 10-KSB for the year ended June 30,
1996. For further details, reference is made to the discussion contained in Item
I of the 1996 10-K under "Proposed Product - Proposed Agreement with Lefebvre
Freres Limitee".
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Agreement with Plasti-Systemes, Inc.
In January of 1997, the Company entered into an agreement (the
"Plasti-Systemes Agreement") with Plasti-Systemes, Inc. ("Plasti-Systemes") of
Ville D'Anjou Quebec. Prior to that date, Plasti-Systemes had been providing
consulting services respecting the design, construction, and installation of the
"front-end" of the TCS-1 System under agreed upon terms, but without a written
agreement. The PlastiSystemes Agreement provides for Plasti-Systemes to design
(including rendering of all necessary engineering drawings), construct, and
install the "front-end" of the TCS-1 System. The Front End System will consist
of a series of mechanisms which will automatically, at the rate of three tires
per minute: (i) clean and debead the tires; (ii) separate the sidewalls from the
treads; (iii) cut both sidewalls and treads into sections ready for processing;
and (iv) transport the beads and tire sections into separate areas for disposal
or processing.
The Plasti-Systemes Agreement, which was made retroactively effective as
of October 16, 1996, covers mechanical work and equipment. Plasti-Systemes
agreed to accept payment of 26% of its total price for the foregoing 255,010
unregistered shares of the common stock of the Company. The stock portion of
such price was issued to Plasti-Systemes on January 17, 1997. Prior to such
date, that part of the design and engineering work on the front-end system,
which was allocated to the stock portion of the purchase price, had been
completed. The terms of the Plasti-Systemes Agreement are substantially as set
forth in detail in the Company's annual report on Form 10-KSB for the year ended
June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product - Proposed
Agreement with Plasti-Systemes, Inc.".
Proposed Services
TCS-1 System Maintenance:
Technical and Market Support
The Company requires all of its TCS-1 System purchasers to agree to enter
into a Maintenance and Technical and Market Support Agreement (the "Proposed
Maintenance Agreements"). In connection therewith the Company intends to provide
timely, high quality technical support to insure that the TCS-1 System will
perform in conformance with its specifications. Until the test phase of the
first production sized model of the TCS-1 System is completed, the Company will
be unable to finalize the definitive parameters of the services which it intends
to offer under the Proposed Maintenance Agreements. Currently proposed plans
call for the Company, or the Company's designated service provider, to provide,
or be responsible for, all technical and other labor necessary for the
maintenance of the TCS-1 System at a performance level capable of disintegrating
the equivalent of one million automobile tires per year on a twenty-four hour
per day, three hundred sixty-five day per year basis, in accordance with an
operations and performance specifications manual to be furnished to the
customer.
The Proposed Maintenance Agreements are expected to require the Company to
provide (i) regularly scheduled on-site preventive maintenance including but not
be limited to inspection and assessment of wear factors affecting all
constituent components of the System and determination and effectuation of
replacement and/or recalibration requirements and (ii) unscheduled remedial
maintenance, on an as needed basis. Other responsibilities which the Company, or
its authorized service provider, are intended to assume under the Proposed
Maintenance Agreements will include: (i) providing and maintaining computerized
equipment to monitor and document the performance by the operator of the TCS-1
System of all routine maintenance procedures; (ii) reviewing the data retrieved
thereby on a monthly, or more frequent, basis; (iii) immediately advising the
operator of any improper performance of
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any of such Procedures; (iv) providing remedial instructions to the Operator's
personnel with respect to the proper performance of certain routine maintenance
procedures to be performed by the TCS-1 System Operator, and; (v) upon request
of the Operator, re-training its personnel. The Proposed Maintenance Agreements
are intended also to provide that the Company, or its authorized service
provider, will provide an initial training period for the operator's personnel
as well as continuing training, seminars and updates, on an as needed basis.
The Proposed Maintenance Agreements are also intended to provide for
additional technical and market support including Pre-Operational Support by way
of, among other things: (i) assistance to the Operator with respect to
procedures and requirements related to obtaining all licenses, permits, and
other requirements for the establishment and operation of a TCS-1 System Plant,
including the development, documentation, and furnishing of all required
technical, environmental, operational, and other information and data; (ii)
instructions and assistance with respect to all applicable federal, state, and
local regulations and requirements respecting the preparation of the site and
the installation and operation of a TCS-1 System at the site.
In addition, the Proposed Maintenance Agreements will require that the
Company, or its authorized service provider establish and maintain laboratory
facilities at which they shall:
(a) test and monitor the quality and properties of the rubber crumb
produced by the TCS-1 System, including but not limited to: (i)
total production rates (ii) the comparative percentages of various
crumb rubber mesh sizes produced, and (iii) wear factors existing or
developing in the disintegration mechanisms, so as to generate a
continual data base for the anticipation and determination of the
maintenance, remediation, and recalibration requirements of the
disintegration mechanisms and all other constituent components of
the System under actual operating conditions;
(b) test and monitor, on a continuing basis, oil samples from the TCS-1
System so as to ascertain and monitor the wear factors on the
bearings and on other components of the System;
(c) record and maintain all test data and records for the TCS-1 System
in a monthly log to be furnished to the operator at regular
intervals on a monthly basis, or on request by the operator, and be
available to the Operator at all times to discuss the meaning and
significance of all test results and any remedial or other actions
which such data indicate is necessary or advisable;
(d) creating and developing new products and uses for rubber crumb
produced by the TCS-1 System.
It is intended that the Company, or its authorized service provider will
also be responsible for certain accounting and record keeping services,
including providing accounting software to monitor the operations and output of
the TCS-1 System. It is intended that the Proposed Maintenance Agreements will
also impose obligations upon the Company, or its authorized service providers to
stock replacement parts for the TCS-1 System in order to minimize any
interruptions in the continual operation of the System.
The monthly maintenance fee for all services to be provided by the
Company, or its authorized service provider under the Proposed Maintenance
Agreements is presently expected to be $9,500 per month.
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Negotiations With Proposed Service Provider
The Company is presently negotiating with Louis Sanzaro ("Sanzaro"), a
director of the Company and the controlling person of the two entities
(Ocean/Ventures III, Inc. and Oceans Tire Recycling & Processing Co., Inc.)
which have ordered nine of the ten TCS-1 Systems presently on order, to organize
and operate a maintenance company capable of serving as the Company's authorized
service provider and meeting all of the above described responsibilities. Mr.
Sanzaro has worked closely with the Company on the development of the TCS-1
System and the proposed maintenance and technical support program. Mr. Sanzaro
is a highly respected, knowledgeable, and experienced operator of recycling
organizations in New Jersey and the Company believes that he is eminently
qualified to organize and head its maintenance and technical support effort.
While the parties have not yet entered into an agreement respecting the terms
under which Mr. Sanzaro or an organization under his control will direct the
Company's maintenance services, they are currently in negotiations respecting
such arrangements. Currently, however, the Company expects that the service
provider to be organized and operated by Mr. Sanzaro will be paid a flat fee of
$4,000 per month to cover all of the services described above. The service
provider is also expected to furnish, at no additional cost, all equipment
necessary to effect the provision of such services.
Proposed Tire Shredding Operations
The Company has taken preliminary steps to enter a new related business
segment. Plans for these proposed operations include on-site scrap tire
shredding operations in Quebec under a five-year, government sponsored stockpile
abatement program (the "Quebec Program") which will fund the clean-up of scrap
tire stockpiles at the rate of Cdn $1.00 (approximately $0.72 U.S., at current
exchange rates) for every tire recycled and removed. In connection therewith,
the Company is presently engaged in negotiations with CG TIRE, Inc. ("CGT"), a
wholly owned subsidiary of Continental General Tire Inc. ("General Tire")(4) and
Recyc-Quebec, the Canadian government agency involved in designing and managing
the Quebec Used Tire Program. According to Recyc-Quebec, there could be more
than 30 millions tires accumulated in about 40 stockpiles in the province of
Quebec. As it is always the case for stockpile estimates in North America
however, these numbers are only approximate.
In order to qualify to participate in the Quebec Program and receive the
Cdn $1.00 per tire payment, recycling operations must take place in Quebec and
must be effected by a recycling company located in Quebec. The Company is
located in Quebec and it has been advised by Recyc-Quebec that the on-site
shredding operations which the Company proposes to conduct will qualify as a
"recycling activity" for purposes of the Quebec Program. The Company is seeking
a long-term commitment from the Quebec government for a total of Cdn $20,000,000
(approximately $14,400,000 U.S., at current exchange rates) to be allocated to
tipping fees of Cdn $1.00 per tire for the Company. In connection therewith,
meetings have been held and discussions have occurred by and among the Company,
CGT, Mr. Bernard Landry (the Vice-Premier of Quebec), and Mr. Albert Leblanc
(the President of Recyc-Quebec). While the Company is reasonably optimistic
about the outcome of such meetings and discussions, it is unable to give any
assurance that it will in fact be successful in obtaining the firm commitment
from the government which it will require in order to commence operations in
this area. Moreover, even if the Company is able to move forward with this
project, there can be no assurance at this time that it will be profitable.
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(4) General Tire is the fourth largest tire manufacturer in the world. It has
denominated CG TIRE, Inc. as "The Continental General Tire Recycling Effort"
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The Company is currently negotiating the terms of an agreement with CGT
which, while not finalized, presently contemplates that: (i) CGT would be
obligated to accept, for a tipping fee of Cdn $0.25 (approximately $0.18 U.S.)
per tire to be paid to CGT, up to 4 million tires per year in 2 inch chips; (ii)
The Company would be responsible for delivery of the tires to CGT in North
Carolina, in accordance with an agreed upon schedule and other terms. Current
plans contemplate that the Company would be responsible for acquiring the tires
from various Quebec stockpile owners, reducing the whole tires into 2" X 2"
chips with mobile shredders, and removing the tire chips from the sites by means
of truck transportation to a train off-loading facility in Quebec for transport
by train to CGT's facility near Charlotte, North Carolina.
On August 12, 1997, the Company entered into an agreement with Mr. Richard
Grenier (the "Grenier Agreement") for the purchase of approximately 4.5 million
scrap tires presently owned by Mr. Grenier and stockpiled on his property in
St-Jean-Chrystostome, Quebec, for an aggregate purchase price of Cdn $175,000
(approximately $126,000 U.S., or $0.028 per tire, at current exchange rates).
Payment terms required a nonrefundable downpayment of Cdn $15,000 (approximately
$10,800 U.S. at current exchange rates) upon execution, with the balance payable
at the closing of the Grenier Agreement, which must take place on or before
October 31, 1997. The Grenier Agreement also provides that the Company will have
access to the property on which the tires are stockpiled and will be permitted
to conduct the shredding of the tires thereat. The Company will acquire only the
tire inventory and not the land on which it is stored nor any piece of equipment
situated thereon. The Company is currently in negotiations, and has received a
letter of intent from, the owner of another Quebec stockpile (the "Ganby
Stockpile") of approximately 500,000 tires, to acquire such tires free of
charge. In addition the Company is engaged in negotiations with the owner of the
largest scrap tire stockpile in Quebec (the "Franklin Stockpile"), located in
Franklin, just a few miles north of the NY State border, to secure supply for up
to 25 million additional tires. The Company is unable to state at this time
whether it will be able to close on the Grenier Agreement within the required
time period or what the eventual outcome of its negotiations respecting the
Ganby and Franklin Stockpiles will be.
The Company has retained Avery de Billy, a Montreal law firm specializing
in environmental law, to advise it with respect to any environmental liabilities
which the Company may incur in connection with these proposed operations and to
assist the Company with meeting all regulatory requirements and standards and
obtaining all permits and legal certificates required in connection therewith.
Sales and Marketing
Sales
The O/V III Agreements
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III, Inc.("O/V III")
of Toms River, New Jersey ("O/V III"). This agreement modified the terms of, and
replaced, a prior agreement between the parties dated June 6, 1995 (the "Prior
O/V III Agreement").(5) O/V III is under common ownership and control with the
solid
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(5) Reference is made to the detailed discussion of the terms of the Prior O/V
III Agreement included in the subtopic "Sales and Marketing" under the caption,
"The O/V III Agreements" in Item I of the Company's annual report of Form 10-KSB
for the fiscal year ended June 30, 1996, attached as an Exhibit hereto.
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waste recycling firm, Ocean County Recycling Center, Inc. Under the terms of the
L&P Agreement, O/V III Agreement, O/V III will purchase and lease the various
components which comprise the constituent parts of the TCS-1 System. The
Agreement provides for lease and purchase arrangements for eight Systems at an
aggregate lease and purchase price of three million dollars ($3,000,000) each.
Pursuant to the terms of the O/V III Agreement, certain non-proprietary
equipment (the "NonProprietary Equipment") will be purchased by O/V III for a
total purchase price of $2,250,000. Such equipment includes, but may not be
limited to: (i) all bailing systems contained in the TCS-1 System, including all
associated ancillary equipment and conveyance and exit belts, chutes and/or
other components combined or integrated therewith, and (ii) freezing chambers
and cryogenic systems.
The other constituent components of the TCS-1 System comprise equipment
which is proprietary to the Company (the "Proprietary Equipment"). Such
Proprietary Equipment is, under the terms of the O/V III L&P Agreement, subject
to a five year operating lease, with monthly lease payments of $12,500 each. The
Proprietary Equipment consists of (i) the disintegration system including but
not limited to all grinders contained therein, and (ii) the separation systems,
including but not limited to: (a) a magnetic separator; (b) a fiber/crumb
separator; (c) fiber collector; (d) crumb rubber sizing system; and (e) all
integrated conveyance and exit belts, chutes, and other components.
The O/V III L&P Agreement calls for the delivery of the first System by
October 1998, with seven additional Systems scheduled for delivery every three
months thereafter, through July 2000. The Agreement requires a downpayment of
$25,000 for each System to be paid not less than fourteen months prior to the
anticipated delivery date. In an effort to assist the Company at this early
stage of its development, to date, O/V III has prepaid $25,000 down payments on
five Systems. Other payment terms for each of the eight systems subject to the
O/V III L&P Agreement, call for a $50,000 payment six months prior to the
anticipated delivery, an additional $100,000 to be paid three months prior to
the anticipated delivery date, and $1,825,000 on O/V III's acceptance of the
System.
Pursuant to the terms of the L&P Agreement, O/V III also entered into
certain ancillary agreements with the Company, consisting of the following:
(a) a royalty agreement (the "Royalty Agreement") pursuant to which O/V
III will pay the Company a royalty of three percent (3%) of the
gross proceeds from all sales of rubber crumb fiber and steel from
scrap tires disintegrated through the utilization of the TCS-1
System;
(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the Company and
option to purchase up to 40% of the rubber crumb, yielded by the
disintegration of scrap tires in the TCS-1 System, at negotiated
prices. The Company is currently exploring the feasibility of
vertically integrating its operations so as to include the rubber
crumb brokerage business and/or the value-added rubber crumb product
development business. It obtained the rubber crumb purchase option
in connection with the foregoing.
The parties also agreed that they would enter into a maintenance and
technical support agreement (the "Maintenance and Technical Support Agreement")
pursuant to which the Company or its designated service provider ("Service
Provider") will provide or be responsible for all technical and other labor
necessary for the maintenance of the TCS-1 System at a performance level capable
of disintegrating the equivalent of one million automobile tires per year on a
twenty-four hour per day, three hundred sixty-five day per year basis. Services
to be provided shall include but not be limited to the following: (i) regularly
scheduled on-site preventive maintenance, which shall include but not be limited
to inspection and
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assessment of wear factors affecting all constituent components of the System
and determination and effectuation of replacement and/or recalibration
requirements, and (ii) unscheduled remedial maintenance, on an as needed basis.
Both scheduled and unscheduled service maintenance will include adjustments and
replacement of parts, as deemed necessary by the Service Provider. The Company
is presently in negotiations with Louis Sanzaro, a principal of O/V III, with
respect to the possibility of Mr. Sanzaro's establishing an equipment
maintenance company to serve as the Company's Service Provider for all Systems
sold by the Company, including but not limiting to the eight Systems to be
purchased by O/V III;
Agreements with Oceans Tire Recycling & Processing Co., Inc.
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a New Jersey corporation under common control with O/V III.
Pursuant to the OTRP L&P Agreement, OTRP will purchase the first production
model TCS-1 System. Under the terms of the Agreement, the anticipated delivery
date for this System was September 15, 1997. The parties have agreed however to
waive delivery at such date and to reschedule a new delivery date. OTRP will
accept delivery at the Company's facility in Montreal to allow initial test
phase operations to be conducted under supervision of both the Company and OTRP.
This will also create an opportunity for OTRP's personnel to be trained by the
Company's technical staff in the operation of the TCS-1 System.
The terms of the OTRP L&P Agreement, pursuant to which the constituent
components of the TCS-1 System will be leased and or purchased, are
substantially identical to those of the O/V III L&P Agreement, as described
above. The only significant differences are in the purchase price and payment
terms. The purchase price for the Non-Proprietary Equipment is $1,225,000 and
the terms of the 60- month operating lease call for monthly lease payments of
$8,770 each. Accordingly, the aggregate lease/purchase price under the OTRP L&P
Agreement is $1,751,200. OTRP has obtained "precommencement" sale and lease-back
financing from an outside source for the Non-Proprietary Equipment being
purchased under the Agreement. Pursuant thereto, OTRP has been making lease
payments since April of 1997. The terms of OTRP's lease financing arrangements
provide for the lessor to deliver the purchase price payments directly to the
Company, to be used to fund the construction of the first TCS-1 production
model. To date, approximately $605,000 of such financing has been paid to the
Company and used for such purpose.
Pursuant to the terms of the OTRP L&P Agreement, upon execution thereof,
the parties also entered, or agreed to enter, into the same types of ancillary
agreements as are described above with respect to the O/V III L&P Agreement,
i.e., a maintenance and technical support agreement, a royalty agreement, and a
rubber crumb purchase option agreement. The terms of all of such ancillary
agreements are identical to those described above in connection with the O/V III
Agreements.
The Recycletron Inc. Agreements
On July 8, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "Recycletron L&P Agreement") with Recycletron Inc.
("Recycletron") of Montreal, Quebec. Pursuant to the Recycletron L&P Agreement,
Recycletron will purchase one TCS-1 System, with delivery scheduled for the end
of the second quarter of 1998. The terms of the Recycletron L&P Agreement,
pursuant to which the constituent components of the TCS-1 System will be leased
and or purchased, are substantially identical to those of the O/V III L&P
Agreement, as described above. The only significant differences are in the
purchase price and payment terms. The purchase price for the Non-Proprietary
Equipment is $2,000,000 and the terms of the 60-month operating lease call for
monthly lease payments of $12,500
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each. Accordingly, the aggregate lease/purchase price under the Recycletron L&P
Agreement is $2,750,000. Upon execution of the Agreement, Recycletron paid a
$25,000 down payment. Other payment terms require additional payments of
$100,000 six months prior to the anticipated delivery date, $125,000 prior to
the anticipated delivery date, and $1,750,000 upon Recycletron's acceptance of
the System.
Pursuant to the terms of the Recycletron L&P Agreement, upon execution
thereof, the parties also entered, or agreed to enter, into the same types of
ancillary agreements as are described above with respect to the O/V III L&P
Agreement, i.e., a maintenance and technical support agreement, a royalty
agreement, and a rubber crumb purchase option agreement. The terms of all of
such ancillary agreements are identical to those described above in connection
with the O/V III Agreements.
Backlog
As of September 18, 1997, the Company's backlog amounted to $28,501,200.
Backlog includes firm orders under executed Equipment Lease and Purchase
Agreements. The amount shown includes the aggregate of: (i) the full purchase
price for those parts of the TCS-1 System which will be sold by the Company, and
(ii) total lease payments under the five-year operating lease which forms part
of every Equipment Lease and Purchase Agreement. The $28,501,200 backlog
presently booked includes: (i) one TCS-1 System ordered by OTRP for an aggregate
lease/purchase price of $1,751,200, for which the Company has already received
prepayment of $605,000 toward the purchase price; (ii) eight systems ordered by
O/V III for an aggregate lease/purchase price of $3,000,000 each, for which the
Company has already received over $130,000 by way of prepayments of the $25,000
downpayments (due for each system fourteen months before the scheduled delivery
date of such System) on five of the eight Systems ordered by O/V III; and (iii)
one TCS-1 System ordered by Recycletron for an aggregate lease/purchase price of
$2,750,000, for which the Company has received a $25,000 down payment. The
foregoing ten TCS-1 Systems are scheduled for delivery between November 1997 and
July 2000, with two of such Systems (the OTRP and Recycletron Systems) scheduled
for delivery during the current fiscal year. The balance of the ten Systems
currently on order are scheduled for delivery between November 1998 and July
2000.
The Company has not included in its backlog any revenues which may result
from the Royalty Agreements which all TCS-1 System purchasers must enter into
with the Company. These Royalty Agreements entitle the Company to receive a
royalty in the amount of 3% of the gross revenues from sales of rubber crumb
produced by the TCS-1 System. The Company has also not included an additional
$5.7 million dollars in revenues which it expects to receive under the Proposed
Maintenance Agreements to be signed in connection with the ten Systems already
on order (see "Proposed Services", above).
Although the stated backlog may be used as a guideline in determining the
value of orders which are presently scheduled for delivery during the period
indicated, it is subject to change by reason of several factors including
possible cancellation of orders, change in the terms of the contracts, and other
factors beyond the Company's control and should not be relied upon as being
necessarily indicative of the Company's revenues or of the profits which the
Company might realize when the results of such contracts are reported.
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Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). Both O/V III and OTRP are under the control of
Louis Sanzaro. The loss of either of these two customers would have a major
adverse effect on the Company. However, the Company also believes that while Mr.
Sanzaro's companies comprise the initial TCS-1 System purchasers, future sales
efforts will be widespread and, as the Company matures and its business
develops, it will not be dependent upon the business of one or more major
customers.
Marketing and Distribution
Potential Markets
The Company believes that the potential market for its TCS-1 System can be
expected to directly reflect the level of demand for economical, high quality
rubber crumb derived from the recycling of scrap tires.
The following discussion of the potential markets for rubber crumb assumes
that the TCS-1 System will be capable of economically producing high quality
recycled rubber crumb, in a variety of sizes, capable of being used in a wide
range of products. While this accurately reflects management's present
expectations, it should be noted that the TCS-1 System is still in the research
and development stage. Further, because development of the TCS-1 System is at an
early stage, the Company cannot give any assurance with respect to if, or when,
it will in fact be able to complete the design and construction of the TCS-1
System in accordance with its plans and specifications or that, if completed,
the TCS-1 System will perform as expected. Therefore, even if the demand for
rubber crumb should increase in accordance with the Company's expectations,
there can be no assurance that a concomitant development of demand for the TCS-1
System will develop.
Effect of Environmental Concerns
on Development of New Markets for Scrap Tires
Until approximately 1990, low tipping fees made landfills the most popular
option for the disposal of scrap tires. In fact, according to the Scrap Tire
Management Council (the "STMC"), until that time, management and market
development efforts for scrap tires were non-existent or minimal. This was
reflected in the fact that in 1990, only 25 million (approximately 11%) of the
scrap tires generated annually in the United States were marketed for any
purpose whatsoever. The remaining 89% were dumped or stockpiled. However, within
the past few years, changes in the market for scrap tires has been swift and
dynamic, resulting in significant market application alternatives to the
landfilling and stockpiling of scrap tires.
The STMC reported in its "Scrap Tire Use Disposal Study - 1996 Update"
(which was published in April of 1997 and is referred to herein as the "STMC
Study"), that significant progress has been achieved with respect to development
of scrap tire management alternatives to landfilling and stockpiling. In 1996,
market applications were found for 76% of all scrap tires (or 202 million
tires). This means, however, that even as of 1996, 64 million additional tires
(or 24% of the annually generated scrap tires that year) were still being
landfilled or stockpiled in the United States alone.
Notwithstanding the foregoing progress, in most developed countries, the
traditional dumping of tires in landfills has been completely banned or the
number of tires legally permitted to be dumped has
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been substantially reduced. Unfortunately, such measures often have the effect
of simply exacerbating the problem of illegal tire dumping and above ground
stockpiling. Increasingly in the United States, individual states sponsor scrap
tire management programs. By 1994, 48 states had legislated laws governing and
regulating proper handling, recovery, reuse, and disposal of discarded scrap
tires. To date, over 34 of such states have provided at least some of the
funding needed to build and support the tire recycling infrastructure which is
or will be required to assure that the state's annual generation of scrap tires,
as well as its already stockpiled tires, will be recovered, reused, and
recycled. In Canada, most provinces have similar regulations. As a result of
this proliferation of state regulations and the influence of the environmental
movement, national attention has increasingly focused on the need to develop
alternative methods of scrap tire disposal.
Market for Rubber Crumb
Rubber is a valuable raw material and the Company believes that recycling
this valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet underpadding,
increasing resiliency in running track surfaces and gymnasium floors, and
absorbing shock and lessening the potential for injuries as a ground cover for
playgrounds and other recreational areas.
Recycling tires into reusable rubber crumb (or "ground rubber") was, as of
1996, the third largest use of scrap tires. "Rubber Crumb" is the end product of
the tire disintegration processes discussed in, "Products and Services" below.
The ideal rubber crumb is a powder, which can be produced in various particulate
sizes, ranging from relatively coarse to very fine, and which is not
significantly contaminated by fiber and metal particles. As noted above, the
STMC Study reported that the largest use presently being made of scrap tires is
burning them as tire derived fuel, with export (for refitting and reuse as
tires) taking second place. However, as noted above, the use of scrap tires for
ground rubber experienced an enormous surge during the last two years,
increasing two hundred and seventy-seven percent (277%) from 4,500,000 tires in
1994 to 12,500,000 tires in 1996. Historically, most rubber crumb available and
sold in the market was derived not from recycled scrap tires, but from tire
"buffings". This situation has recently improved significantly, however, with
tire buffings now representing 52% and scrap tires representing 48% of source
material for rubber crumb. According to the STMC, the demand for rubber crumb
for various uses could experience further substantial increases over the next
two to five years, with expected overall growth in sales of rubber crumb from
25% to 33%. The Company believes that because the supply of buffings is limited,
the main source of an increased supply of rubber crumb must come from scrap
tires.
At present, there are at least seven general categories of markets for
rubber crumb of various sizes and grades. These consist of the following:
* Rubber Modified Asphalt ("RMA", 168 million pounds in 1996): Rubber
crumb can be blended with asphalt to modify the properties of
asphalt used in highway construction. Rubber crumb can be used
either as part of the asphalt rubber binder, seal coat, cape seal
spray, or joint and crack sealant (generally referred to as
"asphalt-rubber") or as an aggregate substitution (rubber modified
asphalt concrete or "RUMAC"). At present, the cost of using
asphalt-rubber and RUMAC is somewhat higher than conventional
materials. However, the service life of such products has proved in
some cases to be two to three times that of conventional asphalt
pavements. While the use of ground rubber in asphalt pavement has a
large potential market, certain technical issues must be addressed
before the potential can be reached. The ability to recycle asphalt
pavement containing ground rubber and the development of standards,
particularly for materials testing and the
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environment are the key issues to be addressed. In general,
asphalt-rubber, or the "wet process", has proven to be the most
successful product, representing approximately 95% of the RMA market
in 1996, according to the STMC. States using RMA to a significant
degree include Arizona, California and Florida, with lesser activity
in Kansas and Texas.
* Bound Rubber Products (134 million pounds in 1996): Ground or
powdered scrap tire rubber is formed into a set shape, usually held
together by an adhesive material such as urethane or epoxy. Examples
of such applications are injection molded products and extruded
goods such as railroad crossing pads; dock bumpers, patio floor
blocks, flooring material, roof walkway pads, and carpet underlay.
* New Tire Manufacturing (48 million pounds in 1996): Fine rubber
crumb or powder reclaimed from scrap tires can be used as a low
volume filler material in both the tread and the sidewalls of new
tires. The percentage of recycled rubber that can be used in new
tires is somewhat in excess of 1.5%.
* Athletic and Recreational Applications (24 million pounds in 1996):
Coarse rubber crumb can be used in several applications, such as in
running track material, grass surfaced playing areas, or as a
substitute for playground surfaces. The use of rubber crumb for
these purposes will generally make playing surfaces and running
tracks more resilient and less rigid, but capable of maintaining
traction and shape.
* Molded and Extruded Plastics and Rubber (18 million pounds in 1996):
Finely ground scrap tire rubber can be placed into production molds
to form products for the automotive industry, such as sound
insulation, step pads, truck and trailer liners, matting and drip
irrigation pipes. Management believes that there are significant
potential markets for these applications which may result from
continuing research and development of products using a surface
modified rubber. There has also been increasing interest on the part
of automotive manufacturers in the purchase of products which
contain recycled rubber.
* Friction Material (8 million pounds in 1996): Coarse rubber crumb is
used in friction brake materials for brake pads and brake shoes.
Possibilities for Market Expansion and Added Value
Through Availability of More, and Higher Quality, Product
Notwithstanding the recent growth in the use of scrap tires for ground
rubber, this application represented only 6% of the market for scrap tires in
1996. The Company attributes this limited market penetration principally to the
lack of available high quality product. The TCS-1 System, however, has been
specifically designed to address this problem through the economical production
of high quality crumb rubber than is, to the best of management's knowledge,
currently being produced from scrap tires. The Company believes that increases
in the amount and quality of available crumb, at economically reasonable prices,
creatively marketed, will inspire new uses for rubber crumb and expand the range
and variety of products composed, in whole or in part, of such product.
Moreover, the Company believes that as the demand for rubber crumb recycled from
scrap tires increases, this market value will increase in proportion to the
quantity of product sold and will that the product will be come inherently more
valuable.
The Company believes that growth in the market for rubber crumb will
directly reflect a number of factors, including but not limited to: (i) the
amount of rubber crumb available; (ii) the cost of available
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rubber crumb; (iii) the quality and characteristics of available crumb; and (iv)
the availability of suitable substitutes for rubber crumb.
There can be no assurance at this time, however, that the availability of
rubber crumb quality which the Company expects that the TCS-1 will be able to
produce, will necessarily lead to a significant expansion of the market for such
product, or if it does, that the Company will necessarily benefit from such
expansion.
Distribution
The Company's objective is to market and distribute its products
worldwide, through national and international distributors and sales
representatives. However, to a large extent the Company has to date
concentrated, and is continuing to concentrate, its efforts on completing the
design, development, and construction of the first production model of the TCS-1
System and raising adequate financing to support such efforts. It has,
therefore, not yet commenced a full scale marketing campaign and does not intend
to do so until the production model is complete and adequate funding is
available to cover the costs thereof. During the last two fiscal years and the
subsequent period, the Company has however taken initial steps to prepare a
foundation for a world-wide marketing program. In connection therewith, the
Company has taken the following steps during the last fiscal year:
(a) Appointed Vijay Kachru as Vice President of Market Development to
oversee market and product development activities;
(b) Entered into negotiations with Alan Crossley, a director of the
Company, with respect to his serving as Sales and Marketing director
for Europe;
(c) Obtained the agreement of Louis Sanzaro, a director of the Company
and the principal of Ocean Ventures III, Inc. and Oceans Tire
Recycling & Processing Co., Inc. to accept appointment as the
Company's exclusive sales distributor in the United States and
Puerto Rico (see the discussions under the caption, "Sales"; see
also Item 12. "Certain Relationships and Related Transactions" in
the Company's annual report on Form 10-KSB for the fiscal year ended
June 30, 1997, enclosed as an exhibit hereto).
The Company can make no assurances with respect to the success of its
distribution strategy. Furthermore, the Company has limited resources to achieve
the distribution of its products and no assurances can be given that the Company
will not require additional financing, which may not be available, to achieve
such objective.
Market Research and Development Studies
In January of 1997, the Company retained Gapco Inc., a market research
firm located in Madrid, Spain, headed by Alan Crossley(6). The study indicated
that the tire recycling Industry in Spain is in its infancy but is under
pressure to desist from the current practice of landfilling with unshredded
tires, and concludes that there is therefore a possible opportunity at this time
for the introduction of alternative scrap tire disposal methods.
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(6) Mr. Crossley, a director of the Company, was appointed as Sales and
Marketing Director for Europe in July of 1997 after the completion of such
study.
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Similar studies are being conducted in the rest of Europe, India and
Pakistan. The company believes that both India and Pakistan are potential
importers of ground rubber, or rubber crumb. This is based on the fact that
these countries are expanding their tire and auto manufacturing capacities and
are already experiencing supply shortages in rubber and carbon black. Based on
the initial research, the Company believes that the recycling of tires would
eventually gravitate toward production of products that can be assimilated in
industries which manufacture any products which use rubber and plastic in their
manufacture.
Canadian Operations
Tirex Canada
The governments of Canada and, in particular, the province of Quebec, have
officially acknowledged the pivotal role played by business investment in
research and development in ensuring sustained economic growth and long-term
prosperity. In order to encourage such activities, these governments support
research and development programs by granting individuals and businesses tax
incentives that encourage technological development in Quebec. As a result,
Quebec offers the most generous tax incentives for research and development
programs of which the Company is aware. In May of 1995, in an effort to take
advantage of such financial incentives, the Company formed a Canadian
corporation, 3143619 Canada Inc. (referred to herein as "Tirex Canada") in the
Province of Quebec, Canada, for the purpose of completing all research and
development work on the first production model of the TCS-1 System and,
thereafter, to serve as the Company's manufacturing arm. For a discussion of the
initial capitalization of Tirex Canada, the distribution of its shares among the
Company and officers and directors of the Company who are Canadian residents,
the terms of the shareholders agreement pursuant to which such shares are held,
including but not limited to the rights of the Company to regain 100% record
ownership of Tirex Canada, reference is made to the discussion under the caption
"Existing and Proposed Canadian Financing, Manufacturing, and Research and
Development Operations" in Item 1 of the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1996, enclosed as an exhibit hereto.
The Tirex Canada License
Tirex Canada holds an exclusive, ten year license to design, develop, and
manufacture the TCS-1 System in North America. The terms of the said license
require that Tirex Canada may manufacture TCS- 1 Systems only upon and pursuant
to specific purchase orders and requires that Tirex Canada sell all TCS-1
Systems which it manufactures exclusively to the Company.
Canadian Financial Assistance - Grants and Commitments
Transfer of the Company's research and development, and its proposed
manufacturing, activities to Tirex Canada has made the Company eligible for
various Canadian and Quebec government programs which provide grants and tax
incentives for eligible investment, research and development, and
employeetraining activities. Canadian and Quebec tax incentives take the form of
deductions and tax credits with respect to eligible research and development
expenditures. Certain tax credits are refundable when they exceed the tax
payable. Thus such credits function effectively as monetary grants. To qualify
for such tax credits, research and development activities must comprise
investigation or systematic technological or scientific research conducted
through pure or applied research, undertaken to advance science and
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develop new processes, materials, products or devices or to enhance even
slightly existing processes, materials products or devices.
Refundable tax credits are calculated as a percentage of eligible research
and development expenses. They are called "refundable" because to the extent
that the amount of the tax credit exceeds the taxes payable, they are paid over
or "refunded" to the taxpayer. During the last fiscal year, virtually all of the
activities connected with the development and construction of the first
production model of the TCS-1 System qualified as eligible expenses. Moreover,
some approved, anticipated tax credits for contemplated research and development
expenditures can serve as "receivables" for the collateralization of debt. In
this regard, the Company received the following grants and commitments since
moving its operations to Quebec in the summer of 1995:
(a) On March 22nd, 1996, the Ministry of Industry, Trade, and Commerce
of Quebec (the "Quebec MITC") accepted a feasibility study,
conducted by Techtran: Technology Transfer Institute, a
technology-based consulting and project financing organization
specializing in the development, financing, and project
implementation of new technologies. To qualify for financial aid
under this program, studies must be carried out by independent
Quebec consulting firms, be related to eligible projects to be
established in Quebec, and be done in respect of admissible
projects. To be deemed "admissible", projects must address one of
the industrial sectors under the responsibility of the Quebec
Ministry of Industry, Commerce, Science and Technology (the "Quebec
MICST") while being consistent with the government industrial
development policy. The development of the TCS-1 System was
confirmed as an "admissible project" in this regard when the
Techtran Feasibility Study was accepted by the Quebec MITC. In
connection therewith, the Company received a total of $36,800
Canadian dollars, from the Quebec MITC in refundable tax credits,
representing reimbursement of 40% of Company's costs for the said
study.
(b) On May 6, 1996, the Company received a commitment for a contribution
of up to $500,000 Canadian dollars (approximately $360,000 United
States dollars at current exchange rates) under the Industrial
Recovery Program for Southwest Montreal for the development of the
TCS-1 System. Such commitment comprises repayable loans in an
aggregate amount not to exceed the greater of (i) approximately US
$370,370 or (ii) twenty percent of the total costs actually paid by
the Company in connection with the development of the TCS-1 System.
To date, the Company has received a total of $450,000 Canadian
dollars (approximately $326,000 United States dollars at current
exchange rates) under such loan commitment. The balance will be
available to the Company upon completion of the project.
(c) On October 16, 1996, the Company obtained an "Agreement for
Financial Assistance For Technology Development" (the "Recyc-Quebec
Agreement") from La Societe Quebecoise de Recuperation et de
Recyclagez ("Recyc-Quebec"). Pursuant thereto, Recyc-Quebec, a
provincial government organization, has agreed to provide the
Company with financial assistance consisting of the grant of an
amount equal to fifty percent of the total eligible expenses of the
development of the first full scale, production model of the TCS-1
System (the "Project"), up to an amount of seventy five thousand
Canadian dollars (Cdn $75,000) (approximately fifty-four thousand
United States dollars [US $54,000] at current exchange rates). To
date the Company has received 50,000 Canadian dollars (approximately
thirty-eight thousand, four hundred United States dollars [US
$38,400] at current exchange rates) under this agreement. Such
payment was based upon Recyc-Quebec's receipt and acceptance of the
Company's proofs of payment of eligible expenses in the approximate
amount of Cdn $ 76,800 (approximately US $56,064). The Company will
be
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able to obtain the balance of 25,000 Canadian dollars (approximately
nineteen thousand, two hundred United States dollars [$19,200] at
current exchange rates) after it has paid 100% of all eligible
expenses related to the Project and a final report respecting the
achievements of the Project has been delivered to and accepted by
Recyc-Quebec.
Research and Development
The Company's technical expertise has been an important factor in its
development and is expected to serve as a basis for future growth. Since its
inception, the Company has devoted substantial resources to the design and
development of the TCS-1 System as well as to raising the financing necessary
for such activities. The Company expended approximately $600,000 on research and
development activities during the fiscal year ended July 1997, (virtually ) all
of which funds were applied to the design, development, and construction of the
first TCS-1 production model.
Research and Development activities during the fiscal year ended June 30,
1997, focused on completion of the engineering design of the TCS-1 System and
redesign of the front end system to increase automation and optimize
performance.
All of such activities were carried out by the Company's engineering and
technical staff, consisting of Louis V. Muro, Vice President in Charge of
Engineering, and John Carr, Program Director, who devoted 100% of their time to
such projects. Such activities were conducted in conjunction with the Company's
outside Consultant, Bentley Environmental Engineering Inc., and the Company's
outside subcontractors, Plasti-Systemes, Fedico, Inc., and Lefebvre Freres,
Limitee.
Although the basic design and development of the TCS-1 is expected to be
brought to completion by the end of 1997, the Company intends to continue to
seek to refine and enhance its tire disintegration technology and to enhance it
to comply with emerging regulatory or industry standards or the requirements of
a particular customer. The Company also intends to endeavor to develop new
products and uses for the rubber crumb produced by the operation of the TCS-1
System.
Employees
During the fiscal year ended June 30, 1997, the Company had seven
employees including its officers: Terence C. Byrne, Louis V. Muro, John
Threshie, and Vijay Kachru, its in-house Corporate and Securities Counsel, its
Technical Program Director, and one secretary-receptionist. All of the foregoing
persons devote their full time to the business and affairs of the Company. The
Company also utilizes the services of several part-time consultants to assist
them with market research and development and other matters. The Company intends
to hire additional personnel, as needed.
Patent Protection
On December 18, 1996, the Company filed patent applications in the United
States and Canada based on provisional priority under preliminary patent
applications filed on December 19, 1995. On October 23, 1997, the Company's
application was allowed and pursuant thereto a United States Patent on the
Company's cryogenic tire disintegration process and apparata will be issued with
priority as of
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December 19, 1995. Upon issuance of the said United States patent, the Company
will submit the patent examination papers to the Canadian authorities. The
Canadian patent, when issued, will also have a priority date of December 19,
1995. Prior to its having filed for patent protection, the Company relied on
trade secrets, proprietary know-how and technological innovation to develop its
technology and the designs and specifications for the TCS-1 System. The Company
has entered into confidentiality and invention assignment agreements with
certain employees and consultants which limit access to, and disclosure or use
of, the Tirex technology. There can be no assurance, however, that the steps
taken by the Company to deter misappropriation or third party development of its
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes or that secrecy will not be
breached. In addition, although the Company believes that its technology has
been independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. The Company believes that the steps it has
taken to date will provide some degree of protection and that the issuance of a
patent pursuant to its application will materially improve this protection.
However, no assurance can be given that this will be the case or that the
Company will in fact be granted a patent. No assurance can be given, in the
absence of a final court determination, that any particular patent is valid and
enforceable or that any patent may not be the subject of patent infringement
claims. The Company has no present knowledge of any information which would
adversely affect the issuance of a patent pursuant to its current application
or, should a patent be granted, the validity thereof.
On or about September 13, 1996, the Company received a letter from
attorneys for a New York based recycling company respecting its filing for
worldwide patent protection for a tire recycling process utilizing a natural air
freezing system and claiming that, upon issuance of its Canadian patent, the
Company's recycling process would be the subject of a patent infringement claim.
The Company responded to such letter on September 20, 1996 stating its position
that any such claim would be completely without merit. The Company has received
no further communications respecting this matter. Since that time, a member of
the Company's engineering staff and the Company's patent agent have examined the
patent which was involved in this matter and have concluded that the
specifications thereof are different from those of the patent for which the
Company has applied and that no meritorious patent infringement claim could
arise in connection therewith.
Competition
The Company knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 System, which are
presently being sold or used anywhere in the world, nor is it aware of any
patents relating to the Technology. However, the Technology and the TCS-1
System, if and when developed, may reasonably be expected to compete with
related or similar processes, machines, apparata or devices for tire
disintegration, cryogenic or otherwise. Moreover prospective competitors which
may enter the field may be considerably larger than the Company in total assets
and resources. This could enable them to bring their own technologies to more
advanced stages of development with more speed and efficiency than Company will
be able to apply to the TCS-1 System. Additionally, manufacturers of presently
available equipment may be in a position to operate research and development
departments dedicated continually to improving conventional systems and to
developing new and improved systems. There can be no assurance that the
Company's Technology or the TCS-1 System, if developed, can successfully compete
with existing systems or with any improved or new systems which may be developed
in the future.
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Government Regulation
While the Company's equipment manufacturing operations may not be directly
subject to extraordinary government regulations, the operations of the
purchasers and operators of such equipment may be subject to extensive and
rigorous government regulation designed to protect the environment. The
Company's proposed rubber crumb re-grinding, and on-site tire shredding,
operations will, however be directly subject to these types of government
regulation. As a result, the business of the Company will be directly or
indirectly subject to, and may be affected by, government regulations.
Management does not expect that the operation of the TCS-1 Systems, the
re-grinding operations, or the on-site tire shredding will result in the
emission of air pollutants, the disposal of combustion residues, or the storage
of hazardous substances (as is the case with other tire recycling processes such
as pyrolysis). However, establishing and operation any of the foregoing types of
plants for tire recycling will require numerous permits and compliance with
environmental and other government regulations, both in the United States and
Canada and in most other foreign countries. Moreover, the Company is currently
making preparations to enter into a five-year tire shredding project in Quebec
(see "Proposed Tire Shredding Operations"). These operations, as well as the
businesses of TCS-1 System operators, may involve, to varying degrees and for
varying periods of time, the storage or "stockpiling" of scrap tires which, with
their size, volume and composition, can pose a particularly serious
environmental problem. Among the numerous problems relating to stockpiling scrap
tires, is the fact that when stockpiled above ground, tires create serious fire,
public health, and environmental hazards ranging from fires, which generate
large and dense clouds of black smoke and are extremely difficult to extinguish,
to the creation of vast breeding grounds for mosquitoes and vermin. As a result,
many states have either passed or have pending legislation regarding discarded
tires including legislation limiting the storage of used tires to specifically
designated areas. For reasons including, but not limited to the problems
described above, the Company and the purchasers of its TCS-1 Systems will be
subject to various local, state, and federal laws and regulations including,
without limitation, regulations promulgated by federal and state environmental,
health, and labor agencies.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company may impose a financial burden upon the
Company that could adversely affect its business, financial condition,
prospects, and results of operations. Likewise, the burden of compliance with
laws and regulations governing the installation and/or operation of TCS-1
Systems could discourage potential customers from purchasing a TCS-1 System
which would adversely affect the Company's business, prospects, results, and
financial condition. Actions by federal, state, and local governments concerning
environmental or other matters could result in regulations that could increase
the cost of producing the recyclable rubber, steel, and fiber which are the
by-products from the operation of the TCS-1 System and make such by-products
less profitable or even impossible to sell at an economically feasible price
level.
The process of obtaining required regulatory approvals may be lengthy and
expensive for both the Company and for its TCS-1 System customers. Moreover,
regulatory approvals, if granted, may include significant limitations on either
the Company's or its customer's operations. The EPA and comparable state and
local regulatory agencies actively enforce environmental regulations and conduct
periodic inspections to determine compliance with government regulations.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
System customers to operate profitably and in compliance with such regulations.
In this regard, it has retained environmental attorneys in Montreal to advise it
with respect to compliance with local environmental regulations applicable to
its proposed tire shredding operations. It has also engaged a consultant to
advise purchasers of its TCS-1 Systems with respect to compliance with local
environmental regulations applicable to the installation and operation of the
TCS-1
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System. To date, the Company has not had to make significant capital
expenditures relating to environmental compliance because it has not yet
commenced operations. However, the inception of equipment manufacturing and,
possibly, tire shredding operations together with continually changing
compliance standards and technology, may affect the Company's future capital
expenditure requirements relating to environmental compliance. Moreover, since
all government regulations are subject to change and to interpretation by local
administrations, the effect of government regulation could conceivably prevent,
or delay for a considerable period of time, the development of the Company's
business as planned and/or impose costly requirements on the Company or on its
TCS-1 System customers, which could cause or result in competitive advantages to
the Company's competitors or make the Company's or its TCS-1 customers'
businesses less profitable, or unprofitable, to operate.
Properties
The Company's corporate headquarters are located at 740 St. Maurice, Suite
201, Montreal, Quebec, H3C 1L5. The Company occupies a 1988 square foot suite in
a modern office building located in the commercial and business district of
South West Montreal. All of such facility is devoted to executive offices,
reception, and conference areas including six executive offices. The Company
occupies these premises under a three-year lease, dated June 23, 1997, (expires
on June 30,2000) with Les Immeubles 740 Saint-Maurice Inc. The lease provides
for monthly rental payments of 2,825 Canadian Dollars (approximately 2,034
United States Dollars at current exchange rates). Rental payments are inclusive
of all taxes, utilities, and any other applicable fees or charges. The lease is
renewable for an additional three years at market rates then prevailing.
The Company intends during the present fiscal year to rent or purchase a
manufacturing and storage facility of approximately 100,000 square feet to be
used for assembling and warehousing the TCS- 1 Systems, as they are manufactured
by the Company.
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LEGAL PROCEEDINGS
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RPM Incorporated
There are no pending or threatened legal proceedings against RPM or to
which RPM is a party or of which any of its assets is the subject. No director,
officer, or affiliate of RPM, or any associate of any of them, is a party to or
has a material interest in any proceeding adverse to RPM or Tirex.
The Tirex Corporation
Tirex is the defendant in an action, commenced on June 18, 1997, in the
United States District Court for the District of New Jersey, entitled Great
American Commercial Funding Corp. vs. Tirex America Inc. The action arises out
of a certain "placement fee agreement", executed by Tirex in February of 1996,
under which Tirex, among other things, undertook to pay the plaintiff a
"placement fee" in the amount of $250,000 and to grant to the plaintiff an
option to acquire 400,000 shares of the company's common stock, at a price of
$0.01 per share, in the event, and only in the event, that plaintiff succeeded
in obtaining financing acceptable to Tirex. Although the amount and terms of the
"financing" were not mentioned in the documents, it was clearly understood by
the parties that Tirex was then seeking to obtain, and that
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the agreement contemplated, financing in an amount (assumed necessarily to be in
the multi-million dollar range), adequate to fund the design and development of
the TCS-1 System and to enable Tirex to initiate manufacturing such Systems on a
commercial basis. Under the Agreement: (i) the plaintiff did not undertake to do
anything other than "attempt" to secure financing acceptable to Tirex and (ii)
Tirex had absolute discretion whether or not to accept any and all "financing"
proposals.
Several months elapsed after Tirex signed the Agreement without plaintiff
ever introducing Tirex to any third party which was ready, willing, and able to
produce the kind and type of financing which the plaintiff knew the defendant
was seeking and needed. However, plaintiff did recommend a firm in Long Island
which was engaged in the business of equipment lease financing. Tirex then
introduced one of its customers to the such lease financing firm. The customer
ultimately entered into a lease financing arrangement with such firm, pursuant
to which Tirex was able to obtain some limited amounts of predelivery funds, but
only because the customer agreed to do so, and the customer's principals fully
collateralized any and all advance payments/loans made by or through the lease
financing firm. Because the advances made to Tirex pursuant to that
lease-financing arrangement clearly did not in any way constitute the type of
financing contemplated by the parties or the Agreement, Tirex believes it has no
financial obligation to the plaintiff pursuant to said "placement fee
agreement".
Tirex has filed an Answer denying any liability to the plaintiff in light,
among other things, of the foregoing facts, and asserting, among other things,
that: (i) the agreement was induced by plaintiff's material misrepresentations;
(ii) enforcement thereof would be clearly unconscionable in the circumstances;
(iii) plaintiff never introduced Tirex to any third party which was ready,
willing, and able to produce the type of financing which the plaintiff knew
Tirex was seeking and needed; and (iv) the so-called "placement fee agreement"
was merely an offer for a unilateral contract which was terminated or revoked,
and notice of such revocation was timely communicated to plaintiff before it
rendered any substantial performance in reliance upon the offer. Tirex and its
litigation counsel, Sheldon A. Weiss, believe that the plaintiffs complaint is
without merit and that Tirex ultimately will prevail in this litigation.
Tirex is unaware of any other pending or threatened legal proceedings to
which it is a party or of which any of its assets is the subject. No director,
officer, or affiliate of Tirex, or any associate of any of them, is a party to
or has a material interest in any proceeding adverse to Tirex.
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
Description of Securities Being Offered Hereby
Common Stock of RPM
The authorized capital stock of RPM consists of twenty-one million shares
(21,000,000) shares, par value $.001 per share, of which twenty million
(20,000,000) shares are designated Common Stock, par value $.001 per share, and
one million (1,000,000) shares are designated Preferred Stock, par value $.001
per share. There are presently three million (3,000,000) shares of RPM Common
Stock and no shares of Preferred Stock issued and outstanding.
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RPM's Board of Directors may determine the times when, the terms under
which, and the consideration for which, RPM shall issue, dispose of or receive
subscriptions for its shares, including treasury shares, or acquire its own
shares. The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value per share. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
nonassessable by RPM.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote of each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of RPM.
RPM Debentures
The Debentures bear interest at an annual rate of 10% from the date of
their issue: payable semi-annually commencing six months from the issue date.
They are due and payable on the first to occur of: (i) two years from the issue
date or (ii) the completion and closing of a public offering of its securities
by the Maker (RPM prior to the Merger discussed above or Tirex after the
Merger). The Debentures are subject to anti-dilution provisions which may be
activated under certain conditions, including but not limited to a reverse split
of the issued and outstanding securities of Tirex. The Debentures shall be
convertible, in whole or in part, at any time prior to maturity, at a conversion
rate of $.20 per share, into the Common Stock of RPM (prior to the Merger) or
the Common Stock of Tirex (after the Merger). If a Debenture is not converted,
it may be redeemed by the holder any time after Maturity at 100% of the
principal amount of the Debenture plus all interest accrued thereon. The
Debentures have no voting rights. Each of the shares of Common Stock included in
the Units and issuable upon conversion of the Debentures (the "Conversion
Shares") will be Common Stock and will have one vote. The Debentures and the RPM
Shares comprising the Units are not separable or transferable under any
conditions prior to March 31, 1998.
Common Stock of Tirex
The authorized capital stock of Tirex consists of fifty million shares
(50,000,000) shares, par value $.001 per share, of which thirty-five million
(35,000,000) shares are designated Common Stock par value $.001 per share, and
fifteen million (15,000,000) shares are designated Open Stock, par value $.001
per share. There are presently thirty-eight million, seven hundred seventy-four
thousand, six hundred twenty-five (38,774,625) shares of Common Stock issued and
outstanding. The Open Stock may be issued from time to time, in one or more
classes, or one or more series within any class thereof, in any manner permitted
by law, as determined from time to time by Tirex's Board of Directors, and
stated in the resolution or resolutions providing for the issuance of such
shares adopted by Tirex's Board of Directors, each class or series to be
appropriately designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number designation or title. All shares of stock in such
classes or series may be issued for such consideration and have such voting
powers, full or limited, or no voting powers, and shall
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<PAGE>
have such designations, preferences and relative, participating, optional, or
other special rights, and qualifications, limitations or restrictions thereof,
permitted by law, as shall be stated and expressed in the resolution or
resolutions, providing for the issuance of such shares adopted by Tirex's Board
of Directors pursuant to authority vested in Tirex's Certificate of
Incorporation. The number of shares of stock of any class or series within any
class, so set forth in such resolution or resolutions may be increased (but not
above the total number of authorized shares) or decreased (but not below the
number of shares thereof then outstanding) by further resolution or resolutions
adopted by Tirex's board of directors pursuant to authority vested in it in
Tirex's Certificate of Incorporation.
Tirex's Board of Directors may determine the times when, the terms under
which, and the consideration for which, Tirex shall issue, dispose of or receive
subscriptions for its shares, including treasury shares, or acquire its own
shares. The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value per share. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
nonassessable by Tirex.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote of each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of Tirex.
- --------------------------------------------------------------------------------
MANAGEMENT OF RPM
- --------------------------------------------------------------------------------
Name Age Office Held Date Appointed
---- --- ----------- --------------
Dr. Eugene Stricker 60 President and a Director August, 1996
Mark Schindler 76 Secretary, Treasurer and September, 1996
a Director
Al Pietrangelo 39 Assistant Secretary, Assistant March, 1997
Treasurer and a Director
Family Relationships
No family relationship has ever existed between any director, executive
officer of RPM or any person contemplated to become such.
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Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer, and significant employee
of Company:
DR. EUGENE STRICKER was elected a Director upon the organization of RPM
and has served the Company as President and Director since inception. He has
been a partner with Mr. Schindler in Madison Venture Capital II, Inc. a venture
capital firm, for more than the past five years. From 1968 until 1991, he held
various administrative positions within the New York State Department of Health,
including serving as special assistant to the Commissioner. Dr. Stricker is a
graduate of the University of Maryland, received his Doctor of Dentistry from
Howard University, Washington, D.C., and received a Masters in Public Health
from the University of Michigan at Ann Arbor. He was a Director of Servtex
International, Inc. from September 1991 until its merger with Hymedix, Inc. in
February 1994. In December 1991 he became a Director of Natural Child Care, Inc.
and, when it merged into Winners All International, Inc. in September 1992 he
became Secretary on a part time basis and served in that capacity until November
1994. In July 1993, he became a Director of Light Savers USA, Inc. and served
until February 1995 when that company was merged into Hospitality World Wide,
Inc. (HWS:AMEX). Dr. Stricker was a Director and Secretary of Kushi
Macrobiotics, Inc. from May 1994 to October 1996 when it merged with American
Phoenix, Inc.
MARK SCHINDLER was elected a Director, Secretary and Treasurer of RPM
shortly after the organization of the Company in August 1996. He has been a
partner with Dr. Stricker in Madison Venture Capital II, Inc. a venture capital
firm, for more than the past five years. He was the owner, until 1984, of his
own business engaged in electronic distribution. Mr. Schindler was a founder of
Astrex, Inc. and its Chairman from September 1960 to August 1984. While he
remains a Director and Vice President of that entity, he devotes no time to it
other than attending Board Meetings. He was a Director of Servtex International,
Inc. from September 1991 until its merger with Hymedix, Inc. in February 1994.
In December 1991 he became a Director of Natural Child Care, Inc. and, when it
merged into Winners All International, Inc. in September 1992 he became
Treasurer on a part time basis and served in that capacity until November 1994.
In July 1993, he became a Director of Light Savers USA, Inc. and served until
February 1995 when that company merged into Hospitality World Wide (HWS:AMEX).
Mr. Schindler was a Director and Treasurer of Kushi Macrobiotics, Inc. from May
1994 to October 1996 when it merged with American Phoenix, Inc.
AL PIETRANGELO was elected an officer and Director of RPM in March 1997.
From 1984 to February 1997, he held various positions in the securities
industry. In March 1997, Mr. Pietrangelo became associated with Madison Venture
Capital II, Inc. Mr. Pietrangelo also serves as President and CEO of Four Star
Capital Management, Inc. and as President and a Director of Four Star Capital
Markets, Inc. both companies being engaged in business consulting.
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<PAGE>
PRINCIPAL SHAREHOLDERS OF RPM
The following table sets forth as of the date of this Memorandum the names
of those persons holding more than 5% of the issued and outstanding shares of
RPM common stock and the percentages held by such persons as adjusted for the
maximum and minimum offering:
Number of % Before % After % After
Name Shares Held Offering Minimum Offering Maximum Offering
- ---- ----------- -------- ---------------- ----------------
Dr. E. Stricker 1,130,000 37.67% 34.24% 29.35%
Mark Schindler 1,130,000 37.67% 29.35% 29.35%
Al. Pietrangelo 400,000 13.33% 12.12% 10.39%
The remaining 340,000 shares of RPM Common Stock presently issued and
outstanding were issued to Dr. Stricker and Mark Schindler in September, 1996
and were subsequently transferred by them to 18 persons. All such transfers were
completed by Dr. Stricker and Mr. Schindler prior to March 31, 1997.
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<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TIREX CORPORATION
- --------------------------------------------------------------------------------
Directors and Executive Officers of the Company
The following sets forth the names and ages of all directors and executive
officers of Company and the date when each director was appointed, and all
positions and offices in Company held by each such person. Each director will
hold office until the next annual meeting of shareholders and until his or her
successor has been elected and qualified:
Date
Offices Appointed
Name Age Held Director
---- --- ---- --------
Terence C. Byrne 39 President, January. 18, 1995
Treasurer & Director
Louis V. Muro 63 Vice President January 1, 1996
of Engineering &
Director
John G. Hartley 50 Director February 21, 1995
John L. Threshie, Jr. 43 Secretary,
Vice President June 1, 1996
of Operations &
Director
Louis Sanzaro 47 Director January 17, 1997
Alan Crossley 49 Director January 17, 1997
Vijay Kachru 46 Vice President of September 1, 1996
Market Development
Family Relationships
No family relationship has ever existed between any director, executive
officer of Company or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer, and significant employee
of Company:
TERENCE C. BYRNE. Mr. Byrne has served as President, Treasurer, and a
Director of Company since January 18, 1995. He holds a Bachelor's degree in
Economics from Villanova University in Philadelphia. Mr. Byrne has been the
controlling shareholder and an officer and director of Bartholemew
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<PAGE>
& Byrne, Inc., a consulting firm specializing in corporate finance and general
business consulting, since its founding in January 1993. From September 1992
through August 1993, he directed European marketing and business development for
Pacer Systems Corporation, a public company engaged in the business of systems
engineering for high tech industries. From July 1989 to August 1992, Mr. Byrne
served as president of Digital Optronics Corporation, a public company which,
until August 1992, was engaged in the business of manufacturing digital optronic
measuring devices, principally for the defense industry. From November 1988
(prior to being acquired by Digital Optronics) until March 1992, Mr. Byrne also
served as president and a director of Byrne Industries, Inc.("BII"), a
wholly-owned subsidiary of Digital Optronics, Inc. BII was, until the drastic
down-turn in the defense industry in March of 1991, in the business of
manufacturing electronic defense equipment as a sub-contractor to major
multi-billion dollar defense industry companies, such as Lockheed Aviation.
LOUIS V. MURO. Mr. Muro acted as an engineering consultant to the Company
from January 18, 1995 until January 1, 1996 when he was appointed as a Director
and as Vice President In Charge of Engineering. Mr. Muro served as a Director of
Company from December 29, 1992 until January 18, 1995. He also served as
Company's Secretary from December 29, 1992 until March 1994 when he was
appointed President of Company, a position he held until January 18, 1995. Mr.
Muro received a B.S. degree in Chemical Engineering from Newark College of
Engineering in 1954, since which time he has continually been employed as a
chemical engineer. From 1974 to 1993 Mr. Muro as been the sole shareholder of
Ace Refiners Corp. of New Jersey, a precious metals refinery. From 1971 to 1974,
he worked as an independent consultant and from 1964 until 1971, he was director
of research and development for Vulcan Materials Corporation in Pittsburgh,
Pennsylvania, a public company engaged in the business of recovering useable tin
and clean steel from scrap tin plate. From 1960 to 1964, Mr. Muro was the sole
proprietor of Space Metals Refining Co. in Woodbridge, New Jersey, a company
involved in the purification of scrap germanium to transistor grade metal. From
1959 to 1960 he was employed by Chemical Construction Co., of New Brunswick, New
Jersey, where he developed a process for the wastefree production of urea from
ammonia, carbon dioxide and water. From 1954 to 1959, Mr. Muro worked in the
research and development department at U.S. Metals Refining Co. in Carteret, New
Jersey where he was involved with the refinement of precious metals.
JOHN G. HARTLEY. Mr. Hartley holds a Bachelor of Science Degree in
Economics from Manchester University in England. He has acted as a director of
Pacer Systems Inc. since 1985. Pacer Systems is a publicly held company with
offices in Boston, Massachusetts and is engaged in the business of Systems
Engineering for high tech industries. Since 1993, Mr. Hartley has also served as
a consultant to Moore Rowland International, an investment banking firm
headquartered in Monaco.
JOHN L. THRESHIE, JR. Mr. Threshie holds a Bachelor of Arts Degree from
the University of North Carolina at Chapel Hill. He was an independent
representative for Primerica Financial Services from 1991 through 1994. From
1988 to 1990, Mr. Threshie was an advertising account supervisor for Ammirati &
Puris Inc., an advertising firm in New York, assigned to the BMW of North
America account. From 1982 to 1988, Mr. Threshie was a senior account executive
at Saatchi & Saatchie, Inc. in New York, assigned to the Toyota Account.
LOUIS SANZARO. Mr. Sanzaro holds a degree in marketing from Marquette
University. He is the President and a member of the Board of Directors of the
nation-wide, Construction Material Recycling Association. Since 1986, he has
served as President and CEO of Ocean County Recycling Center, Inc. ("Ocean
County Recycling"), in Tom's River, New Jersey. Ocean County Recycling is in the
business of remanufacturing construction and demolition debris for reuse as a
substitute for virgin materials in the construction and road building
industries. In addition, since 1989, Mr. Sanzaro has served as Vice President
and Chief Operating Officer of Ocean Utility Contracting Co., Inc., a New Jersey
Company engaged in the installation of sewer and water main pipelines and the
construction of new roadway
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infrastructure. From 1973 until 1990, Mr. Sanzaro was the President and Chief
Executive Officer of J and L Excavating and Contracting Co., Inc., a company
engaged in the construction of residential, commercial, industrial, and
government building. Mr. Sanzaro was a member of the Board of Directors of the
New Jersey state-wide Utility Transportation
ALAN CROSSLEY. Mr. Crossley holds a degree in Economics from Cambridge
University in England and an MBA degree from INSEAD in France. In addition to
serving as a Director of the Company, Mr. Crossley will participate in
developing and will have charge of implementing the Company's projected
marketing operations in Europe and Asia. Since 1986, Mr. Crossley has served as
president of FAISLESA, Arganda del Rey in Madrid, Spain. FAISLESA, a company
which Mr. Crossley established in 1986 as a venture capital project, is a
manufacturer and applicator of thermal insulants and waterproofing products for
the construction industry. FAISLESA runs a network of regional distributors
throughout Spain and has its own application crews in the Madrid area. Mr.
Crossley has full executive responsibility in all areas of manufacturing,
marketing, research, and administration of FAISLESA. Mr. Crossley's previous
business experience includes his work as a Eurocurrency trader in the
International Division of S.G. Warburg and Co. Ltd., Merchant Bankers in London
from 1968 to 1970, a management consultant for McKinsey and Company, Inc. in
Brazil, France, Germany, Holland, Italy, Spain, Switzerland, the UK and the
United States from 1971 to 1977, Managing Director of Satlan, S.A., a Madrid
firm involved in International trading of petroleum products and various
commodities from 1977 to 1980 and, President of Gapco, S.A., a Madrid commercial
and financial consulting firm (1980-1994).
VIJAY KACHRU. Ms. Kachru holds a Bachelor's degree in English Literature
and has attended business management, marketing, and behavioral sciences courses
at McGill University in Montreal. She was appointed Vice President In Charge of
Market Development for the Company on September 1, 1996. From 1992 until she
joined the Company, Ms. Kachru worked as an independent consultant in the area
of market research and market development. Pfizer Canada, CP Rail marketing
division and Techtran Technology Transfer Company were among her clients during
this period. From 1989 until 1992, Ms. Kachru was a training specialist for CP
Rail System where she designed and implemented a drug and alcohol abuse control
program throughout North America. From 1981 to 1989, Ms. Kachru worked as a
consultant with, among others, Proudfoot Consulting Firm on projects with Bell
Canada, Alberta Great Telephone, Firestone Bridgestone, East Midland Electric
Board in England, Columbus McKennin, and International Paper.
71
EXHIBIT 20(c)
- --------------------------------------------------------------------------------
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
- --------------------------------------------------------------------------------
The Tirex Corporation
(the "Company")
5,000,000 Shares Common Stock
$0.10 Per Share
March 19, 1998
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
Exhibits.................................................................... 2
List of Filings with the Securities and Exchange Commission................. 3
Cover Page.................................................................. 4
Investor Notices............................................................ 4
Jurisdictional Notices and Representations.................................. 7
Available Information....................................................... 9
Concurrent Offering......................................................... 9
Confidentiality............................................................. 9
Independent Evaluation...................................................... 10
Use of Proceeds............................................................. 10
Terms of the Offering....................................................... 11
General................................................................. 11
Restrictions on Transferability......................................... 11
Registration Rights..................................................... 11
Investor Suitability Standards.......................................... 11
Further Information..................................................... 12
Subscription Payments................................................... 12
Possible Variance in Terms
of Offering........................................................... 12
Effects of Possible Reverse Split....................................... 12
- --------------------------------------------------------------------------------
EXHIBITS
- --------------------------------------------------------------------------------
Draft of Registration Statement on Form SB-2 ............................... A
Form of Subscription and Registration Rights Agreement...................... B
2
<PAGE>
- --------------------------------------------------------------------------------
LIST OF FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
In addition to the filings of the Company with the Securities and Exchange
Commission (the "Commission"), attached to this Offering Memorandum as Exhibits,
the following Commission filings are available upon request without charge.
Requests should be directed to John Threshie, Secertary, The Tires Corporation,
740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5. Telephone: (514) 878-9847.
Facsimile: (514) 878-9847.
Annual Reports on Forms 10-K and 10-KSB of Registrant for the years ended June
30th 1989 through and including 1997.
Quarterly Reports on Forms 10-Q and 10-QSB for the quarters ended December 31st,
September 30th, and March 30th of 1989 through and including 1997.
Registration Statement on Form S-8, as amended, filed with the Commission on
August 27, 1997, Registration No. 333-34369.
Registration Statement on Form S-98, filed with the Commission on March 31,
1997, Registration No. 333-23759.
Registration Statement on Form S-8, filed with the Commission on July 22, 1996,
Registration No. 333-5310.
Registration Statement on Form S-8, filed with the Commission on June 20, 1996,
Registration No. 333-5090.
Current Reports on Form S-8, dated July 11, 1997 and February 3, 1998, filed on
August 13, 1997 and February 17, 1998, respectively, and all other current
reports on Forms 8-K filed by the Company pursuant to Section 13(a) or 15(d)
of the Exchange Act prior to the end of the fiscal year ended June 30, 1997.
Transition Report on Form 10-K of Registrant for the transition period January
1, 1989 through June 30, 1989.
Annual Report on Form 10-K of Registrant for the year ended December 31, 1988.
Registration Statement on Form S-18, as amended, File No. 33-17598-NY.
3
<PAGE>
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
March 16, 1998
Name of Offeree________________________ Copy No. _____
- --------------------------------------------------------------------------------
5,000,000 Shares Common Stock
$0.10 Per Share
THE TIREX CORPORATION
- --------------------------------------------------------------------------------
The Tirex Corporation, a Delaware corporation (the "Company"), is offering to
sell up to five million (5,000,000) shares (the "Shares") of its Common Stock,
$.001 par value, per share ("Common Stock") at a price of $0.10 per share (the
"Offering"). The shares will be offered and sold directly by the Company on a
best efforts basis. The Company is not required to sell a specified minimum
number of the Shares in order to close the offering. As a result it will be
possible for the Company to discontinue the sale of the Shares without raising
sufficient proceeds to implement its business plan. The Company may utilize the
services of broker-dealers ("Selected Dealers") who are members of the NASD in
connection with the offer and sale of the Shares. The Company reserves the right
to offer the Shares on more favorable terms to one or more investors, who are
not affiliates of the Company, without notice to other investors. The basis for
any such variance in the terms of the Offering set forth herein will include
without limitation the amount of the individual investment and the point in the
Offering Period when such investment is made. In such event, other investors
will not be entitled to rescission of their investments in this Private
Placement.
The Offering of the Shares is being made in reliance upon the availability
of an exemption from the registration provisions of the Securities Act by virtue
of the Company's intended compliance with the provisions of ss. 4(2) and Rule
506 of Regulation D thereof. Accordingly, solicitation of offers or sales shall
not be made to any person unless the Company has reasonable grounds to believe
and does believe, immediately prior to making such sale, that such person,
either alone or together with one or more of his purchaser representatives (if
any), has such knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of an investment in the Shares
described in this Memorandum. See "Terms of the Offering." There are
restrictions on the transfer of Shares.
This Memorandum does not contain all of the information that would
normally appear in a prospectus for an offering registered under the Securities
Act or that may be necessary to make an informed investment decision regarding
an investment in the Shares. The Company will furnish additional information to
interested offerees upon request. Purchasers of the Shares will be required to
acknowledge at the time of purchase that they have requested and received all
information necessary to make an informed decision to purchase the Shares.
SEE "INVESTOR NOTICES" AND "JURISDICTIONAL NOTICES AND REPRESENTATIONS."
- --------------------------------------------------------------------------------
INVESTOR NOTICES
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY STATE OR REGULATORY AGENCY UNDER ANY SECURITIES
LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION PROVIDED IN SUCH
4
<PAGE>
LAWS AND THE RULES AND REGULATIONS THEREUNDER, AND MAY NOT BE RESOLD OR
TRANSFERRED IN THE ABSENCE OF THE SATISFACTION OF CERTAIN CONDITIONS, INCLUDING
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM CONSTITUTES AN OFFER ONLY
TO THE PERSON OR ENTITY WHOSE NAME APPEARS ON THE COVER PAGE (THE "OFFEREE").
THE SHARES ARE BEING OFFERED ONLY TO INVESTORS WHO QUALIFY AS "ACCREDITED
INVESTORS", AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D, AS PROMULGATED
UNDER THE SECURITIES ACT. ALL INVESTORS MUST MEET CERTAIN SUITABILITY STANDARDS
ESTABLISHED BY THE COMPANY, SUBJECT TO THE COMPANY'S RIGHT TO REJECT
SUBSCRIPTIONS, IN WHOLE OR IN PART. THE MINIMUM SUBSCRIPTION WILL BE $25,000,
UNLESS OTHERWISE APPROVED BY THE COMPANY IN ITS SOLE DISCRETION. AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THESE
SECURITIES ARE HIGHLY SPECULATIVE AND SHOULD ONLY BE PURCHASED BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH IN EXHIBIT A HERETO UNDER "RISK
FACTORS" BEFORE PURCHASING SUCH SECURITIES.
THE SHARES OFFERED HEREBY WILL BE SOLD SUBJECT TO THE PROVISIONS OF A
SUBSCRIPTION AND REGISTRATIONS RIGHTS AGREEMENT (THE "SUBSCRIPTION AND
REGISTRATIONS RIGHTS AGREEMENT") CONTAINING CERTAIN REPRESENTATIONS, WARRANTIES,
TERMS AND CONDITIONS. ANY INVESTMENT IN THE SHARES OFFERED HEREBY SHOULD BE MADE
ONLY AFTER A COMPLETE AND THOROUGH REVIEW OF THE PROVISIONS OF THE SUBSCRIPTION
AND REGISTRATION RIGHTS AGREEMENT. THE COMPANY RESERVES THE RIGHT IN ITS
DISCRETION TO ACCEPT OR REJECT, IN WHOLE OR PART, ANY PROPOSED INVESTMENT IN THE
SHARES.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE MERITS OF, OR GIVEN APPROVAL TO, ANY
SECURITIES OFFERED HEREBY, OR UPON THE TERMS OF THE OFFERING, NOR HAVE THEY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ANY OTHER SELLING
LITERATURE. THE SECURITIES ARE OFFERED BY THE COMPANY PURSUANT TO EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES
OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DESCRIBED HEREIN ARE BEING OFFERED PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND APPLICABLE STATE
SECURITIES LAWS RELATING TO TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING OR
SOLICITATION. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHOM
THE OFFERING IS MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES
DESCRIBED HEREIN.
INVESTMENT IN THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY
A PERSON WHO OR ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF HIS, HER OR ITS
ENTIRE INVESTMENT. POTENTIAL INVESTORS ARE HEREBY CAUTIONED THAT SUCH INVESTORS,
SHOULD THEY INVEST IN THE SECURITIES DESCRIBED HEREIN, COULD BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF SUCH AN INVESTMENT FOR A SUBSTANTIAL AND/OR INDEFINITE
PERIOD OF TIME. AN INVESTOR WHO PURCHASES THE SECURITIES DESCRIBED HEREIN SHALL
BE REQUIRED TO REPRESENT THAT HE, SHE OR IT IS ABLE TO SUSTAIN SUCH A LOSS, IS
FAMILIAR WITH AND UNDERSTANDS THE TERMS OF THE OFFERING OF SUCH SECURITIES AND
THAT HE, SHE OR IT MEETS CERTAIN SUITABILITY STANDARDS.
5
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OF
SECURITIES DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE). IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NO
PERSON OR ENTITY SHOULD CONSIDER INVESTING IN THE SECURITIES DESCRIBED HEREIN
UNTIL SUCH PERSON HAS FULLY READ AND UNDERSTOOD THE CONTENTS OF THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND ALL DOCUMENTS INCORPORATED HEREIN BY
REFERENCE).
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO
TRANSFERABILITY AND RESALE. SUCH SECURITIES MAY NOT BE RESOLD OR OTHERWISE
DISPOSED OF BY AN INVESTOR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, REGISTRATION UNDER THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS MEMORANDUM SPEAKS AS OF
THE DATE HEREOF. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AFTER THE DATE HEREOF.
THE SALE OF THE SECURITIES DESCRIBED HEREIN IS SUBJECT TO THE PROVISIONS
OF, AND EACH OF THE INVESTORS PURCHASING SECURITIES WILL BE REQUIRED TO EXECUTE,
A SUBSCRIPTION AND REGISTRATION RIGHTS AGREEMENT. ANY PURCHASE OF THE SECURITIES
DESCRIBED HEREIN BY AN INVESTOR SHOULD BE MADE ONLY AFTER A COMPLETE AND
THOROUGH REVIEW HEREOF AND OF THE PROVISIONS OF SUCH SUBSCRIPTION AND
REGISTRATION RIGHTS AGREEMENT, IN THE FORM ATTACHED HERETO AS EXHIBIT B. IN THE
EVENT THAT ANY OF THE TERMS, CONDITIONS OR OTHER PROVISIONS OF SUCH AGREEMENT
ARE INCONSISTENT WITH OR CONTRARY TO A DESCRIPTION OR THE TERMS SET FORTH IN
THIS MEMORANDUM, SUCH AGREEMENT SHALL CONTROL. IN PARTICULAR, AND WITHOUT
LIMITING THE FOREGOING, THE REPRESENTATIONS AND WARRANTIES CONTAINED IN SUCH
AGREEMENT SHALL BE DEEMED TO SUPPLEMENT AND REPLACE WHERE INCONSISTENT ANY
INFORMATION CONTAINED HEREIN.
NO OFFERING LITERATURE OR ADVERTISING SHALL BE EMPLOYED IN THE OFFERING OF
THE SECURITIES DESCRIBED HEREIN, EXCEPT THE INFORMATION CONTAINED HEREIN
(INCLUDING THAT WHICH HAS BEEN INCORPORATED BY REFERENCE). THE DELIVERY OF THIS
MEMORANDUM DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS MEMORANDUM IS SUBMITTED IN CONNECTION WITH THE OFFERING OF THE
SECURITIES DESCRIBED HEREIN AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER
PURPOSE. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, EACH POTENTIAL INVESTOR
AGREES THAT HE, SHE OR IT WILL NOT DIVULGE THE CONTENTS HEREOF TO ANY PERSON OR
ENTITY AND WILL RETURN IT (WITH ALL RELATED DOCUMENTS OR MATERIALS) TO THE
COMPANY UPON REQUEST IF SUCH INVESTOR DOES NOT AGREE TO PURCHASE ANY OF THE
SECURITIES. ANY REPRODUCTION OR DISTRIBUTION OF THIS DOCUMENT WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY IS PROHIBITED.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM
AS LEGAL, TAX OR ACCOUNTING ADVICE, BUT SHOULD CONSULT THEIR LEGAL COUNSEL,
ACCOUNTANTS AND BUSINESS ADVISORS ABOUT LEGAL, TAX AND ACCOUNTING MATTERS
CONCERNING AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN.
6
<PAGE>
PROSPECTIVE INVESTORS ARE URGED TO READ THIS MEMORANDUM CAREFULLY. ALL
PROSPECTIVE INVESTORS WILL HAVE AN OPPORTUNITY TO TALK WITH REPRESENTATIVES OF
THE COMPANY TO VERIFY ANY OF THE INFORMATION INCLUDED HEREIN AND TO OBTAIN
ADDITIONAL INFORMATION REGARDING THE COMPANY. CERTAIN PROVISIONS OF VARIOUS
DOCUMENTS AND RECORDS ARE BRIEFLY SUMMARIZED IN THIS MEMORANDUM. SUCH SUMMARIES
ARE NOT AND DO NOT PURPORT TO BE COMPLETE AND REFERENCE MUST BE MADE DIRECTLY TO
SUCH DOCUMENTS AND RECORDS FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND
OBLIGATIONS OF THE PARTIES. COPIES OF SUCH DOCUMENTS, IF NOT INCLUDED HEREWITH,
ARE AVAILABLE, UPON REQUEST, FROM THE COMPANY WITHOUT CHARGE AND WILL BE MADE
AVAILABLE TO PROSPECTIVE INVESTORS FOR INSPECTION DURING NORMAL BUSINESS HOURS,
UPON REQUEST TO THE COMPANY.
EXCEPT AS HEREIN DISCUSSED, NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION CONCERNING THE COMPANY
OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. IN MAKING AN
INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
ANY ESTIMATES OR FORECASTS AS TO EVENTS THAT OCCUR IN THE FUTURE ARE BASED
UPON THE BEST JUDGMENT OF THE COMPANY'S MANAGEMENT AS OF THE DATE OF THIS
MEMORANDUM. WHETHER SUCH ESTIMATES OR FORECASTS MAY BE ACHIEVED WILL DEPEND UPON
THE COMPANY ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE AVAILABILITY OF
FUNDS, INCLUDING FUNDS FROM THE SALE OF THE SECURITIES OFFERED HEREBY. THERE IS
NO GUARANTEE THAT ANY OF THESE FORECASTS WILL BE ATTAINED. ACTUAL RESULTS WILL
VARY FROM THE FORECASTS AND SUCH VARIATIONS MAY BE MATERIAL.
NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS MEMORANDUM.
THE COMPANY MAY ACCEPT OR REJECT ANY OFFER TO PURCHASE THE SECURITIES
DESCRIBED HEREIN, IN WHOLE OR IN PART, FOR ANY REASON, AND THE COMPANY MAY
WITHDRAW OR CANCEL THE OFFERING WITHOUT NOTICE. AFFILIATES OF THE COMPANY MAY
ACQUIRE SECURITIES IN THIS OFFERING.
THE COMPANY RESERVES THE RIGHT TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS
THAN THE AMOUNT OF SECURITIES SUCH INVESTOR DESIRES TO PURCHASE.
THE COMPLETION OF EACH PURCHASE AND SALE OF THE SHARES WILL BE AT A PLACE
AND TIME SPECIFIED BY THE COMPANY AND THE PLACEMENT AGREEMENT AND IN ACCORDANCE
WITH THE PROVISIONS IN THE FORM OF SUBSCRIPTION AND REGISTRATION RIGHTS
AGREEMENT.
- --------------------------------------------------------------------------------
JURISDICTIONAL NOTICES AND REPRESENTATIONS
- --------------------------------------------------------------------------------
The following information is specifically directed to residents in each of
the states noted below. Each prospective investor is urged to review all of the
following information with specific focus on the particular information provided
for the state in which such investor resides:
7
<PAGE>
FOR CALIFORNIA RESIDENTS
THE SALE OF SECURITIES WHICH ARE THE SUBJECT OF THIS MEMORANDUM HAS NOT
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
FOR CONNECTICUT RESIDENTS
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION SET FORTH IN SECTION 36b-21(9)(A) OF SAID ACT AND
REGULATIONS PROMULGATED THEREUNDER. THE SECURITIES CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36b-16 OF SAID ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE PURSUANT TO SECTION 36b-21 OF SAID ACT.
FOR ILLINOIS RESIDENTS
THE OFFERING AND SALE OF THE SECURITIES OFFERED HEREBY HAS NOT BEEN
REGISTERED UNDER SECTION 5 OF THE ILLINOIS SECURITIES LAW, AND SUCH SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT UNDER SAID LAW OR IN A TRANSACTION WHICH IS
OTHERWISE IN COMPLIANCE WITH SAID LAW.
FOR NEW JERSEY RESIDENTS
THE SECURITIES REFERRED TO IN THIS MEMORANDUM WILL BE SOLD TO AND ACQUIRED
BY THE HOLDERS IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE NEW JERSEY
STATE UNIFORM SECURITIES LAW, SECTION 49-3-50(b)(12). THEREFORE, THE DEPARTMENT
OF LAW AND PUBLIC SAFETY, DIVISION OF LAW, BUREAU OF SECURITIES HAS NOT PASSED
ON THE ADEQUACY OF THE DISCLOSURE IN THE OFFERING LITERATURE OR ON THE MERITS OF
THIS OFFERING.
FOR NEW YORK RESIDENTS
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE ATTORNEY GENERAL OF NEW YORK OR
ANY OFFICIAL OF SIMILAR CAPACITY OF ANY STATE PASSED UPON THE ACCURACY,
ADEQUACY, OR COMPLETENESS OF THE MEMORANDUM OR THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR GEORGIA RESIDENTS
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
8
<PAGE>
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is required to file reports, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, and other information
may be inspected and copied at the Commission's public reference room located in
Room 1024 at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th
Floor, New York, New York 10048. The Commission also maintains a web site at
"http:\\www.sec.gov" where such material filed electronically can be examined.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission located in Room 1024 at 450 Fifth
Street, N.W., Washington, D.C. 20549 or, upon request, from the Company at no
charge.
The information set forth herein should be read together with, and is
qualified in its entirety by reference to the information contained in, the
Exhibits hereto. Prospective investors should read the Exhibits hereto,
including financial statements, in their entirety. To the extent that such
information is not consistent with the information set forth herein, the
information herein will be deemed superseded by the information contained in
such Exhibits.
- --------------------------------------------------------------------------------
CONCURRENT OFFERINGS
- --------------------------------------------------------------------------------
Concurrently herewith, the Company is making two private placements of its
securities (the "Concurrent Offerings") through H.J. Meyers & Co., Inc., as its
placement agent. These concurrent offerings are described in detail in the Draft
Registration Statement attached as Exhibit A hereto, under the caption
"Financing Activities".
- --------------------------------------------------------------------------------
CONFIDENTIALITY
- --------------------------------------------------------------------------------
The information contained in this Memorandum is confidential and
proprietary to the Company and is being submitted to prospective investors
solely for such investors' confidential use with the express understanding that,
without the prior written permission of the Company, such prospective investors
will not release this document or discuss the information contained herein or
make reproductions of or otherwise use this Memorandum for any purpose other
than evaluating a potential investment in the securities described herein. This
Memorandum contains certain financial and other information (incorporated by
reference or otherwise) concerning the Company which is material non-public
information and should be treated as confidential. Receipt and acceptance of
this Memorandum constitutes the recipient's acknowledgement that the information
contained herein will be maintained in strict confidence by the recipient and
will not be disclosed to any third parties.
A prospective investor, by accepting delivery of this Memorandum, further
agrees to promptly return to the Company this Memorandum and any other documents
or information furnished if the prospective investor elects not to purchase any
of the securities described herein or upon request of the Company.
9
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT EVALUATION
- --------------------------------------------------------------------------------
This Memorandum does not purport to be all-inclusive or to contain all of
the information that a prospective investor may desire in evaluating an
investment in the securities of the Company. Prior to the consummation of the
offer and sale of any of the securities described herein, the Company will
afford prospective investors an opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the securities
described herein, the Company or other relevant matters and to obtain additional
information to the extent the Company possesses such information or can acquire
it without reasonable effort or expense. Any such questions should be directed
to John L. Threshie at The Tirex Corporation, 740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5. Telephone: (514) 878-0727; Facsimile: (514) 878-9847.
No person or entity has been authorized to give any information or to make
representations about the Company or the Offering and, if given or made, any
such information or representation by any other person or entity must not be
relied upon as having been authorized by the Company. Each prospective investor
must conduct and rely on his own evaluation of the Company and the terms of the
Offering (including the merits and risks involved) in making an investment
decision with respect to the securities described herein. Investment in the
Shares involves a high degree of risk and is suitable only for investors capable
of sustaining a loss of their entire investment. See "RISK FACTORS" in Exhibit A
hereto.
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The Company is not required to sell any minimum amount of Shares in order
to terminate this Offering. The maximum amount of proceeds to the Company will
be $500,000. Substantially all of the proceeds from the sale of the Shares will
be used for working capital to cover the costs of completing construction, and
commencing operations, of the first TSC-1 System (which may include the purchase
of capital equipment) and for general daily operating expenses of the Company.
There can be no assurance concerning the date or dates in the future when
all or any portion of such funds will be applied as described above. The Company
does not intend to segregate the proceeds from the sale of the Shares from other
Company funds but rather will commingle the proceeds with other general
corporate funds and apply all such funds for the general corporate purposes of
the Company.
Prospective investors should note that, pursuant to the above, purchasers
of the Shares will be entrusting their funds to management, who will have broad
discretion in determining specific expenditures of the funds. Accordingly, this
uncertainty increases the risk of an investment in the Company since investors
will not have an opportunity to review and evaluate the specific expenditures
which may be made by the Company.
10
<PAGE>
- --------------------------------------------------------------------------------
TERMS OF THE OFFERING
- --------------------------------------------------------------------------------
General
The Offering made hereby consists of up to 5,000,000 Shares which are
being offered by the Company to certain "accredited investors" as that term is
defined in Section 501(a) of Regulation D of the Securities Act ("Accredited
Investors"). The Shares are being offered at a price of $0.10 per Share, on a
best efforts basis. The Company is not required to sell a specified minimum
number of the Shares in order to close the offering. As a result it will be
possible for the Company to discontinue the sale of the Shares without raising
sufficient proceeds to implement its business plan. This Offering will remain
open until April 1, 1998, unless extended unilaterally by the Company. The
Company reserves the right to increase the number of Shares being offered
hereby. The Company reserves the right to reject any subscription, to accept one
subscription over another, and to allocate available Shares among subscribers as
it deems appropriate.
Restrictions on Transferability
The securities described herein are: (i) not registered under the
Securities Act or the securities laws of any state; and (ii) are being offered
and sold in reliance upon exemptions from the registration provisions of federal
and state securities laws. Investors purchasing such securities will, therefore,
not be able to resell or otherwise transfer the Shares until they are registered
under the Securities Act or unless an exemption from the registration
requirements thereof is made available. Additionally, all applicable state laws
requiring registration or qualification must also be satisfied before any resale
or transfer of the securities is permitted.
Registration Rights
The Company will file a registration statement under the Securities Act of
1933, as amended (the "Act") covering the Shares as promptly as practicable
after the expiration of all presently outstanding offers for the sale of the
Company's securities and will use its best efforts to cause such registration
statement to be declared effective by the SEC as promptly as possible.
Investor Suitability Standards
An investment in the Shares is suitable only for sophisticated investors
who understand and are economically capable of accepting the risks associated
with a speculative investment, including the complete loss of such investment.
Shares will only be sold to "Accredited Investors" within the meaning prescribed
by Regulation D and Rule 501 of the Securities Act. Each investor will be
required to represent that: (i) he is an Accredited Investor; (ii) the
investment is suitable for him; (iii) he is purchasing the Shares for investment
and not with a view to a distribution or resale, and (iv) he is purchasing the
Shares for his own account and not for the account of others. The Company may
require additional information with respect to any subscriber. Subscription
information will be used by the Company to determine whether or not to accept
subscriptions and will be kept confidential and not disclosed except to counsel
and, if required, to governmental and regulatory authorities. The Company
reserves the right, in its sole discretion, to reject any subscription or to
accept one subscription over another.
11
<PAGE>
Further Information
Upon request, prospective investors will have the opportunity to meet with
and ask questions of the Officers and Directors of the Company concerning the
Company, its operations and prospects and the terms and conditions of the
Offering. The Company will provide prospective investors with such further
information as they may reasonably request to supplement the information
contained in this Memorandum. Prospective investors are urged to avail
themselves of this opportunity. All such additional information is considered
confidential and proprietary information of the Company and is subject to the
confidentiality restrictions applicable to the Memorandum. See "INDEPENDENT
EVALUATION."
Subscription Payments
The purchase price of Shares subscribed for must be paid by check payable
to the Company or wire transfer to the Company's account (wire transfer
instructions will be furnished on request). The minimum investment for each
investor is ___________ Shares, although the Company may, in its discretion,
accept subscriptions for lesser amounts and fractional Shares.
Possible Variance in Terms of Offering
The Company may, in its discretion and without notice to other investors
or offerees, offer the Shares to certain investors, who are not affiliates of
the Company, on terms more favorable than those set forth herein. The basis for
any such variance in the terms of the Offering will include, but may not be
limited to, the amount of the individual investment and the point in the
Offering Period when such investment is made. In such event, other investors
will not be entitled to rescission of their investments in this Private
Placement.
Effects of Possible Reverse Split
The Company intends to make a public offering of its Common Stock in the
near future (the "Proposed Public Offering"). The terms which have been proposed
for such offering will require that substantially fewer shares of the Company's
Common Stock be issued and outstanding prior to the commencement of the public
offering. There are presently 47,644,182 shares of the Company's Common Stock
issued and outstanding. The effectuation of such Public Offering will,
therefore, require a reverse split of the Company's securities. Such action will
affect the number of Shares held by the purchasers thereof.
12
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Registrant has two subsidiaries, as follows:
1. Canadian Corporation 3143619 (known and doing business as Tirex Canada
Inc.). 51% of the Capital Stock of Tirex Canada Inc. is held by Terence C. Byrne
and Louis V. Muro, officers of directors of the Registrant, who are Canadian
residents and who hold such stock for the benefit of the Registrant pursuant to
a shareholders agreement, filed with this Registration Statement or incorporated
herein by reference as Exhibits 10(f) and (g).
2. Tirex Acquisition Corp., a Delaware Corporation, wholly owned by the
Registrant.
[LETTERHEAD OF NEVOSO, PIVIROTTO, PINKHAM & FOSTER]
Independent Auditors Consent
We consent to the use in this Registration Statement of The Tirex
Corporation (formerly, "Tirex America, Inc.") on Form SB-2 of our report dated
May 18, 1998, appearing in the Prospectus, which is part of this Registration
Statement, relating to the financial statements of The Tirex Corporation, which
are contained in such Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Nevoso, Pivirotto, Pinkham & Foster
Nevoso, Pivirotto, Pinkham & Foster
Certified Public Accountants, PA
May 18, 1998
Fairfield, New Jersey
