SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission File Number 33-17598-NY
The Tirex Corporation
(Name of Small Business Issuer in Its Charter)
Delaware 22-3282985
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 St. Maurice
Montreal, Quebec H3C 1L5
(Address of Principal Executive Offices) (Zip Code)
(514) 878-0727
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ] No
[X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
$880,000
(Issuer's revenues for its most recent fiscal year)
$10,353,194 (as of February 4, 1999)
(Aggregate market value of the voting stock held
by non-affiliates of the Issuer)
78,095,141 (as of February 4, 1999)
(Number of shares outstanding of each of the Issuer's classes of common stock,
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
into Part I
Registration statement on Form S-18, as amended
File No. 33-17598-NY
Registration statement on Form SB-2, as amended
File No. 333-53255
Annual Report on Form 10-K of the Company for
the year ended December 31, 1988
Transition Report on Form 10-K of the Company
for the transition period
January 1, 1989 through June 30, 1989
Annual Reports on Forms 10-K of the Company for
the years ended June 30,
1989, 1990, 1991, 1992, 1993, 1994
Annual Report of Forms 10-KSB of the Company
for the years ended June 30, 1995, 1996 and 1997
Quarterly Reports of Forms 10-QSB of the Company
for the quarters ended September 30, 1997, December 31, 1997,
and March 31, 1998
Current Reports on Forms 8-K of the Company
Dated July 11, 1997, February 3, 1998, May 27, 1998, and
September 14, 1998
2
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
The Tirex Corporation (hereinafter, the "Company" or "Tirex") is engaged
in the early stages of the business of manufacturing, selling, and leasing a
patented "turn key" cryogenic tire recycling system (the "TCS-1 Plant") designed
and developed by Tirex, which breaks down used tires into cleanly separated and
re-saleable rubber crumb, steel wire, and fiber (see "Existing and Proposed
Businesses - Equipment Manufacturing"). 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(1) and to "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, does business directly, and indirectly
through its Canadian subsidiaries, The Tirex Corporation Canada Inc. and Tirex
Canada R&D, Inc. (formerly, 3143619 Canada Inc., and formerly known as "Tirex
Canada Inc.").
Since the beginning of 1993, the Company has devoted the bulk of its
efforts to completing the design and development, and commencing the
manufacture, of the TCS-1 Plant and raising the financing required for such
project. All major components of the TCS-1 Plant were successfully tested and
were operational on a non-continuous running basis by May 1998, with
approximately 85% of the TCS-1 Plant components meeting all of Tirex's
specifications. In December 1998, the Company began successfully operating the
first fully integrated TCS-1 Plant on a continuous-running basis for scheduled
periods of up to four hours, at 50% of capacity with one of its two freezing
towers and fracturing mills. This allows the TCS-1 Plant to process only the
tread portion of the tires. The addition of the second freezing tower and
fracturing mill, which is expected to be completed in April of 1999, will allow
for the processing also of the sidewall portion of the tire.
The Company is also in the process of establishing and initiating
operations in a second business segment which will involve owning and operating,
directly or indirectly, on exclusive or joint venture bases, product
manufacturing plants (the "Tirex Advanced Products Plants") which will utilize
TCS-1 Plants to produce recycled rubber crumb and which will manufacture
finished products out of such recycled material. The Company's initial
operations in this segment will be conducted pursuant to an agreement (the
"IM2/Tirex Agreement") with IM2 Merchandising and Manufacturing, Inc. ("IM2"),
in Quebec. Pursuant to the IM2/Tirex Agreement, the Company will act as IM2's
exclusive supplier of rubber welcome mats and related products molded out of
rubber crumb ("IM2 Products"). The Company intends to use rubber crumb produced
by the TCS-1 Plant which has been installed, and which will be operated, at the
Company's Montreal facility (see "Existing and Proposed Businesses - Proposed
TCS-1 Plant Operations: Sales of Rubber Crumb and Manufacture and Sale of
Finished Products").
The Company's wholly-owned subsidiary, The Tirex Corporation Canada Inc.
("TCCI") was formed on June 1, 1998, and on June 3, 1998, 3143619 Canada Inc.'s
name was changed to Tirex Canada R & D Inc. (hereinafter referred to as "Tirex
R&D"). The purpose of these changes was to transfer all business
- ---------
(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.
3
<PAGE>
activities, except those which constitute research and development activities
exclusively, from Tirex R&D to TCCI. On April 22, 1998 the Company formed
another wholly owned Canadian subsidiary now known as Tirex Advanced Products
Quebec, Inc. ("TAP"). This subsidiary is presently dormant. However, the Company
may, in the future, transact finished product manufacturing activities through
TAP. The Company also has another dormant, wholly owned subsidiary, formed under
the laws of the State of Delaware, Tirex Acquisition Corp. ("TAC"), for which
the Company has no present plans.(2) 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].
Although the Company has generated some limited revenues from operations,
it is still in the development stage. The Company began taking orders for TCS-1
Plants in October of 1995 and, to date, has taken orders on a total of fifteen
Plants from five customers, two of which have given refundable deposits of
$25,000 on one Plant each and one of which has given refundable deposits of
$25,000 on each of five Plants. Parts of one of the foregoing Plants (the "First
Production Model") have been delivered and the Company has received a total of
$880,000 in respect thereof. In December 1998, the Company entered into sale and
lease-back arrangements for other portions of the First Production Model,
pursuant to which it received a total of $300,000 (see, below, "Sale and
Lease-Back Transactions"). All undelivered orders are subject to change by
reason of several factors, including possible cancellation of orders, changes in
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
future revenues or profits. The ultimate consummation of each sale contemplated
by such orders will be entirely dependent upon the TCS-1 Plant's meeting
performance expectations, each customer's obtaining lease, or other financing
for the purchased portions of the TCS-1 Plant (as well as all required permits
and licenses to operate a system) and the Company's obtaining sufficient
production financing and capacity to meet delivery requirements. The Company
intends to retain ownership rights to the portions of the First Production
Model, not included in the portions sold for the $880,000 noted above, and to
use the entire First Production Model in the first Tirex Advanced Product Plant,
to be located in the Company's Montreal facility (see "Existing and Proposed
Business - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products", "Sales and Marketing - Agreements
with Oceans Tire Recycling and Processing Co., Inc.", and "Backlog"). With
respect to the commercial manufacture of TCS-1 Plants, the Company has located
and entered into written and oral agreements with various engineering and
manufacturing subcontractors and component suppliers, which Management believes
will give the Company sufficient production capacity to meet all current and
projected orders for TCS-1 Plants, as required, commencing in or about March
1999. At present, the Company has no scheduled delivery date obligations in
connection with any orders it has received to date. With respect to projected
rubber mat production operations, the Company has ordered the necessary
equipment for flocking and die-cutting. This equipment is expected to be
installed in March of 1999. For the primary molding of the rubber mats, the
Company is currently in the process of evaluating several alternative modes of
production, including in-house production as well as outsourcing to one or more
of numerous available sub-contractors. Decisions respecting such operations are
expected to be made by management during the first half of March 1999.
Absent any reference to "Canadian", "Cdn", or any other variant thereof,
all dollar amounts shown throughout this Report are in United States dollars.
Whenever any dollar amount has been translated from
- ---------
(2) Unless context necessarily requires otherwise, references hereinafter to
the "Company" refer to The Tirex Corporation and its subsidiaries, TCCI,
Tirex R&D, TAP and TAC, collectively.
4
<PAGE>
Canadian dollars into United States dollars or vice-versa, the exchange rate
used was one Canadian dollar (Cdn $1.00) for every United States seventy cents
(US$0.70). This was the approximate average exchange rate in effect during the
course of the fiscal year ended June 30, 1998. As of the close of the applicable
international currency market on February 19, 1999, the quoted exchange rate was
one Canadian dollar (Cdn$1.00) for every United States sixty-six and thirty-six
one hundredths cents (US$0.6636)
Sale and Lease-back Transactions
On December 16, 1998, the Company entered into two sale and lease-back
transactions by and among the Company, Northshore Leasing & Funding Inc.
("NLFI"), and Ocean Utility Contracting, Inc. ("OUCI"). Such transactions
consisted of the Company's sales to NLFI of the single fracturing mill and the
single freezing tower, which are components of the TCS-1 Plant installed at the
Company's Montreal facility and the lease back of such components to OUCI. The
Company received an aggregate of $300,000 by way of the purchase prices for the
two components. The Company and OUCI have agreed that all of OUCI's rights under
the leases will be assigned to the Company and the Company will assume all of
OUCI's liabilities thereunder. Both leases are for a sixty-month period
commencing on December 15, 1998, with monthly lease payments of $3,499.20
required under each of the two leases. Both leases also provide that at the end
of the lease term, the lessee will have the right to purchase the leased
equipment for $1.00. Such right to purchase will be included in OUCI's
assignment to the Company of its rights under the leases.
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 following 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. Through March 10, 1999, the principal amount of the Type A
Debentures and all interest due thereon is convertible into common stock at a
conversion ratio of 67.5% of the closing bid price of the Company's common
stock, as traded in the over-the-counter ("OTC") market and quoted in the OTC
Electronic Bulletin Board of the NASD, on the trading date immediately preceding
the date of the Company's receipt of a notice of conversion from a holder of the
Type A Debentures (the "Market Price"). Unless the registration
5
<PAGE>
statement discussed below is declared effective prior to June 11, 1999, the
conversion rate will decrease, on a monthly basis at a rate of 1.5% per month,
until such date, when it will stabilize at 61.5% of the Market Price. There is
no minimum conversion price. The Type A Debentures, as amended, are due and
payable on December 31, 1999 (the "Maturity Date") and are redeemable upon the
request of a holder at any time after the Maturity Date at 125% of the principal
amount plus all accrued, unpaid interest on the principal amount.
The resale of the 2,000,000 shares issuable pursuant to the exercise of
the Type A Warrants and the resale of the shares issuable pursuant to the
conversion of the Type A Debentures are being registered by way of inclusion in
the Company's registration statement on Form SB-2 filed with the Securities and
Exchange Commission on May 21, 1998 (Registration No. 333-53255), which has yet
to be declared effective (the "Registration Statement"). Following the effective
date of the Registration Statement, to the extent that they are acquired from
the Company, the shares underlying the Type A Warrants and Type A Debentures 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.
Merger with RPM Incorporated and 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 closing of a private placement of RPM's
securities (the "RPM Private Placement"), in which RPM had offered to sell, on a
best efforts 30 Units-or-none basis, up to 85 units of its securities (the "RPM
Units"), each such RPM 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. The closing took place upon the sale of 30.5
RPM Units. 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.
Such proceeds thereby inured to the benefit of the Company. 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;
After the Merger, the Company commenced the "Type B Private Placement", in
which it offered and sold the same type of securities, as were sold in the RPM
Private Placements, i.e., the securities offered in the Type B Private Placement
consisted of "Type B Units" each consisting of 10,000 shares of the Company's
common stock and one convertible Subordinated Debenture of the Company in the
principal amount of $10,000 (the "Type B Debenture"). The number of Type B Units
offered (54.5) was equal to the number of RPM Units remaining unsold as at the
time of the Merger.
6
<PAGE>
Prior to the Merger, RPM and the Company were completely separate
entities. However, the RPM Private Placement, the merger, the exchange of RPM
common stock for Company common stock, and the subsequent Type B Private
Placement by Tirex were at all times contemplated as interdependent transactions
and described in the RPM Private Placement Memorandum as such. Thus the
contemplated post-merger Type B Private Placement was viewed as being a
"continuance" of the RPM Private Placement. The Type B Private Placement
differed from the RPM Private Placement only insofar as: (i) in the RPM Private
Placement, RPM offered and sold shares of RPM common stock, which were to be
exchanged for Company common stock in the merger, while in the post-merger Type
B Private Placement, the Company offered and sold shares of Company common
stock; and (ii) in the RPM Private Placement, RPM offered and sold RPM
debentures, which were to be assumed by the Company in the Merger, while in the
Type B Private Placement, the Company offered and sold Company Type B
Debentures. Except for the above, the terms of the securities included in the
Type B Units were identical to those included in the RPM Units
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"), provide for: (i) the registration of the shares (the "Type B
Conversion Shares") issuable upon the conversion of the Type B Debentures; and
(ii) 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 Type B
Debentures. 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 principal amounts of the Type B
Debentures 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 Company. The Type B Debentures bear interest at the annual
rate of 10% from the date of issuance (the "Issuance Date"), payable
semi-annually, commencing six months from the Issuance Date. The company is
presently in default on interest payments due on the Type B Debentures. As of
February 16, 1999, the Company had not received any demands for interest
payments from any of the holders of the Type B Debentures. The Company intends
to pay all interest due and payable as soon as the funds required to do so are
available.
The resale of shares of the Company's common stock issuable pursuant to
the conversion of the Type B Debentures, are being registered by way of
inclusion in the Registration Statement.
Pre-Placement RPM Shares
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 the 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 Dr. Eugene Stricker and Mr. Mark
Schindler who were, prior to the Merger, RPM's principal shareholders, officers,
and directors (the "RPM Consulting Agreement"). Pursuant to the RPM Consulting
Agreement, Dr. Stricker and Mr. Schindler rendered, and continue to render,
consulting services to the Company concerning matters in connection with the
operation of the business, equipment financing, corporate acquisitions, mergers
and other business combinations, as well as management, corporate
7
<PAGE>
planning, marketing, organization and related matters. None of the RPM
Shareholders had any affiliation of any kind with the Company prior to or after
the Merger (except insofar as they have become shareholders of the Company 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.
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 11,760,000 shares of the Company's
common stock (the "Type C Shares") at a price of $.10 per share, yielding
proceeds of $1,176,000, 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 11,760,000 Type C Shares which were sold are being registered for
resale to the public by the holders thereof by way of their inclusion in the
Company's Registration Statement.
Registration Statement
On May 21, 1998, the Company filed a Registration Statement on Form SB-2
(Registration No. 333-53255) with the Securities and Exchange Commission, for
the registration of the resale of certain presently outstanding shares of the
Company's common stock and an undetermined number of shares issuable upon the
conversion or exercise of certain presently outstanding debentures, options, and
warrants. None of the shares included in the Registration Statement are being
offered for sale by the Company and the Company will receive no proceeds from
the resales of any of the shares included therein.
The shares of common stock being registered pursuant to the Registration
Statement include: (i) 11,952,857 presently outstanding shares of the Company's
common stock which are being offered by 58 selling shareholders including
11,760,000 shares issued to 57 persons in the Type C Private Placement
8
<PAGE>
described under "Material Financing Activities" and 192,857 shares issued in
November 1998 to one individual; (ii) shares underlying an option issued to CG
Tire Inc. ("CGT") on April 24, 1997, for the purchase, prior to April 23, 2000,
of the number of shares which would constitute upon their issuance, on a fully
diluted basis, up to ten percent (10%) of the 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 for the Company's common stock during
the ten business days preceding the date of exercise; (iii) 2,000,000 shares
issuable upon the exercise of the Type A Warrants issued in the Type A Private
Placement described under "Material Financing Activities"; (iv) 2,000,000 shares
issuable upon the exercise of currently outstanding common stock purchase
warrants (the "SCT Warrants") to purchase 666,666 shares of the Company's common
stock at an exercise price of $.25 per share, 666,666 shares of the Company's
common stock at an exercise price of $.40 per share, and 666,666 shares at an
exercise price of $.50 per share; (iv) shares issuable upon the conversion of
the Type A Debentures, issued in the Type A Private Placement described under
"Material Financing Activities", in the aggregate principal amount of $500,000
at a conversion rate equal to a maximum of 67.6% and a minimum of 61.5% of the
closing bid price of the Company's common stock on the trading date immediately
prior to the date upon which the Company receives a notice of conversion (see
the discussion, above, in this section, under the subcaption "The Type A Private
Placement"; and (v) 2,675,000 shares issuable upon the conversion of the Type B
Debentures, issued under the Type B Private Placement described under "Material
Financing Activities" in the aggregate principal amount of $535,000. (At the
option of the holders of the Type A and Type B Debentures, all unpaid interest
accrued on the Debentures, through the date of conversion, may also be converted
into shares of the Company's common stock).
The Company is presently preparing to file an amendment to such
Registration Statement and expects to do so as promptly as practicable following
the filing of this Report.
Existing and Proposed Businesses
Canadian Operations
The governments of Canada and Quebec, have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of scientific research tax
incentives to businesses and individuals. As a result of the combined efforts of
both levels of government, Quebec offers the most generous tax incentives for
research and development programs of which the Company is aware.
In May of 1995, in order to take advantage of such financial incentives in
connection with the research and development work on the first production model
of the TCS-1 Plant, the Company formed a Canadian corporation, 3143619 Canada
Inc. (formerly referred to as "Tirex Canada Inc."). On June 3, 1998, Tirex
Canada Inc.'s name was changed to Tirex Canada R&D Inc. and is hereinafter
referred to as "Tirex R&D". On April 22, 1998, the Company formed a second
Canadian corporation, 3477584 Canada Inc., the name of which was changed to
Tirex Advanced Products Quebec Inc on June 3, 1998 ("TAP"). TAP is a
wholly-owned subsidiary of The Tirex Corporation and is presently dormant. On
June 1, 1998, the Company formed a third Canadian corporation, "The Tirex
Corporation Canada Inc.", referred to herein as "TCCI". TCCI is a wholly-owned
subsidiary of The Tirex Corporation. The purpose of the above described
corporate formations and name changes was to position the Company to dedicate
Tirex R&D's activities solely and exclusively to research and development and to
establish TCCI as the Company's manufacturing arm.
9
<PAGE>
To qualify for Canadian Government grants and tax benefits, the record
owners of 51% of the issued and outstanding capital stock of Tirex R&D are
Terence C. Byrne, chairman of the board of directors and chief executive officer
of The Tirex Corporation and Louis V. Muro, vice president of engineering and a
member of the board of directors of The Tirex Corporation, both of whom are
Canadian residents. Terence C. Byrne also serves as the chairman of the board of
directors and the chief executive officer of Tirex R&D while Louis V. Muro also
serves as a vice president and a director of Tirex R&D. The Tirex Corporation is
the record holder of the balance of 49% of the issued and outstanding capital
stock of Tirex R&D. Messrs. Byrne and Muro hold their Tirex R&D shares under the
terms of the shareholders agreement, dated July 3, 1995, as amended February 2,
1996 and August 27, 1997 (The "Tirex R&D Shareholder Agreement") which will
require them to transfer all such shares to the Company for no compensation in
2001 or earlier under certain circumstances.
The Tirex R&D License
Tirex R&D holds an exclusive, ten year license from the Company, which
expires on July 2, 2005, to design, develop, and manufacture the TCS-1 Plant in
North America (the "Primary License"). The terms of the Primary License provide
that Tirex R&D may manufacture TCS-1 Plants only upon and pursuant to specific
purchase orders issued by The Tirex Corporation and requires that Tirex R&D sell
all TCS-1 Plants which it manufactures exclusively to, or as directed by, The
Tirex Corporation. To the extent necessary to insure that Tirex R&D's operations
are limited to pure research and development activities, Tirex R&D will
sublicense the Primary License to TCCI. Unless context necessarily requires
otherwise, the terms of the sublicense will be identical to those of the Primary
License. To the extent necessary to achieve the aforesaid goals, all other
contracts to which Tirex R&D is a party, will be transferred and assigned, in
whole or in part, from Tirex R&D to TCCI, The Tirex Corporation, or any other
existing or future subsidiary or affiliate of The Tirex Corporation, as
management shall determine.
Canadian Government and Government Sponsored Financial Assistance
The Company's May 1995 transfer of its research and development and
manufacturing activities to Tirex R&D (then referred to as "Tirex Canada") made
the Company eligible for various Canadian and Quebec government programs which
provide loans, grants, and tax incentives, as well as government guarantees for
loans from private lending institutions, for eligible investment, research and
development, and employee-training activities.
The financial assistance which the Company received under these programs
is discussed briefly below, under the subcaptions "Tax Incentives" and "Canadian
Government and Government Sponsored Loans and Grants". A discussion in more
detail of the terms and provisions of these various types of financial
assistance, which the Company received, is included in Item 6 of this Report,
"Management's Discussion and Analysis".
Tax Incentives
Canadian and Quebec tax incentives take the form of deductions and tax
credits with respect to eligible research and development expenditures of Tirex
R&D. Certain tax credits 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. 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
10
<PAGE>
develop new processes, materials, products or devices or to enhance, even
slightly, existing processes, materials, products, or devices.
Canadian Government, and Government Sponsored Loans and Grants
The Company has also received financial assistance by way of loans and
grants from Quebec governmental agencies for the design and development of the
TCS-1 Plant and for export market development. The terms and conditions of the
government and government sponsored loans and grants obtained by the Company are
discussed in Item 6 of this Report "Management's Discussion and Analysis".
Briefly, they have included the following:
$500,000 (Canadian) Regional Development Loan From Canadian Federal
Government. In March of 1996, the Company qualified for an interest-free,
unsecured loan (the "FORDQ Loan") in the amount of CA $500,000, (approximately
US $350,000) from the Canadian federal government agency, Canada Economic
Development for Quebec Regions ("CEDQR"), formerly known as The Federal Office
for Regional Development-Quebec (sometimes referred to herein as "FORDQ") under
its Industrial Recovery Program for Southwest Montreal, which is administered by
CEDQR. The purpose of the government program, under which this loan was made, is
to encourage industrial development in Southwest Montreal, where the Company's
corporate headquarters and its manufacturing facility are located.
$75,000 (Canadian) Grant From La Societe Recyclage Quebecoise de
Recuperation et de Recyclage ("Recyc Quebec"). In April of 1997, the Company
qualified for a grant from Societe Quebecoise de Recuperation et de Recyclage
("Recyc-Quebec"), a self-financed State owned corporation 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. Under its mandate, Recyc-Quebec will
provide financial aid for tire recycling projects. The purpose of this grant to
the Company was to support the design, development, and construction of the
first TCS-1 Plant.
Loans From the Canadian Federal Office of Regional Development - Quebec
("FORDQ"). FORDQ's Program for the Development of Quebec's IDEA Program provides
loans in amounts of up to 50% of approved expenditures made by the borrower for
the purpose of identifying and developing export markets for Canadian products.
Under this program, the Company has had its application approved, and or
obtained, a total of five loans under this program, as follows:
(a) On January 16, 1997, the Company qualified for a loan, in an amount
equal to 50% of approved expenditures, up to a maximum loan amount
of $20,000 Canadian (approximately $14,000 U.S.) for a Market Study
respecting the feasibility of marketing TCS-1 Plants in the Iberian
Peninsula. Such study (the "Iberian Report") was done by Gapco,
Inc., a corporation controlled by Alan Crossley, who thereafter
became the Company's Director of European Marketing. As compensation
therefor Mr. Crossley received an aggregate of $40,000 Canadian
consisting of a combination of cash and stock. The stock portion of
such compensation was paid on May 29, 1997 with the issuance of
84,658 shares of the Company's common stock. Mr. Crossley was until
February 11, 1999, a director of the Company. In July 1997, Mr.
Crossley was appointed as the Company's Managing Director of
European Market Development (see "Existing and
11
<PAGE>
Proposed Businesses"). The Iberian Report is discussed below in the
subtopic "Marketing and Distribution - Combined Segments" under the
caption, "Marketing Activities".
(b) On April 1, 1997, the Company qualified for a loan, in an amount
equal to 50% of approved expenditures, up to a maximum loan amount
of $20,000 Canadian (approximately $14,000 U.S.) for a Market Study
respecting the feasibility of marketing TCS-1 Plants in India. Such
study (the "Indian Report") was done by Gapco, Inc., a corporation
controlled by Alan Crossley. As compensation therefor, the Company,
paid Mr. Crossley $40,000 Canadian.
(c) On July 7, 1997, the Company qualified for a loan, in an amount
equal to 50% of approved expenditures, up to a maximum loan amount
of $95,000 Canadian (approximately $66,500 U.S.) for market
development activities in the United States markets for rubber
crumb. The proceeds of this loan were used to pay for research
activities respecting the potential market in the United States for
TCS-1 Plants and for the rubber crumb that is expected to be
produced thereby ("Tirex Rubber Crumb"). The nature and results of
these activities are discussed below in the subtopic "Marketing and
Distribution - Combined Segments" under the subcaption, "Marketing
Activities".
(d) On June 10, 1997, the Company qualified for a loan, in an amount
equal to 50% of approved expenditures, up to a maximum loan amount
of $95,000 Canadian (approximately $66,500 U.S.) for Iberian market
development activities related to positioning the company to market
TCS-1 Plants, rubber crumb, and related products in the Iberian
Peninsula. The activities conducted in this regard are discussed
below in the subtopic "Marketing and Distribution - Combined
Segments" under the subcaption, "Marketing Activities".
(e) On March 11, 1998, the Company qualified for a loan, in an amount
equal to 50% of approved expenditures, up to a maximum loan amount
of $98,000 Canadian (approximately $68,600 U.S.) for international
market development activities, which the Company used to explore the
feasibility of using rubber crumb in thermoplastic elastomer
compounds in the United States and Canada. The activities conducted
in this regard are discussed below in the subtopic "Marketing and
Distribution - Combined Segments" under the subcaption, "Marketing
Activities".
Tirex Advanced Products Manufacturing Activities
The Company intends to establish and operate its first proposed Tirex
Advanced Products manufacturing activities at its Montreal research and
development and assembly facility. It is the intention of the Company that these
operations will be conducted, exclusively, or on a joint venture basis with a
third party, through the Company's wholly-owned Canadian subsidiary, TCCI (see
"Existing and Proposed Businesses - Proposed TCS-1 Plant Operations: Sales of
Rubber Crumb and Manufacture and Sale of Finished Products").
12
<PAGE>
Equipment Manufacturing
Product: The TCS-1 Plant
The TCS-1 Plant comprises a complete, turn-key, environmentally safe,
cryogenic tire recycling plant 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. All major
components of the first full-scale TCS-1 Plant (the "First Production Model")
were successfully tested and were operational on a non-continuous running basis
by May 1998. In mid-June 1998, the Company initiated the second stage of
testing, which consisted of testing all major components and all functions of
the First Production Model, individually, on a continuous running basis. Results
of second stage tests, as at September, 1998 indicated that approximately 85% of
the TCS-1 Plant components met all of the Company's specifications and that
modifications were required in certain components in order for the complete
Plant to operate fully in accordance with the Company's specifications.
Continuous testing of the Plant components also enabled Tirex to identify
opportunities to increase the TCS-1 Plant's cost and operating efficiency. In
September 1998, the Company retained the Montreal engineering firm of Beaudoin,
Hurens and Associates, Inc. ("BHA") to: (i) prepare and/or finalize all design
and engineering drawings, operation and technical manuals, and other
documentation respecting the TCS-1 Plant; and (ii) make an independent
engineering assessment of Tirex's findings from its first and second stage
testing of the TCS-1 Plant to verify and authenticate the modifications which
were required to bring the Plant into full compliance with projected performance
specifications. BHA assisted the Company in implementing all required or
recommended changes and will serve as engineering project manager during the
final stage of preparation for full scale commercial operations. The Company has
also retained Plasti-Systemes Inc. of Montreal to do all mechanical fabrications
required during this final stage of the project. The required modifications were
completed subsequent to the period covered by this Report in December of 1998 on
a single fracturing mill and a single freezing tower in the First Production
Model. Completion of the second fracturing mill and freezing tower, which will
be included therein, is scheduled to occur in April of 1999. Present estimations
for commencement of full scale commercial manufacture of TCS-1 Plants are now
projected for March of 1999. For a discussion of the associated costs and
financing of the above, reference is made to Item 6 of this Report,
"Management's Discussion and Analysis
The functions and mechanisms of the TCS-1 Plant 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 Plant 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;
* 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.
13
<PAGE>
Economy, Functions, Operations, and Capabilities
The TCS-1 Plant 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, to the
best of the Company's knowledge, by other presently existing tire recycling
equipment. The TCS-1 Plant is expected to be able to process both automobile and
truck tires at a rate equivalent to 180 passenger tires per hour on a
continuous, commercial operations basis. To date, the Company has succeeded in
operating the TCS-1 Plant for scheduled periods of up to four hours, at 50% of
capacity with one of its two freezing towers and fracturing mills. This allows
the TCS-1 Plant to process only the tread portion of the tires. The addition of
the second freezing tower and fracturing mill, which is expected to be completed
in April of 1999, will allow for the processing also of the sidewall portion of
the tire. Results of operations to date indicate that the TCS-1 Plant is
presently capable of processing passenger car tires at a rate of three per
minute.
The following discussion of the functions, operations, and capabilities of
the TCS-1 Plant are based upon engineering design plans and specifications and
first and second stage test operations of the first production model of the
TCS-1 Plant. This discussion assumes that the TCS-1 Plant will function in
accordance with projected performance specifications on a continuous, long term,
commercial operating basis. There can however be no assurance, at this time,
that the foregoing assumptions will prove to be correct when the Plant is
operated over extended periods of time on a commercial basis.
Step-by-Step Operations
The projected step-by step operations of the TCS-1 Plant 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
Plant's freezing chambers through separate air locks.
(d) The frozen sections will then pass through two patented
disintegrators ("Fracturing Mills") 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 Plant.
(h) 70% of the rubber powders yielded by the TCS-1 Plant 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.
14
<PAGE>
Comparison of the Projected TCS-1 Plant
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"; cryogenic systems and
"ambient" systems. Management believes that the TCS-1 Plant will have 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 Plant, 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 temperatures is compounded by the fact that all of the steel in the
tire is also being chopped and shredded.
Projected
TCS-1
System
Methods
The projected TCS-1 Plant 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.
15
<PAGE>
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 Plant. 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.
Equipment, Energy and
Maintenance Requirements
The projected TCS-1 Plant 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 condiiton 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 Plan will be comparatively light in terms of
bulk and weight. Moreover, the TCS-1 Plan 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
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, costing approximately $.04 per pound of tire.
Cooling Techniques
The TCS-1 Plant will be designed to use mechanical regrigeration to coll the
tires to the required temperatures. Mechanical refrigeration is normally less
expensive to use than liquid nitrogen and the Company expects its cost be be
approximately $.01 per pound of tire.
Costs and Expenses
As a result of the foregoing, initial capital outlays for the equipment and
continuing energy and maintenance costs are high.
Costs and Expenses
The foregoing is expected to result in significantly smaller initial capital
requirements and drastically lower continuing energy and maintenance costs.
16
<PAGE>
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. Finally, these pieces are pulverized into a coarse powder or crumb in a
hammer mill. 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 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
Avoidance of Problems Associated With Tire
Disintegration Methods in Current Use.
The proposed TCS-1 Plant 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 Plant disintegration process is not expected to break the steel wires or
to affect their integrity in any way. Based upon continuous tests to date, the
TCS-1 Plant's proprietary disintegration mechanism does not create steel powder;
this results 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 does not lose its thread or cord-like configuration, is broken
in the disintegration process into lengths of from 1/2 to 4 inches. Rubber that
is attached to the fiber constitutes a saleable product with unique properties.
Furthermore, test operations to date, 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 Plant 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 Plant will yield clean useable, and saleable
reclaimed steel and fiber as well as two types of rubber powder
17
<PAGE>
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.
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% percent 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
containing only insignificant amounts of fiber and steel.
18
<PAGE>
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%
percent 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% percent, 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
percent, 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 Plant'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's activities to date have focused on the design and
development of the TCS-1 Plant. 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 Plant (see
"Subcontractors", below).
The Company has effected, and intends to continue to effect, all TCS-1
Plant 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 Plant 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
the Company to meet all TCS-1 Plant delivery dates, currently scheduled or
expected to be scheduled for not less than the next two years. However, no
assurance can be given that
19
<PAGE>
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 Plants 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 Plants, which are not manufactured by the Company's
subcontractors specifically for the TCS-1 Plant, 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.
Subcontractors
The Company has retained the following machinery manufacturing,
engineering and designing firms located in Quebec:
Beaudoin, Hurens and Associates, Inc. On September 21, 1998, the Company
accepted the proposal of Beaudoin, Hurens and Associates, Inc. to: (i) prepare
and/or finalize all design and engineering drawings, operation and technical
manuals, and other documentation respecting the TCS-1 Plant; and (ii) make an
independent engineering assessment of Tirex's findings from its first and second
stage testing of the TCS-1 Plant to verify and authenticate the requirements for
the modifications which the Company believes are required to bring the Plant
into full compliance with specifications. BHA assisted the Company and its
subcontractors in effecting the required modifications and is continuing to work
with the Company on fine tuning and enhancing the operation of the Plant. BHA is
also currently serving as engineering project manager during what Tirex believes
is the final stage of preparation for full scale commercial operations. BHA is
presently in the process of reducing its agreement with the Company to a formal,
written agreement which will reflect their standard charges for engineering
services at an hourly rate of CA $60.00 (approximately US $42.00). Based on
present estimates, the Company believes that BHA's total fees will be
approximately US $200,000.
Fedico, Inc. In January of 1997, the Company retained Fedico, Inc. of
St-Hubert, Quebec ("Fedico"), a machinery design firm located in Quebec. Prior
thereto, Fedico had been providing the Company with consulting and other design
engineering services and had acted as project leader, guiding the over-all
design and engineering of the TCS-1 Plant. In addition to supervising the
over-all assembly and start-up procedures of the first full-scale production
model of the TCS-1 Plant, Fedico designed, engineered, and fabricated certain
components of the Plant, including but not limited to the freezing towers. The
Company's agreement with Fedico provided for 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. During second stage testing, certain deficiencies in
the components designed and/or manufactured by Fedico were identified. Fedico's
work for the Company is presently limited to the correction of such
deficiencies. The Company is presently reevaluating future assignments to Fedico
based upon its past performance and its current remediation of defects arising
therefrom. The Company has been invoiced by Fedico for the work which the
Company believes did not, in all instances, meet specifications. In the event
that, upon completion of its evaluation of Fedico's performance, the Company
should decide to terminate its relationship with Fedico, the Company will
invoice Fedico for the costs of correcting deficiencies caused by Fedico. Based
upon the foregoing, in the event that the Company terminates its relationship
with Fedico following such evaluation, the Company does not believe that it will
be liable for any further payments to Fedico.
20
<PAGE>
Agreement with Lefebvre Freres Limitee. In January of 1997, the Company
retained 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. Since the spring of 1996,
Lefebvre has provided the Company with design consulting and other design
engineering services; Lefebvre designed and constructed the prototype fracturing
mill for the TCS-1 Plant 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 Plant's Disintegration Unit
Assembly. Lefebvre delivered the two completed fracturing mills for the first
TCS-1 Plant during the last week in May 1998. During continuous testing
operations, which began on June 15, 1998, certain deficiencies in the
components, which Lefebvre was responsible for designing and manufacturing, were
identified. As a result, certain modifications were required to be made in the
fracturing mills to bring them into conformance with their operating
specifications. Lefebvre advised the Company that, if they were to effect such
modifications, they would require approximately three additional months plus
additional costs in an indeterminate amount. The Company suspended further
services by Lefebvre and contracted with Plasti-Systemes to complete the
modifications on the fracturing mills (see, below "Agreements With
Plasti-Systemes, Inc."). Lefebvre's work for the Company is presently limited to
the correction of deficiencies and the Company is presently reevaluating future
assignments to Lefebvre based upon its past performance and its current
remediation of defects arising therefrom. The Company has been invoiced by
Lefebvre for the work which the Company believes did not, in all instances, meet
specifications. In the event that, upon completion of its evaluation of
Lefebvre's performance, the Company should decide to terminate its relationship
with Lefebvre, the Company will invoice Lefebvre for the costs of correcting
deficiencies caused by them. Based upon the foregoing, in the event that the
Company terminates its relationship with Lefebvre following such evaluation, the
Company does not believe that it will be liable for any further payments to
Lefebvre.
Agreements with Plasti-Systemes, Inc. Plasti-Systemes, Inc. "Plasti-Systemes")
of Ville D'Anjou Quebec designed, constructed, and installed the first
fully-automated front-end sidewall cutter and debeader module "front-end" of the
TCS-1 Plant which consists of a series of mechanisms which automatically: (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 has been completed. On January 17, 1997, Plasti-Systemes accepted
payment of 26% of its total price for the foregoing services by way of 255,010
unregistered shares of the common stock of the Company. The Company has retained
Plasti-Systemes to identify and effect, under supervision of BHA, the
modifications required to bring the fracturing mills into conformance with their
operating specifications. Costs are to be limited to materials costs and labor
at prevailing hourly rates. The Company does not expect such costs to exceed CA
$75,000 (or approximately US $52,500).
Formerly Proposed Services
In the past, the Company had intended to require all of its TCS-1 Plant
purchasers to agree to enter into a maintenance and technical and market support
agreement. In connection with which the Company had intended to provide timely,
high quality technical support to insure that the TCS-1 Plant will perform in
conformance with its specifications. However, as at the date hereof, the Company
has been unable to determine what the maintenance requirements or costs will be
under commercial operating conditions. Therefore, the Company is not presently
offering any maintenance or technical and market
21
<PAGE>
support agreements and does not intend to do so until it is able to establish
the level of maintenance fees which it would have to charge in order to make the
provision of such services economically viable.
Sales and Marketing
The Company's present and projected marketing plans respecting TCS-1
Plants, crumb rubber produced from TCS-1 Plant Operations, and the proposed
"Tirex Advanced Products" are discussed below under the caption "Company
Marketing and Distribution".
TCS-1 Plant Sales
Sales
The Company's present and projected marketing plans respecting TCS-1
Plants are discussed below under the caption "Company Marketing and
Distribution". The Company has entered into agreements for the following sales
of TCS-1 Plants. The ultimate consummation of each of such sales will be
entirely dependent upon the TCS-1 Plant's meeting performance expectations, each
customer's obtaining lease, or other financing for the purchased portions of the
System (as well as all required permits and licenses to operate a System), and
the Company's obtaining sufficient production financing and capacity to meet
delivery requirements.
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 Oceans Tire Recycling & Processing Co.,
Inc. ("OTRP") and with the solid waste recycling firm, Ocean County Recycling
Center, Inc. (see, below "Agreements with Oceans Tire Recycling & Processing
Co., Inc."). Under the terms of the O/V III Agreement, O/V III will purchase and
lease the respective components which comprise the constituent parts of the
TCS-1 Plant. The Agreement provides for lease and purchase arrangements for
eight Plants 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, all components of each
Plant, except the Company's patented disintegration system or "Fracturing Mill"
(the "Purchasable Equipment") will be purchased by O/V III for a total purchase
price of $2,250,000. Such Purchasable Equipment includes: (i) the fully
automated front-end sidewall cutter and debeader module; (ii) the air plant and
freezing towers; and (iii) all bailing systems and associated ancillary
equipment, conveyance and exit belts, chutes and/or other components combined or
integrated therewith.
The patented Fracturing Mills, which are sometimes referred to hereinafter
as the "Leased Equipment" are not sold by the Company, but are leased under a
five year operating lease. Under the terms of the O/V III L&P Agreement, the
monthly operating lease payments are $12,500 each.
The O/V III L&P Agreement called for the delivery of the first Plant by
October 1998, with seven additional Plants 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 first production model of
the TCS-1 Plant was
22
<PAGE>
delayed, OV III waived the originally scheduled delivery dates and agreed with
the Company that they would reschedule delivery of the first of these Plants for
an as yet undetermined date. In May 1997, O/V III waived its right to purchase
the first complete, fully operational TCS-1 Plant (the "First Production Model")
in favor of its affiliated corporation, Oceans Tire ("OTRP"), which had
contracted separately with the Company for the lease and purchase of one
additional Plant (see below, "Agreements with Oceans Tire Recycling & Processing
Co., Inc." and "Proposed Product Manufacturing).
The O/V III L&P Agreement requires a downpayment of $25,000 for each
Plant, 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 Plants.
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 $2,075,000 on O/V III's acceptance of the Plant.
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
Plant;
(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the Company an
option to purchase up to 40% of the rubber crumb, yielded by the
disintegration of scrap tires in the TCS-1 Plant, 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.
In accordance with the former intention of the Company to require all of
its TCS-1 Plant purchasers to agree to enter into a maintenance and technical
and market support agreement, O/V III agreed that it would enter into such an
agreement. However, for reasons described above, under "Formerly Proposed
Services", as at the date hereof, the parties do not presently intend to go
forward with any maintenance arrangements.
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 was to purchase the first production
model TCS-1 Plant. Under the terms of the OTRP L&P Agreement, the anticipated
delivery date for this Plant was September 15, 1997. However, while construction
of the first full scale prototype of the TCS-1 Plant began in February of 1997,
its completion was delayed because of the limited funds available for such
purpose. As a result, OTRP waived the delivery date and agreed to reschedule
delivery. In December 1997, OTRP and the Company agreed that, to the extent
necessary for OTRP to obtain sale and lease-back financing for the front-end
module ("Front-End") and for certain parts of the Air Plant portion of the
Plant, the said OTRP Agreement would be deemed to be modified, as required for
such purpose. In connection therewith OTRP arranged with an equipment financing
company for sale and lease-back financing, pursuant to which: (i) the said
financing company purchased the Front-End and certain designated portions of the
TCS-1 Plant's Air Plant directly from the Company; and (ii)
23
<PAGE>
leased such equipment back to OTRP pursuant to its arrangements with OTRP and/or
the OTRP principals. The Front-End was delivered to OTRP's site in New Jersey in
January of 1998. The parties rescheduled a new delivery date for the Air Plant,
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 Plant, which had
originally been delivered to OTRP in New Jersey, to the Company Facility and
OTRP's equipment financing provider took delivery of the balance of the Plant at
the Company Facility. This allowed for the assembly of the First Production
Model of the TCS-1 Plant, and the initial test phase operations thereof to be
conducted under supervision of both the Company and OTRP, jointly. The Company
sold the Front-End for a total purchase price of $300,000, with irrevocable
acceptance and final payment therefor obtained by the Company in December of
1997. The designated portions of the Air Plant were sold for a total purchase
price of $580,000, with irrevocable acceptance and final payment therefor
obtained by the Company in April of 1998.
It is the present intention of the parties to reform or rescind the
remaining provisions of the OTRP Agreement for the purpose of transferring
ownership of the entire First Production Model to the Company, any one of its
existing subsidiaries, or to some other entity established jointly, or singly,
by the parties, or either one of them, for such purpose. The structure and terms
of the ownership of the First Production Model have not yet been finalized.
However, in connection therewith, on December 16, 1998, the Company entered into
two sale and lease-back transactions by and among the Company, North Shore
Leasing & Funding Inc. ("NLFI"), and an affiliate of OTRP, Ocean Utility
Contracting, Inc. ("OUCI"). Such transactions consisted of the Company's sales
to NLFI of the single fracturing mill and the single freezing tower, which are
components of the TCS-1 Plant installed at the Company's Montreal facility and
the lease back of such components to OUCI. The Company and OUCI have agreed that
all of OUCI's rights under the leases will be assigned to the Company and the
Company will assume all of OUCI's liabilities thereunder. Both leases provide
that at the end of the lease term, the lessee will have the right to purchase
the leased equipment for $1.00. Such right to purchase will be included in
OUCI's assignment to the Company of its rights under the said leases (see this
Item 1. "Existing and Proposed Businesses - Proposed TCS-1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products Product
Manufacturing").
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 Plant. The Agreement calls for a delivery
date at the end of the second quarter of 1998 or such other date as the parties
shall mutually agree. To date, the Company has not been able to deliver a TCS-1
Plant to Recycletron and does not expect to be able to do so until after the
current fiscal year. To the best of the Company's knowledge, Recycletron is
willing to schedule a delivery date within such time frame. The terms of the
Recycletron L&P Agreement, pursuant to which the constituent components of the
TCS-1 Plant 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 Purchasable 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 Plant.
24
<PAGE>
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. However, for reasons described above, under
"Formerly Proposed Services", as at the date hereof, the parties do not
presently intend to go forward with any maintenance arrangements.
Agreements with 750824 Alberta Ltd.
On December 12, 1997, the Company entered into an Equipment Lease and
Purchase Agreement (the "Alberta Ltd. L&P Agreement") with 750824 Alberta Ltd.
("Alberta Ltd") of Calgary, Alberta. Pursuant thereto, Alberta Ltd. has agreed
to purchase one TCS-1 Plant. Delivery date for the Plant was scheduled for
September 15, 1998 or such other date as the parties shall mutually agree. To
date, the Company has not been able to deliver a TCS-1 Plant to Alberta Ltd. and
does not expect to be able to do so at any time during the fiscal year ending
June 30, 1999. The terms of the Alberta Ltd. L&P Agreement, pursuant to which
the constituent components of the TCS-1 Plant will be leased and or purchased,
is substantially identical to those of the O/V III L&P Agreement, as described
above. The only significant differences are in the payment terms. The purchase
price for the Purchasable Equipment in the Alberta Ltd. Plant is $2,250,000. As
with all other Plants contracted for to date, the monthly payments under the
60-month operating lease for the Leased Equipment will be $12,500 for each
Plant. Accordingly, the aggregate lease/purchase price under the Alberta Ltd.
L&P Agreement is $3,000,000. Upon execution of the Alberta Ltd. L&P Agreement,
Alberta Ltd. paid $25,000 into escrow as a down payment on the Plant. Although
the Agreement called for an initial payment of $225,000 for the Alberta Ltd.
Plant within sixty days of the execution of the Alberta Ltd. L&P Agreement,
initial payment has not yet been received. Alberta Ltd. and the Company have
mutually agreed that the due date for such payment will be established by mutual
agreement after all testing on the First Production Model of the TCS-1 Plant has
been successfully completed. To date, no date has been agreed on and the Company
is not able to state with certainty whether this transaction will be effected.
The $2,000,000 balance of the purchase price for the Purchasable Equipment is
due upon delivery of the TCS-1 Plant.
Pursuant to the terms of the Alberta Ltd. L&P Agreement, upon execution
thereof, the parties also entered into the same types of ancillary agreements as
are described above with respect to the O/V III L&P Agreement, i.e., 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 Alberta Ltd. L&P Agreement also provides for the
preparation of an agreement for the maintenance of the TCS-1 Plant to be done
jointly by the Company and Alberta Ltd., on mutually agreeable terms.
The ENERCON Agreements
On each of August 19, 1998 and October 13, 1998, the Company entered into
two Equipment Lease and Purchase Agreements (the "Enercon L&P Agreements") with
ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. Pursuant
to each of the Enercon L&P Agreements, Enercon has agreed to purchase one TCS-1
Plant configured to process car tires only and a second Plant specially
configured to process truck tires only. The terms of the Enercon L&P Agreements,
pursuant to which the constituent components of the TCS-1 Plant 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
payment terms. The purchase price for the Purchasable Equipment in each of the
Enercon Plants is
25
<PAGE>
$2,250,000. As with all other Plants contracted for to date, the monthly
payments under the 60-month operating lease for the Leased Equipment will be
$12,500 for each Plant. Accordingly, the aggregate lease/purchase price under
the four Enercon L&P Agreements aggregates to $12,000,000. Although the Enercon
L&P Agreements called for an initial payment of $337,500 for each of the two
Enercon Plants upon execution of the Agreements, as of February 16, 1999, the
Company had not yet received such payments because, as at such date, Enercon had
not yet received custody of funds which it expects to use toward such payments.
Enercon has advised the Company that it expects to receive such funds
imminently, but, as of February 16, 1999, the Company was not able to predict
with certainty when or if Enercon would in fact receive such funds. All four of
these sales are completely dependent upon Enercon raising sufficient financing
to meet its obligations under the respective Enercon L&P Agreements. In addition
to the initial payments, terms under each of the Enercon L&P Agreements require
additional payments on each of the four Enercon Plants, as follows:
(a) 15% (US $337,500) upon acceptance by Enercon of equipment drawings, layout
drawings, and other written specifications, such
acceptance to be based upon local permitting and
applicable operating requirements;
(b) 30% (US $675,000) two months after the Company gives notice to Enercon
that it has commenced manufacture of the Plants;
(c) 10% (US $225,000) two months prior to the anticipated Delivery Date.
(d) 15% (US $337,500) on Delivery; and
(e) 15% (US $337,500) on Acceptance of the Plants by Enercon.
Pursuant to the terms of the Enercon L&P Agreements, upon execution
thereof, the parties also entered into the same types of ancillary agreements as
are described above with respect to the O/V III L&P Agreement, i.e., 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 Enercon L&P Agreements provide for the preparation
of an agreement for the maintenance of the TCS-1 Plant to be done jointly by the
Company and Enercon, on mutually agreeable terms.
Backlog
The Company includes in its "backlog," orders for TCS-1 Plants under
executed Equipment Purchase and Lease Agreements. 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. The ultimate consummation of each sale
included in the backlog will be entirely dependent upon the TCS-1 Plant's
meeting performance expectations, each customer's obtaining lease, or other
financing for the purchased portions of the System (as well as all required
permits and licenses to operate a System), and the Company's obtaining
sufficient production financing and capacity to meet delivery requirements.
26
<PAGE>
Based on the foregoing, as of February 16, 1999, the Company's backlog
amounted to $41,750,000. This includes, for fourteen TCS-1 Plants: (i) the full
purchase price for the Purchasable Equipment which will be sold by the Company,
and (ii) total lease payments for the Leased Equipment under the five-year
operating lease. Together, the Purchasable Equipment and the Leased Equipment
constitute a complete TCS-1 Plant.
The Plants included in the above stated backlog include: (i) eight TCS-1
Plants ordered by O/V III for an aggregate lease/purchase price of $3,000,000
each, in respect of 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 Plant) on five of the eight Plants
ordered by O/V III; (ii) one TCS-1 Plant ordered by Recycletron for an aggregate
lease/purchase price of $2,750,000, in respect of which the Company has received
a $25,000 down payment; (iii) one TCS-1 Plant ordered by 750824 Alberta, Ltd.,
for an aggregate lease/purchase price of $3,000,000, in respect of which the
Company has received a $25,000 downpayment; and (iv) four TCS-1 Plants ordered
by ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio for an
aggregate lease/purchase price of $12,000,000.
The Company is unable to state when, if ever, it will make delivery of the
four Plants ordered by Enercon. In this regard, it should be noted that, as of
February 16, 1999, the Company had not yet received any payments from Enercon
and, to the extent that receipt of payments from Enercon are materially delayed,
construction and delivery of the TCS-1 Plants ordered by Enercon will also be
delayed. Delivery dates for the remaining ten Plants included in the backlog are
anticipated to be scheduled throughout the year 2000. While Management believes
that all operating problems respecting the TCS-1 Plant were identified during
continuous testing and that all modifications required to resolve such problems
were completed in December 1998, it should be noted that the TCS-1 Plant has not
yet functioned under commercial operating conditions over an extended period of
time. Therefore, delivery dates for all Plants on order remain subject to delay
principally because of presently unforeseeable problems which may become
manifest under long-term, commercial use.
The Company has not included in its backlog any revenues which may result
from the Royalty Agreements which all TCS-1 Plant 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 Plant.
Dependence on Major Customers
To date the Company has received orders for fifteen TCS-1 Plants, eight of
which were ordered by O/V III and parts of one of which have been purchased by
OTRP, an affiliate of O/V III. Proceeds from the sale to OTRP constituted one
hundred percent (100%) of the Company's revenues from operations during fiscal
1998. The eight Plants ordered by O/V III constitute approximately fifty-six
percent (56%) of the Company's present backlog. The loss of O/V III would have a
major adverse effect on the Company. O/V III is under the control of Louis
Sanzaro. For purposes of this discussion, O/V III and OTRP are sometimes
referred to herein, collectively, as the "Sanzaro Entities". The Company has
also received orders for four TCS-1 Plants from Enercon. These orders constitute
approximately twenty-eight percent (28%) of the Company's present backlog. As is
the case with O/V III, the loss of this customer would have a major adverse
effect on the Company. Notwithstanding the foregoing, the Company also believes
that while Mr. Sanzaro's companies and Enercon comprise the initial TCS-1 Plant
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.
27
<PAGE>
Mr. Sanzaro's initial contacts with the Company occurred in the summer of
1995. On October 5, 1995, Mr. Sanzaro, through O/V III, entered into the initial
agreement to purchase and lease eight TCS-1 Plants. At that time, three
associates and/or employees of O/V III were retained by the Company as
consultants respecting various aspects of the Company's plans to design, develop
and manufacture the TCS-1 Plant. Following his initial contacts with the Company
in October 1995, Mr. Sanzaro also worked actively with the Company to assist it
in these efforts. On or about January 1, 1997, the Company and Mr. Sanzaro
agreed that he should be fairly compensated for his consulting services. The
Company did not formalize its arrangements with Mr. Sanzaro or compensate him
for his services until January 28, 1998, when it entered into a two year
consulting agreement with him, retroactively effective to January 1, 1997. Total
compensation under the Sanzaro consulting agreement was 1,000,000 unregistered
shares of the Company's common stock. On January 17, 1997 Mr. Sanzaro was
appointed as a Director of the Company. In October 1995, the Company and Mr.
Sanzaro had agreed that Mr. Sanzaro would be the sole and exclusive distributor
of TCS-1 Plants in North America and that he would be entitled to a commission
of 10% of the total lease and purchase price on all sales of TCS-1 Plants in
North America. In July 1998, Mr. Sanzaro and the Company entered into an
employment agreement pursuant to which Mr. Sanzaro was retained as the Company's
Vice President in charge of operations, to serve in such position as the
Company's chief operating officer. In connection with his appointment to such
position, Mr. Sanzaro agreed to give up all rights which he theretofore had with
respect to his serving as exclusive distributor. Mr. Sanzaro also agreed to
serve full time in his position as the Company's COO and in connection therewith
to terminate virtually all of his activities connected with his own recycling
businesses in New Jersey. In consideration of Mr. Sanzaro's agreement to
discontinue his other business activities in order to enter into the Company's
employ, the Company issued 500,000 shares of its common stock to him as a
signing bonus. In addition, for agreeing to release the Company from its
obligation to appoint him as exclusive distributor of the TCS-1 in North
America, the Company issued to Mr. Sanzaro an additional 2,500,000 shares of its
common stock. (see ""Management - Executive Officers and Directors" and Certain
Relationships and Related Transactions" ).
Research and Development - TCS-1 Plant Manufacturing Segment
Research and development activities and expenditures for the Company's
existing TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant
Operations and TAP segment are discussed on a combined basis, below, following
the description of the Company's proposed TCS-1 Plant Operations under the
caption "Research and Development - Combined Segments".
Employees - TCS-1 Plant Manufacturing Segment
The number and categories of persons employed in the Company's existing
TCS-1 Plant manufacturing segment and in its proposed TCS-1 Plant Operations and
TAP segment are discussed on a combined basis, below, under the caption
"Employees - Combined Segments".
Patent Protection
The Company was issued a United States patent on its Cryogenic Tire
Disintegration Process and Apparatus on April 7, 1998 (Patent No. 5,735,471).
The duration of the patent is 20 years from the date the original application
was filed. In November 1998, the Company filed its patent, for review, with the
Canadian Patent Office. The Company is unable to state at this time how long the
Canadian review process will take and is unable to give any assurances that the
Canadian Patent will be granted. Prior to
28
<PAGE>
the issuance of such patent, the Company relied solely on trade secrets,
proprietary know-how and technological innovation to develop its technology and
the designs and specifications for the TCS-1 Plant. In connection with a loan
made by the Bank of Montreal to the Company, a lien on this patent was granted
to the said bank (see below in Item I of this Report "Management's Discussion
and Analysis - Liquidity and Capital Resources").
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 Company's 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 technologies 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, 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 validity of its patent, as
described above.
Competition - Equipment Manufacturing Segment
Management knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 Plant, which are
presently being sold or used anywhere in the world, nor is it aware of any
competing patents relating to the Company's disintegration technology. However,
the TCS-1 Plant, 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 the Company will be able to
apply to the TCS-1 Plant. 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 Plant, will
successfully compete with existing systems or with any improved or new systems
which may be developed in the future.
29
<PAGE>
Proposed TCS-1 Plant Operations: Sales of Rubber Crumb
and Manufacture and Sale of Finished Products
Proposed Ownership, Establishment, and
Operation of Tirex Advanced Products Plant
The Company is presently in the process of making arrangements to own and
operate the First Production Model of the TCS Plant, on either an exclusive or
joint basis (see the discussion below) and to operate it as a Tirex Advanced
Products Plant for the purpose of selling rubber crumb produced by operation of
the TCS-1 Plant and manufacturing and selling finished products, made wholly or
partially from such rubber crumb. The Company's initial operations in this
segment will be conducted pursuant to an agreement (the "IM2/Tirex Agreement")
with IM2 Merchandising and Manufacturing, Inc. ("IM2"), in Quebec. Pursuant to
the IM2/Tirex Agreement, the Company will act as IM2's exclusive supplier of
rubber welcome mats and related products molded out of rubber crumb ("IM2
Products"). The Company intends to use rubber crumb produced by the TCS-1 Plant
which has been installed, and which will be operated, at the Company's Montreal
facility (see, below, "Proposed Products" and "The IM2/Tirex Agreement")).
The First Production Model is presently installed at the Company's 90,000
square foot Montreal manufacturing facility. This Plant was the subject of a
Lease and Purchase Agreement (the "OTRP Agreement") between the Company and
Oceans Tire Recycling & Processing Co., Inc. ("OTRP"), a company controlled by
Louis Sanzaro, the Company's chief operating officer. The OTRP Agreement
provided for certain sections of the First Production Model to be purchased by
OTRP for a purchase price of $1,225,000 and for the balance of the Plant to be
leased under a five year operating lease at a monthly rental of $12,500 (see
"Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - Agreements with Oceans Tire Recycling & Processing Co., Inc."). In
December 1997, OTRP and the Company agreed that, to the extent necessary for
OTRP to obtain sale and lease-back financing for the front-end module
("Front-End") and for certain parts of the Air Plant portion of the Plant, the
said OTRP Agreement would be deemed to be modified, as required for such
purpose. In connection therewith OTRP arranged with an equipment financing
company for sale and lease financing, pursuant to which: (i) the said financing
company purchased the Front-End and certain designated portions of the TCS-1
Plant's Air Plant directly from the Company; and (ii) leased such equipment back
to OTRP pursuant to its arrangements with OTRP and/or the OTRP principals. The
Company sold the Front-End for a total purchase price of $300,000, with
irrevocable acceptance and final payment therefor obtained by the Company in
December of 1997. The designated portions of the Air Plant were sold for a total
purchase price of $580,000, with irrevocable acceptance and final payment
therefor obtained by the Company in April of 1998. It is the present intention
of the parties to reform or rescind the remaining provisions of the OTRP
Agreement for the purpose of transferring ownership of the entire First
Production Model to the Company, any one of its existing subsidiaries, or to
some other entity established jointly, or singly, by the parties, or either one
of them, for such purpose. The structure and terms of the ownership of the First
Production Model have not yet been finalized (see the discussion, above, in this
Item 1, under the subcaption, "Agreements with Oceans Tire Recycling &
Processing Co., Inc.").
In order to establish and operate the Montreal T.A.P. Plant, the Company
will be required to make modifications and improvements to its Montreal facility
to accommodate such operations and to meet local fire, environmental, and other
applicable regulations. Renovations and improvements to the Montreal facility
required to be made, or already made, in order to establish and operate the
Montreal T.A.P. Plant include the installation or renovation of: (i) a
ventilation system; (ii) lighting; (iii) additional office space; (iv) a heating
system; (v) a new floor in the manufacturing area; and (vi) a new sprinkling
system throughout the building. In addition, the Company will have to construct:
(i) a loading dock area; (ii) a new parking area (necessitated by devoting
present parking area to loading docks); and (iii) a storm drainage system. The
Company will also incur civil engineering fees in connection with the foregoing
and will be required
30
<PAGE>
to purchase materials handling equipment, including forklifts. The Company
estimates that such plant modifications and improvements will cost approximately
$325,000.
In addition, the Company will require approximately $600,000 to cover the
costs of purchasing and installing product manufacturing equipment (other than
the molds which will be furnished by IM2) for the establishment of a rubber mat
molding and flocking facility at the Montreal T.A.P. Plant. In connection
therewith the Company is presently finalizing the terms of an agreement with
Plasti-Systemes Inc. of Ville D'Anjou, Quebec ("Plasti-Systemes"), with respect
to their providing the Company with such a molding and flocking facility, as a
complete "turnkey" package, including all equipment and labor. Such facility
will be designed to be capable of producing rubber mats of the quality and
quantities required under the IM2 Agreement. Negotiations with Plasti-Systemes
indicate that the total costs, in terms of United States dollars, will be
approximately $600,000 and that the Company will be required to make an initial
payment of approximately $135,000. Management estimates that approximately 60%
of the total $600,000 cost represents the costs of equipment which will be
financed, on an installment payment basis, by the vendors thereof and that such
costs will be covered out of cash flow from the molding operations. Management
believes that the balance of cash required will be available out of the proceeds
of sale and lease-back financing and/or bank debt financing.
The foregoing has resulted in delays which have required the Company to
continue to cover its overhead without significant cash flow from operations.
This is expected to continue until approximately May 1999. The Company intends
to finance the establishment of the foregoing from: (i) funds on hand; (ii)
expected cash flow from recent sales of four TCS-1 Plants; and (iii) the
possibility of obtaining sale and leaseback financing on the TCS-1 equipment
components owned by the Company. However, initiation of commercial operation of
the Montreal T.A.P. Plant is dependent upon numerous factors, including the
successful performance, on a long term, continuous running basis, of the First
Production Model in accordance with operating specifications (see "Existing and
Proposed Businesses - Equipment Manufacturing - Products and Services - The
TCS-1 Plant"). The other material factors which are necessary for the
commencement of commercial operations under the IM2 Agreement are completion of
site preparation and compliance of the site with all applicable ordinances by
March of 1999. While the Company expects to begin full scale commercial
operation of the Montreal T.A.P. Plant in March 1999, it cannot, at this time,
state with certainty when all requisite factors will be in place therefor.
Proposed Products
The Company presently plans to manufacture finished products exclusively
pursuant to prior purchase orders. On December 11, 1998, the Company entered
into an agreement (the "IM2/Tirex Agreement") with IM2 Merchandising and
Manufacturing, Inc. ("IM2"), in Quebec, pursuant to which IM2 agreed to use the
Company as its exclusive supplier of rubber welcome mats and related products
molded out of rubber crumb ("IM2 Products"). The Company intends to use rubber
crumb produced by the TCS-1 Plant which has been installed, and which will be
operated, at the Company's Montreal facility (See, below, "The IM2/Tirex
Agreement"). The Company intends to endeavor to obtain additional purchase
contracts for all types of products which are presently manufactured from, or
which utilize in their composition, recycled rubber crumb. In addition to the
rubber welcome mats to be manufactured for IM2, the Company intends to target
the following markets: specialty molded construction products, industrial and
consumer mats and athletic surfaces. The Company believes that crumb rubber
modified (CRM) asphalt also shows strong market potential and that new tire
manufacturing and thermoplastic compounds, particularly for the automotive
sector constitute promising potential markets for rubber crumb in the future
(See, below, "Existing and Proposed Businesses - Company Marketing and
Distribution - Potential Markets").
31
<PAGE>
Product Sales
The IM2/Tirex Agreement
On December 11, 1998, the Company entered into an agreement (the
"IM2/Tirex Agreement") with IM2 Merchandising and Manufacturing, Inc. ("IM2"),
in Quebec, pursuant to which IM2 agreed to use the Company as its exclusive
supplier of rubber welcome mats and related products molded out of rubber crumb
(the "IM2 Products"). IM2 has entered into a contract with a national
distributor of consumer and commercial floor matting products, which has over
forty years of market presence, national trade show exposure, and well
established distribution channels in all areas of retail distribution, including
large national retail outlets such as Wal-Mart. IM2's contract provides that it
will be such distributor's exclusive supplier of IM2 Products. In turn, under
the terms of the IM2/Tirex Agreement, all of IM2's requirements for such
products will be supplied by the Company. IM2's contract with its customer
provides for the following sales goals, in US dollars, by calendar year,
beginning January 1, 1999:
Calendar Year Sales Goal
------------- ----------
1999 $1,625,000
2000 $3,000,000
2001 $5,000,000
2002 $7,500,000
2003 $7,500,000
The above dollar amounts reflect prices at which IM2 will resell the IM2
Products to its customer. While the Company has been advised that actual sales
may be substantially higher than those shown above, it should be noted that such
amounts represent sales goals, estimated for planning purposes only, and reflect
the quantities which IM2 anticipates that it will require under the terms of its
contract with its customer, not required minimum purchases. The IM2/Tirex
Agreement provides for the Company to sell the IM2 Products exclusively to IM2
for 45% of the profits which IM2 will realize from its resales of the IM2
Products, net of all manufacturing and shipping costs, including the Company's
overhead. Pursuant to the terms of the IM2/Tirex Agreement, IM2 will supply the
Company with all molding equipment and tooling required for the manufacture of
the IM2 Products and will grant the Company an exclusive license to use such
equipment. The IM2/Tirex Agreement calls for the Company to pay to IM2 a
one-time license fee in the amount of thirty thousand Canadian dollars (CA
$30,000). The Company is also obligated to pay, on behalf of IM2, directly to
one of IM2's employees, ten thousand Canadian dollars (CA $10,000) per month,
for a period of four months, for the purpose of having such employee assist the
Company in setting up, and initiating operations at, a product molding facility
at the Company's Montreal Plant. The term of the IM2/Tirex Agreement is five
years, with IM2 having the option to extend such term for two additional
three-year periods. The Company intends to utilize, in the manufacture of the
IM2 Products, rubber crumb produced by the operation of the TCS-1 Plant
installed at its Montreal facility. The Company expects the IM2/Tirex Agreement
to provide it with a steady stream of revenues and earnings in the current
fiscal year and, since it will be producing the rubber crumb out of which the
mats will be made, the Company expects to benefit from the economic advantages
of vertical integration. However, these operations are still at the projected
stage and are subject to all of the risks inherent in a new, untried and
unproven venture with no history of operations to predict future results. The
Company expects to be recycling sufficient amounts of rubber crumb to meet all
of its molding requirements, and to begin active molding operations under the
IM2/Tirex Agreement at its manufacturing facility in Montreal, in March 1999.
32
<PAGE>
Raw Materials
Based upon informal conversations which management has had with officials
at La Societe Quebecoise de Recuperation et de Recyclage ("Recyc Quebec") a
government agency involved with recycling used tires, management believes that
the Company will be able to obtain as many recyclable scrap tires as it can use,
and will receive a government subsidy of $.07 (Canadian) or approximately $.05
(U.S.) per pound of rubber processed at the Montreal T.A.P. Plant. Supplies of
recyclable scrap tires, as well as subsidies are expected for no cost to it,
from, through, or under the auspices of, Recyc-Quebec. As at the date hereof,
however, the Company has not entered into any formal or written arrangements
with Recyc-Quebec or with any other potential supplier of recyclable scrap tires
for feedstock to be used in its proposed operations. Moreover, the Company could
encounter legal barriers should it attempt to import tires from outside of
Quebec. Notwithstanding the foregoing, the Company is confident that it will, at
least in the foreseeable future, be able to obtain adequate feedstock for its
tire recycling operations, on a subsidized basis, or otherwise.
Proposed Rubber Crumb and Finished Product Marketing Activities
Rubber crumb, of a quality which the Company believes the TCS-1 Plant will
be able to produce at the outset, currently sells for approximately $.135
Canadian (or approximately $.10 U.S.) per pound in Quebec. Revenues from
projected sales of rubber crumb will be in addition to the government subsidies
noted above and are therefore expected to be approximately $0.205 (Canadian) or
$0.15 (U.S.) per pound. The Company believes that it will be able to produce and
sell between 20,000 and 50,000 pounds of rubber crumb per day commencing in
March of 1999.
The Company's plans for marketing rubber crumb produced from the operation
of the Montreal T.A.P. Plant and finished products manufactured therefrom are
discussed in more detail below under the caption "Company Marketing and
Distribution".
Research and Development - Proposed TCS-1 Plant Operations and TAP Segment
Research and Development activities and expenditures for the Company's
existing TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant
Operations and TAP segment are discussed on a combined basis, below, under the
caption "Research and Development - Combined Segments."
Employees - Proposed TCS-1 Plant Operations and TAP Segment
The number and categories of persons employed in the Company's existing
TCS-1 Plant manufacturing segment and its proposed TCS-1 Plant Operations and
TAP segment are discussed on a combined basis, below, under the caption
"Employees - Combined Segments."
Competition - Proposed TCS-1 Plant Operations and TAP Segment
The Company intends to market rubber crumb produced at the Montreal TAP
Plant throughout the province of Quebec. The Company is aware of four crumb
rubber producers in Quebec who, to the best knowledge of the Company, have been
producing an aggregate of approximately 27 million pounds of rubber crumb per
year from both scrap tires and "buffings" (rubber removed from tires in the
re-treading process). Such product is consumed by Quebec manufacturers of
outdoor mats, construction related
33
<PAGE>
products, parking curbs, manhole seals, acoustic panels, and mud flaps for the
automotive industry. The Company believes that there presently exists in Quebec
demand for approximately 23 million additional pounds of rubber crumb per year
which, because of insufficient local product, is now being filled by rubber
crumb imported from elsewhere. The Company believes that present local supply is
insufficient to meet current demands because of equipment limitations on the
part of the present producers. The Company believes it will be able to compete
successfully in the local area based on price and quality.
The finished products which the Company intends to manufacture at the
Montreal TAP Plant are expected to include specialty molded construction
products, industrial and consumer mats and athletic surfaces. These are intended
to be marketed in North America through independent distributors. It is the
intention of the Company that its initial finished product will comprise
consumer mats molded out of rubber crumb produced by operation of the TCS-1
Plant. The Company will have many competitors in this area, varying in size from
small companies with limited resources to large companies with substantially
greater financial and management resources than the Company and with the
technical ability to develop, or the funds necessary to acquire, finished
products similar to those intended to be offered by the Company. Many large
companies with sophisticated product marketing and technical abilities and
financial resources that do not presently compete with the Company may enter the
market for products made from recycled rubber. Such companies could rapidly
become significant additional competitors of the Company. To the extent that
competitors achieve either a performance or price advantage, the Company could
be adversely affected. In addition, competitive pressures from large, well
financed competitors could result in lowering of prices for goods made from
recycled rubber, which would adversely affect the Company's ability to compete.
The Company intends to compete on the basis of quality and production economies
which can be realized from vertical integration, whereby the Company will
produce the raw material (rubber crumb) to be utilized in the manufacture of its
finished products.
Research and Development Activities - Combined Segments
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 Plant as well as to raising the financing necessary for
such activities. During the last two completed fiscal years, the Company also
conducted research and development activities in the area of product development
focusing on potential commercial applications for the rubber crumb which is
expected to be produced by operation of the TCS-1 Plant. During the fiscal years
ended June 30, 1997 and 1998, respectively, the Company expended approximately
$832,471 and $606,227 on research and development activities applied to the
design, development, and construction of the first TCS-1 production model and
product development. The basic design, development and construction of the first
complete production model of the TCS-1 Plant was completed in May of 1998.
Thereafter, continuous testing procedures revealed the need for certain
modifications, which were completed in December of 1998 on a single fracturing
mill and a single freezing tower in the First Production Model. Completion of
the second fracturing mill and freezing tower, which will be included therein,
is scheduled to occur in April of 1999 (see "Existing and Proposed Businesses -
Equipment Manufacturing - Products and Services - The TCS-1 Plant"). Thereafter,
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 continue to endeavor to develop new products and uses for the
crumb rubber produced by the operation of the TCS-1 Plant.
During the fiscal years ended June 30, 1997 and 1998, all research and
development activities respecting the TCS-1 Plant were carried out by the
Company's engineering and technical staff, consisting of Louis V. Muro, Vice
President in Charge of Engineering, and one other Company employed engineer,
34
<PAGE>
who devoted 100% of their time to such projects. Such activities were conducted
in conjunction with an outside consultant and the Company's outside
subcontractors, Plasti-Systemes, Fedico, Inc., and Lefebvre Freres, Limitee.
Research and Development activities in the area of product development
were effected principally by members of the Company's executive and management
staff, who dedicated part of their time to such activities.
Employees - Combined Segments
As of February 16, 1999, the Company had twenty including its six
executive officers, the president of The Tirex Corporation Canada Inc., its
two-member in-house legal staff, its technical program director, two
secretary-receptionists, and its managing director of European market
development, with a balance of the Company's staff comprised of mechanical and
other support personnel. All of the foregoing persons devote their full time to
the business and affairs of the existing and proposed businesses of the Company,
on a combined basis, as required. At times, 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.
The Company does not presently have any employees who devote their full
time to the Company's proposed TCS-1 Plant operations or finished product
manufacturing businesses. However, the Company expects to hire up to 61
additional employees during the 1999 calendar year, on an as needed basis, with
the bulk of such new employees expected to be utilized in the Company's proposed
TCS-1 Plant Operations and TAP segment.
Marketing and Distribution - Combined Segments
Potential Markets
The Company believes that the potential markets for its: (i) TCS-1 Plant;
(ii) rubber crumb produced by its proposed ownership and operation of one or
more TCS-1 Plants ("Tirex Rubber Crumb"); and (iii) proposed finished products
manufactured from or incorporating Tirex Rubber Crumb ("Tirex Advanced
Products") will all directly reflect the level of demand for economical, high
quality rubber crumb derived from the recycling of scrap tires. With respect to
TCS-1 Plant operation, the Company intends initially to target the following
markets: specialty molded construction products, industrial and consumer mats
and athletic surfaces. The Company believes that crumb rubber modified (CRM)
asphalt also shows strong market potential and it will be targeted by the
Company if the results and recommendations in a report, presently being prepared
by the National Institute for Occupational Safety and Health (see the
discussion, below, under "Rubber Modified Asphalt"), are positive. The Company
believes also that new tire manufacturing and thermoplastic compounds,
particularly for the automotive sector constitute promising potential markets
for rubber crumb in the future.
The following discussion of the potential markets for rubber crumb assumes
that the TCS-1 Plant will be capable of economically producing high quality
recycled rubber crumb and in a variety of sizes, capable of being used in wide
range of products. The Company believes that the First Production Model of the
TCS-1 Plant is presently ready for commercial operation, utilizing one of its
two freezing towers and fracturing mills, and that it will be fully operational
by April 1999 with both freezing towers and fracturing
35
<PAGE>
mills. It should be noted, however, that because of the lack of an operating
history, the Company cannot, at this time, give any assurance with respect to
whether the TCS-1 Plant will in fact perform as expected under continuous,
commercial operating conditions. Moreover, 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 Plant 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 the United States in
1996, market applications were found for 76% (or 202 million). The STMC Study
reported further that, as of the period covered by the STMC Study, 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 1995 and 1996, 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.(3) Recently, however, this has changed
significantly, 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 the United
States 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 aggregate substitution (rubber
modified asphalt concrete or
- ---------
(3) 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.
36
<PAGE>
"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. Other key issues involve
potential environmental and human health effects associated with the
use of crumb rubber modified (CRM) asphalt. In this regard, the
National Institute for Occupational Safety and Health (NIOSH)
performed a series of exposure and health evaluations from 1994
through 1997. To date, the NIOSH project has performed site
evaluations at seven paving projects around the country (Michigan,
Indiana, Florida, Arizona, Massachusetts and California). A
composite report of the overall findings and conclusions is
currently being prepared by NIOSH but has not yet been issued. This
report will address issues of sampling methods, worker exposures,
and health effects associated with conventional versus CRM asphalt
paving.
* Bound Rubber Products (134 million pounds in the United States 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 the United States 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 the
United States in 1996) (US or Worldwide): 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 the
United States 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 the United States in 1996):
Coarse crumb rubber is used in friction brake materials for brake
pads and brake shoes.
37
<PAGE>
Marketing Activities
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
its efforts on completing the design, development, and construction of the first
production model of the TCS-1 Plant 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
completed fiscal years and the subsequent period, the Company has however taken
initial steps to prepare a foundation for a world-wide marketing program,
appointing Alan Crossley as Managing Director of European Market Development. In
connection therewith the Company has engaged in the following market research
activities with financial assistance from the Canadian Federal Office of
Regional Development - Quebec ("FORDQ") under its IDEA Program, which provides
loans in amounts of up to 50% of approved expenditures made by the borrower for
the purpose of identifying and developing export markets for Canadian products
(the terms and amounts of these loans are discussed, above, in "Existing and
Proposed Business - Canadian Operations - Canadian Government, and Government
Sponsored Loans and Grants"):
(a) From April, 1997 through March, 1998, the Company conducted market
research activities respecting the potential United States markets
for rubber crumb. The Company retained Plasti-Services Inc. a
non-profit organization founded by government and manufacturers of
plastic and rubber goods, which produced a report (the
"Plasti-Services Report). This report indicated that the market was
mature and well serviced with numerous non-rubber based products and
that unless the Company was able to produce a product which could
replace any of those presently being used, at substantial cost
savings, this would not be an area which the Company should pursue.
The PlastiServices Report highlighted technical and economic issued
that the Company must address, such as materials compatibility, lack
of sufficient existing technical data, and cost of equipment
modification for potential users of rubber crumb based compounds.
Based upon the foregoing, the Company believes that the
Plasti-Services Report is inconclusive because the Company has not
yet produced sufficient samples of the type of rubber crumb it
expects to produce to effect a thorough analysis of such projected
product. Moreover, to the best of the Company's knowledge, there is
no other tire derived rubber crumb of the quality which the Company
expects to be able to produce currently available. Further, the
Company believes that its overall research indicates that: (i)
plastics and rubber compounders would be willing to consider using
tire derived rubber in place of what they are using now and would be
willing to enter collaborative ventures to test Tirex Rubber Crumb
if and when it is produced in sufficient quantities; and (ii) with
consistent materials specifications.
The Company also retained a special consultant, with expertise in
the area of government assistance programs related to recycling, who
investigated public sector incentives by region for any activities
related to tire recycling business in forms of grants, subsidies,
tipping fees and legislation related to tires. Based upon the
foregoing, the Company believes that in order to properly identify
the best potential market opportunities and price structures for
Tirex Rubber Crumb, its present market research and development
priorities should focus, in the following sequence, on: (i)
producing sufficient quantities of Tirex Rubber Crumb (which is
dependent upon the TCS-1 Plant's being able to operate in accordance
with its specifications; (ii) developing appropriate test protocols;
(iii) analyzing the Tirex Rubber Crumb for its technical and
materials properties; (iv) doing competitive testing with other
products currently available in the market place; and (v) working
with potential users, focusing on using Tirex Rubber Crumb to reduce
their material costs.
38
<PAGE>
(b) In January of 1997, the Company began exploratory activities
respecting the feasibility of marketing the TCS-1 Plant in Europe
and Asia. In connection therewith, Alan Crossley, as the Company's
European Market Development Consultant, through his firm, Gapco,
Inc., conducted market studies respecting the feasibility of
marketing TCS-1 Plants in the Iberian Peninsula and in India.
The Iberian study indicated that Spain constitutes a sizeable market
both in terms of scrap tires requiring elimination or disposal and
in terms of rubber crumb utilization. According to the study,
Spain's tire disposal industry is presently dominated by landfilling
practices due to the abundance of land useable as landfill sites and
the relatively low short term costs associated with this method of
tire disposal. Another popular method of tire disposal in Spain is
incineration although this method has been associated with problems
ranging from cost inefficiency to causing air pollution. Generally,
the present circumstances in Spain regarding tire disposal have been
acknowledged to be environmentally unsatisfactory resulting in
pressure to develop alternative disposal methods. The study
concludes that none of the methods of tire disposal presently in use
in Spain are technically satisfactory or cost efficient. It
indicates that several alternative solutions to Spain's tire
disposal problems are under development and that although there
exists the potential for substantial competition in the tire
disposal industry in the future there is no such competition at the
present time. At present, the Company is not aware of any potential
competitor in Spain having a tire disposal system comparable to the
TCS-1 Plant, although no assurance can be given that this is in fact
the case. A substantial portion of the study was also devoted to
assessing the market in Spain for rubber in general and recycled
rubber crumb in particular. Spain is a net importer of all the types
of rubber raw material it uses and consequently, the study concluded
that Spain's rubber industry should be particularly receptive to new
sources of cheaper raw materials. The study indicated that marketing
efforts in Spain for rubber crumb should be directed at tire
manufacturers, users of rubber crumb and other tire by-products,
waste processors and government organizations responsible for waste
disposal. It concluded that any entry strategy for a TCS-1 Plant in
Spain would be dependent upon identifying potential purchasers of
Tirex rubber crumb, but that this could be done only after the TCS-1
Plant is capable of producing a reliable supply of homogeneous
product.
In or about July 1997, the Company commenced European market
development activities aimed at positioning the Company to Market
TCS-1 Plants, Rubber Crumb, and Related Products in Europe. These
activities included appointing Alan Crossley as Managing Director of
European Market Development and opening a sales office in Madrid for
the purpose of promoting and developing a market for TCS-1 Plants
and for the rubber crumb expected to be produced from the operation
of such Plants. Mr. Crossley's activities also included researching
and evaluating current developments in European production and
consumption, national and regional policies, and international trade
of used tires. Results from European marketing activities, conducted
subsequent to the completion of the Iberian market study, appear to
indicate that landfill bans, producer responsibility, and management
of integrated waste tire collection systems are the priority items
in the recommendations of the European Economic Union's European
Commission - Environmental Council. To this end, Germany, the United
Kingdom and other areas in northern Europe are currently
implementing, and, for the near future, are expected to continue to
implement, the recycling directives of the European Economic Union
substantially ahead of areas in southern Europe. As a result, the
Company had decided to move its European marketing efforts to
London. The Company believes it will be able to do so during the
current fiscal year.
39
<PAGE>
(c) Since April, 1998, the Company has been engaged in market research
activities respecting the feasibility of using rubber crumb in
thermoplastic elastomer compounds in the United States and Canada.
Such activities included retaining Robert Eller and Associates Inc.
a consulting firm specializing in rubber industry, to identify
thermoplastic applications that can incorporate Tirex Rubber Crumb
in significant (30 to 60 percent) quantities as a raw material. The
Company has also retained MD Technologies, a Quebec research and
development laboratory with expertise in rubber and plastics
formulations, to develop formulations for the low end thermoplastics
products such as flooring, construction and road and athletic
surface applications. Robert Eller and Associates has not yet
completed its final report.
40
<PAGE>
In November 1997, the Company also began working with a consultant who had
expertise and substantial business and marketing experience and contacts in and
around Puerto Rico in connection with: (i) market development in the
Southeastern United States and the Caribbean and (ii) assistance in developing
and implementing a business plan designed to expand the Company's business to
include participating, through joint ventures, or otherwise, in the recycling of
scrap tires into useable crumb rubber and other saleable byproducts. For a
discussion of compensation arrangements with such consultant, reference is made
to Item 5 of this Report, the subtopic, "Sales of Unregistered Securities -
Securities Issued As Compensation Under Written Consulting Agreements". As a
result of such consultant's efforts, in the spring of 1998, the Company entered
into negotiations for a joint venture (the "Proposed P.R. Joint Venture") with a
group of persons who have knowledge of the operation of business enterprises in
Puerto Rico and who believe that they have the ability to, establish and develop
contacts between the Company and government agencies in Puerto Rico with respect
to the establishment and operation of one or more TCS-1 Plant equipped scrap
tire recycling plants in Puerto Rico. It was intended that the prospective joint
venture partners would devote their efforts and expertise to: (i) obtaining all
required licenses, permits, and available Puerto Rican government incentives,
grants and aids needed to establish and develop the business of Tirex PR and the
operations of the Tirex PR Plant; (ii) assisting the Company in locating and
obtaining private and/or government agency debt financing, grants, and tax
credits, as available, to capitalize the Proposed PR Joint Venture and to
provide working capital for the establishment and development of its business
and operations; (iii) locating appropriate plant sites; and (iv) establishing
and developing contacts between the Proposed P.R. Joint Venture and potential
customers for the crumb rubber and other products to be produced by the
operations of such scrap tire recycling plants. The present status of the
Proposed P.R. Joint Venture is that negotiations are continuing with the
potential partners, but that no final decisions have been reached as of yet. The
Proposed P.R. Joint Venture continues to be of interest to the Company. It is
hoped that agreement can be reached on terms acceptable to the Company during
the third or fourth quarters of the 1999 calendar year. However, as at the date
hereof, management is unable to give any assurance that any joint venture or
other operations in Puerto Rico will result from these efforts.
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.
Government Regulation
While the Company's equipment manufacturing operations may not be directly
subject to extraordinary government regulations, the Company's continuing
research and development activities, and the operation of the Montreal T.A.P.
Plant will involve, to varying degrees and for varying periods of time, the
storage of scrap tires which may subject the Company to stringent environmental
regulations.
The TCS-1 Plant is a "closed loop" system which does not use any
chemicals, solvents, gases or other substances which could result in emissions
of any kind from the operation of the Plant. Furthermore, to the best of the
Company's knowledge, operation of the TCS-1 Plant will not result in the
emission of air pollutants, the disposal of combustion residues, the storage of
hazardous substances (as is the case with other tire recycling processes such as
pyrolysis), or the production of any significant amounts of solid waste which
would have to be landfilled. However, the operation of a TCS-1 Plant will
involve, to varying degrees and for varying periods of time, the storage of
scrap tires which, with their size, volume and composition, can pose potentially
serious environmental problems. While the Company does not believe that such
storage will normally involve quantities of tires so large or storage periods so
extensive as to constitute the "stockpiling" of scrap tires, it should be noted
that stockpiling, should it occur, could
41
<PAGE>
constitute a particularly serious environmental problem. Among the numerous
problems relating to scrap tires, is 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. The Company and other operators of TCS-1
Plants will therefore 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. Establishing and operating
a TCS-1 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. The process of obtaining required regulatory approvals may be
lengthy and expensive for both the Company and for its TCS-1 Plant 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.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company, and of all TCS-1 Plant Operators, may
impose financial burdens 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 Plants
discouraging potential customers from purchasing a TCS-1 Plant. 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 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
Plant customers to operate profitably and in compliance with such regulations.
However, 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 new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals. Actions by federal,
state, and local governments concerning environmental or other matters could
result in regulations that could therefore increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level, which could result in the
Company's or its TCS-1 customers' businesses being less profitable, or
unprofitable, to operate. Continually changing government compliance standards
and technology, could also affect the Company's future capital expenditure
requirements relating to environmental compliance. Likewise, the burden of
compliance with laws and regulations governing the installation and/or operation
of TCS-1 Plants could discourage potential customers from purchasing a TCS-1
Plant which would adversely affect the Company's business, prospects, results,
and financial condition. As a result, the business of the Company could be
directly and indirectly affected by government regulations.
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
Plants with
42
<PAGE>
respect to compliance with local environmental regulations applicable to the
installation and operation of the TCS-1 Plant. Even prior to the initiation of
operations at the Montreal T.A.P. Plant, the Company has made, and will continue
to make expenditures relating to environmental compliance because at least a
limited amount of storing and processing of tires has been required for testing
of the first TCS-1 Plant at the Montreal facility.
Specifically, with respect to the Montreal T.A.P. Plant, local ordinances
require that scrap tires be stored indoors, under certain conditions including
proper segregation of tires and adequacy of sprinkler systems and other fire
code requirements. In order to comply with such regulations, the Company has
installed adequate sprinkler systems and dedicated segregated areas of its
Montreal facility to the storage of tires in manageable piles. In connection
therewith, the Company's plans respecting the use of the building for the
storage of tires has been submitted to the Montreal Building Department (the
"Building Department"). In response, the Company has been requested to submit
more detailed specifications, drawn up by a certified architect, respecting the
construction of the outside walls of the building, so that the Building
Department can determine whether they comply with the applicable portions of the
fire code. The Company has retained a certified architect to draw up the
required plans, but is not able to state at this date, whether the construction
is adequate in its present state or whether reinforcements will be required, and
if required, what the total cost of such reinforcements will be. To date, the
Company has expended approximately Cdn$40,000 or US$28,000 on capital
expenditures relating to environmental compliance. However, in addition to the
above noted possibility of mandated changes to the building in order to bring it
into conformance with fire regulations, the inception of equipment manufacturing
and TCS-1 Plant operations, together with continually changing compliance
standards and technology, may affect the Company's future capital expenditure
requirements relating to environmental compliance.
ITEM 2. DESCRIPTION OF PROPERTY
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 Cdn$2,825 (approximately US$2,034). 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 a 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
43
<PAGE>
conference room. The balance of this structure will be used for
fabrication of TCS-1 Plants 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.
When the Company entered into the Tri-Steel Lease, the facility was in
excellent repair and was well suited to the requirements of the Company for the
purpose of manufacturing TCS-1 Plants. The only improvement required at that
time, was an updated fire suppression system in compliance with the local
Montreal fire code respecting the storage of rubber product. However, the
planned expansion of the Company's activities to encompass the operation of a
TCS-1 Plant and the manufacture of finished products out of the rubber crumb
produced thereby, has necessitated additional modifications and renovations to
the building. These have included the installation of the new fire suppression
system noted above and new lighting, heating, electric, and ventilation systems,
as well as the construction of new concrete and asphalt floors, garage doors,
and loading docks. The aggregate cost of the foregoing improvements, together
with the cost of a six thousand pound forklift, is approximately US$300,000,
US$100,000 of which have already been paid by the Company. The Company expects
all of the foregoing renovations and improvements to be completed in or before
June 1999.
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): Cdn$10,000 per month (approximately US$7,000); (ii)
year-two: Cdn$20,000 per month (approximately US$14,000); and (iii) years-three,
four, and five: Cdn$25,000 per month (approximately US$17,500 US ). Quebec sales
taxes ("QST") and (Canadian) Government sales taxes ("GST") are also payable by
the Company on all rental payments. Management believes that under present
regulations, these taxes are either refundable to the Company or are available
as reductions of required remissions of sales taxes collected on sales made to
other taxable Canadian entities. It is estimated that year-one sales taxes will
aggregate to approximately 15% of all rental payments made. The Company's
present sales 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) and public liability insurance for not
less than CA $3,000,000 (approximately $2,100,000 US). The Company estimates
that the aggregate amount of such additional costs will be approximately CA
$10,265 (approximately $7,153 US) for temporary coverage for the first year of
the lease.
44
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Settlement of Great American Matter
On November 12, 1998, the Company entered into a settlement agreement by
and among Great American Commercial Funding Corp ("Great American"), the
Company, and a third party unrelated to the Company, who also had business
dealings with Great American. The matter between Great American and the Company,
to which the said settlement agreement pertains, is an action which had been
commenced by Great American 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 (the "Placement Fee Agreement"), executed by the Company in February
of 1996, under which the Company, among other things, undertook to pay the Great
American 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 Great American
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 Plant and to enable the Company to initiate manufacturing such Plants
on a commercial basis. Great American claimed that it had fulfilled its
obligations under the said Placement Fee Agreement by introducing to the Company
a firm which was engaged in the business of equipment lease financing and which
the Company subsequently introduced to one of its prospective TCS-1 Plant
purchasers. Such purchaser 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. It was the Company's position that the advances
made to the Company pursuant to such lease-financing arrangement did not in any
way constitute the type of financing contemplated by the parties or the
Placement Fee Agreement and that the Company had no financial obligation to
Great American pursuant thereto. The Company 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 under 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.
In fulfillment of the terms of the Great American Settlement Agreement,
the Company paid to Great American the sum of $32,500 in cash and issued to
Great American and its attorneys, Kuritsky, Giasullo and Messina, one-year
options to purchase an aggregate of up to fifty thousand shares of the Company's
unregistered common stock at a price of $0.20 per share.
Settlement of Nais Corporation Matter
Effective, December 18, 1998, the Company and the Nais Corporation
("NAIS") settled an action (the "NAIS Settlement Agreement") brought by NAIS on
May 27, 1998 against the Company in the U.S. District Court for the Southern
District of New York. This action was based upon a financial consulting
agreement (the "NAIS Agreement"), dated May 3, 1997, between NAIS and the
Company. The Complaint alleged that the Company failed to comply with certain
compensatory arrangements contained in the said NAIS Agreement and sought relief
by way of immediate registration of 5,231,092 shares of the Company's common
stock issued to NAIS as compensation (the "NAIS Shares") and damages in the
amount of
45
<PAGE>
$630,000. The Company filed an Answer and Counterclaim, dated July 27, 1998,
denying any liability to NAIS and alleging, among other things, that: (i) NAIS
failed to perform; and (ii) NAIS made material misrepresentations regarding its
expertise and ability to perform in order to induce the Company to enter into
the NAIS Agreement.
In fulfillment of the terms of the NAIS Settlement Agreement, NAIS
returned 500,000 NAIS Shares to the Company, gave to Terence C. Byrne, the
chairman of the board of directors and chief executive officer of the Company, a
voting proxy respecting the remaining 4,731,092 NAIS Shares, NAIS's right to
have any of the NAIS Shares registered by the Company was rescinded, and NAIS's
right to sell any of the NAIS Shares is limited to sales made in compliance with
Rule 144 of the General Rules and Regulations of the Securities Act of 1933, as
amended ("Rule 144"), on a limited basis only, with not more than 200,000 NAIS
Shares saleable per thirty-day period during the period (the "Restricted
Period") ending at the earlier of: (i) six months following the effective date
of a registration statement filed by the Company with the SEC on May 21, 1998;
or (ii) August 11, 1999. Following the Restricted Period, sales of Nais Shares
will be governed by normal Rule 144 requirements. At no time will any of the
NAIS Shares be eligible for sale under Paragraph (k) of Rule 144 which, among
other things, would allow for the sale of stock without regard to the volume
limitations and manner of sale restrictions otherwise imposed by Rule 144. The
NAIS Settlement Agreement did not provide for any damages to be paid by either
party.
Threatened Litigation with Dr. Laura Gabiger
On November 18, 1998, attorneys for Dr. Laura Gabiger advised the Company
that they had been authorized by Dr. Gabiger to file suit against the Company
for breach of contract. It is the position of the Company that it has no
obligations whatsoever to Dr. Gabiger and, moreover, that Dr. Gabiger should
return compensation paid to her in stock and in cash, for services which she was
either unwilling or unable to render to the Company. This matter arises out of a
consulting agreement, dated June 18, 1997, between the Company and Dr. Laura
Gabiger (the "Gabiger Agreement"). The Gabiger Agreement provided for a term of
three years, commencing on July 1, 1997, and compensation at the annual rate of
$96,000 during the first two years and at an annual rate of $58,000 during the
third year. The Agreement provided further that thirty percent (30%) of such
compensation would be paid in cash and seventy percent (70%) would be paid in
shares of the Company's common stock. On July 7, 1997, the Company issued to Dr.
Gabiger 263,529 shares of its common stock, which covered the Company's stock
compensation obligations for the entire first year of the Gabiger Agreement. In
addition, between October 1997 and June 1998, the Company paid Dr. Gabiger a
total of $28,800, representing the full amount of cash compensation due to her
for that period. It is the Company's position that any suit which Dr. Gabiger
would bring against the Company for breach of the Gabiger Agreement would be
completely without merit and that, should such suit be brought, the Company
would defend it vigorously and bring a counter suit against Dr. Gabiger for the
return of monies and stock paid to her in advance, for failure to perform in
accordance with the terms and conditions of the Gabiger Agreement. As of March
3, 1999, the Company had received no further communications from Dr. Gabiger
with respect to this or any other matter.
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.
46
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1998, no
matters were submitted to a vote of the shareholders of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S 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 February 12,
1999. 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.
Bid Prices
Period Common Stock
------ ------------
Fiscal Year Ended June 30, 1997 Low High
--- ----
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 0.19 0.39
June 30, 1998 0.23 0.375
Fiscal Year Ending June 30, 1999
September 30, 1998 $0.12 $0.30
December 31, 1998 0.10 0.28
March 31, 1999* 0.15 0.25
- ---------
* Through February 12, 1999.
47
<PAGE>
Shareholders
As of February 4, 1999, the number of holders of record of the Company's
common stock, $.001 par value, was 450.
Dividends
The Company has paid no cash dividends and has no present plan to pay cash
dividends, intending instead to reinvest its earnings, if any. Payment of future
cash dividends will be determined from time to time by its 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.
Sales of Unregistered Securities
The following sets forth information respecting the dates, purchasers, and
consideration respecting sales of common stock by the Company without
registration under the Securities Act of 1933, as amended (the "Securities Act")
during the fiscal year ended June 30, 1998, and not previously reported in a
quarterly report on Form 10-Q.(4)
Sales to Executive Officers in Respect of Services Rendered
As discussed extensively, below, in the footnotes to the Summary
Compensation Table, which appears in Item 10 of this Report, "Executive
Compensation - Current Remuneration" and in Item 12 of this Report, "Certain
Relationships and Related Transactions - Issuance of Stock in Lieu of Salaries
and Consulting Fees", during the fiscal year ended June 30, 1998, the Company
had available financial resources to meet only part of its salary obligations to
its executive officers and its corporate and securities counsel, and to
reimburse such persons for out-of-pocket disbursements made by them for the
account, or on behalf, of the Company. As a result, such persons accepted
unregistered shares of the Company's common stock, valued, for this purpose
only, at fifty percent of the average of the bid and ask prices for of stock as
traded in the over-the-counter market and reported in the electronic bulletin
board of the NASD, as follows:
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 the
Company, 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
- ---------
(4) For information respecting sales of unregistered shares of its common
stock made by the Company during the first three quarters of fiscal 1998,
reference is made to the disclosure thereof contained in Part II, Item 2.
"Changes in Securities" contained in the Company's quarterly reports on
Forms 10-QSB for the quarters ended September 30, 1997, December 31, 1997,
and March 31, 1998.
48
<PAGE>
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
On April 15, 1998, the Company 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 the Company, 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, the
Company authorized the issuance of additional shares to correct such error, as
follows:
<TABLE>
<CAPTION>
======================================================================================
Name No. Of Shares No. of Shares Which No. of Shares Issued
Erroneously Issued Would Have Been On April 15, 1998 to
at $.275 per Share Correctly Issued at Correct Dec. 15,
$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>
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-month period
which commenced on July 15, 1997 and ended on December 31, 1997, the Company
issued 597,966 shares of its common stock to Alan Crossley, the Company'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.
49
<PAGE>
Securities Issued as Compensation Under Written Employment Agreements
On April 20, 1998, in consideration of executive services rendered under
the terms of his employment agreement and unreimbursed expenses paid by him for
the account and on behalf of the Company, during the six -month period which
commenced on July 1, 1997 and ended on December 31, 1997, the Company issued
597,966 shares of its Common Stock to Alan Crossley, the Company'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.
On or about July 28, 1998 the Company issued an aggregate of 4,095,057
shares of its common stock to Louis Sanzaro, Jean Frechette and Scott Rapfogel
pursuant to their respective employment agreements with the Company. The
foregoing issuances comprised 3,000,000 shares to Mr. Sanzaro, 1,000,000 shares
to Mr. Frechette and 95,057 shares to Mr. Rapfogel.
The 3,000,000 shares issued to Mr. Sanzaro, in connection with his
agreement to serve as the Company's vice president in charge of operations and
chief operating officer, were issued in consideration for Mr. Sanzaro's agreeing
to discontinue his other business activities in order to enter into such
employment agreement (500,000 shares) and in consideration for Mr. Sanzaro's
release of rights to serve as a distributor of TCS-1 Plants in North America or
to receive commissions in connection with sales of TCS-1 Plants made by the
Company in North America (2,500,000 shares). The 1,000,000 shares issued to Mr.
Frechette constituted a signing bonus which was issued in consideration for Mr.
Frechette's agreeing to discontinue his other business activities in order to
enter into an employment agreement with the Company and TCCI whereby Mr.
Frechette agreed to serve as the president and chief operating officer of TCCI.
The 95,057 shares issued to Mr. Rapfogel were issued in lieu of $12,500 in
salary due to Mr. Rapfogel under the terms of his employment agreement with the
Company whereby he agreed to serve as the Company's Assistant U.S. Corporate and
Securities Counsel. For purposes of such issuance, the stock was valued at 50%
of the average bid and ask price for the Company's common stock during the
period in which such stock was earned.
Issuance of Stock in Consideration for Financial Accommodations
On or about July 9, 1998, the Company authorized the issuance of 4,000,000
shares of its common stock to Terence C. Byrne, the chairman of the board of
directors and CEO of the Company and 2,000 shares of its common stock to Frances
Katz Levine, formerly the secretary and a director, and presently chief
corporate and US securities counsel of the Company. Such issuances were made in
consideration of financial accommodations made by such persons for the benefit
of the Company including, but not limited to, the following: since January of
1995, on behalf, and for the benefit, of the Company and without any cash
compensation therefor, Terence C. Byrne, the chairman of the board of directors
and CEO of the Company and Frances Katz Levine, formerly the secretary and a
director, and presently corporate and US securities counsel of the Company, had
made substantial financial accommodations and had put themselves at significant
financial risk, including, but not limited to the following: Mr. Byrne's; (i)
having made personal loans to the Company, including a loan in the amount of
$102,000 made in January of 1998; (ii) having been personally responsible for
all credit card debt of the Company, covering all travel, entertainment, and
significant day-to-day operating expenses of the Company; (iii) being the
co-guarantor of all bank debt of the Company and its subsidiaries; and (iv)
being the co-guarantor on all equipment leases of the Company; and Ms. Levine
having for a continuous period of three and one-half years, provided, rent-free
and with no charge for the costs of utilities, a fully-equipped law office,
dedicated solely and exclusively to the requirements of the Company and
throughout such period, having paid, without any
50
<PAGE>
cash reimbursement ever having been made to her, all costs and expenses incurred
by the Company in connection with its legal service requirements, including but
not limited to: (i) telephone charges (ii) office furnishings, equipment, and
supplies; (iii) Federal Express and other postage; and (iv) secretarial and
clerical staff salaries.
Securities Issued As Compensation Under Written Consulting Agreements
On April 13, 1998, the Company issued to Alan Epstein an option to
purchase 1,500,000 shares of the Company's 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 the
Company 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 the Company authorized the
issuance thereof on April 15, 1998.
On April 1, 1998, the Company entered into a consulting agreement (the
"SCT Agreement") with Security Capital Trading, Inc. ("SCT"), a financial
consulting firm, and pursuant thereto: (i) issued to SCT stock purchase warrants
(the "SCT Warrants") to purchase a total of 2,000,000 shares of the Company's
common stock at exercise prices of $.25 per share for the first 666,666 shares,
$.40 per share for the next 666,666 shares, and $.50 per share for the remaining
666,667 shares. The Company has the shares issuable upon the exercise of the SCT
Warrants in a registration statement on Form SB-2 which was filed with the
Securities and Exchange Commission on May 21, 1998.
On January 28, 1998, the Company entered into a consulting agreement with
Louis Sanzaro (the "Consulting Agreement"), who is currently an officer and
director of the Company. Compensation for all consulting services rendered by
Mr. Sanzaro under the terms of the Consulting Agreement, consisted of the
issuance to Mr. Sanzaro of one million (1,000,000) 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.
Securities Issued As Compensation For Goods and Services Rendered
On April 24, 1998 Hydroco Inc., of Dorval, Quebec ("Hydroco") invoiced the
Company for electrical layout goods and services in the aggregate amount of
$57,224.94 (Canadian) (approximately $40,057 U.S.). In May 1998, Hydroco agreed
to accept payment of $5,000 (Canadian) (approximately $3,500 U.S.) of such
amount in common stock of the Company, at a value of $0.23 (U.S.) per share.
Pursuant thereto, on or about June 19, 1998, the Company issued an aggregate of
15,152 shares of its common stock to two assignees of Hydroco.
During the fiscal year ended June 30, 1998, Mila Shvartsman invoiced the
Company for services rendered in connection with United States and Canadian
patent application filings and various other patent related services in the
aggregate amount of $6,513.50. On June 19, 1998, Ms. Shvartsman agreed to accept
shares of the Company's common stock, at a value of approximately $0.20 per
share, in lieu of a cash payment. Pursuant thereto, on or about such date the
Company issued 32,568 shares of its common stock to Mila Shvartsman.
51
<PAGE>
Securities Issued For Waiver of Advance Payment on Lease
On February 17, 1998 the Company entered into a five year lease with
Tri-Steel Industries for a 90,000 square foot research and manufacturing
facility located at 3828 Saint Patrick Street in Montreal, Canada. Tri-Steel
agreed to accept 388,889 shares of the Company's common stock in consideration
of its waiver of its customary requirement that the last two monthly rent
payments under a lease be paid at the time of execution of the lease. These
388,889 shares were issued to Tri-Steel on or about June 19,1998.
The sales discussed above under the subheadings "Sales to Executive
Officers in Respect of Services Rendered", "Securities Issued as Compensation
under Written Employment Agreements", "Issuance of Stock in Consideration for
Financial Accommodations", "Securities Issued as Compensation Under Written
Consulting Agreements", "Sales to Non-Affiliated Parties in Respect of Services
Rendered" and "Securities Issued in Lieu of Rent" are each claimed to have been
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, as more fully described below.
Basis for Section 4(2) Claimed
With respect to all shares and other issuances of securities made in
reliance on Section 4(2):
(a) The Company did not engage in general advertising or general
solicitation and paid no commission or similar renumeration,
directly or indirectly, with respect to such transactions.
(b) The persons who acquired these securities are current or former
executive officers and directors of the Company, consultants to the
Company, and providers of professional or other significant service;
Such persons had continuing direct access to all relevant
information concerning the Company 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 are able
to bear the economic risk thereof.
(c) The persons who acquired these securities advised the Company 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.
Accordingly, the Company 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.
Sales Made Pursuant to Exemption From Registration Available Under Rule 506 of
the Securities Act.
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.
52
<PAGE>
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. The Type A Debentures are convertible commencing on the day
following the effective date of the Company's Registration Statement at a
conversion ratio equal to a maximum of 67.5% and a minimum of 61.5% of the
closing bid price of the Company's common stock on the trading date immediately
preceding the date of the Company's receipt of a notice of conversion. The
factors which affect the conversion ratio are discussed, above, in Item 1 of
this Report under the caption, "Material Financing Activities - The Type A
Private Placement". After December 31, 1999, the Type A Debentures will be
redeemable, at the request of the holder, at 125% of the principal amount plus
all accrued unpaid interest on the principal amount.
The 2,000,000 Type A Warrant Shares and the shares of the Company's common
stock issuable pursuant to the conversion of the Type A Debentures (the "Type A
Debenture Shares"), are being registered by way of inclusion in the Registration
Statement.
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"). 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 Unit 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
53
<PAGE>
complete loss of such investment, and who were "Accredited Investors" within the
meaning prescribed by Regulation D and Rule 501 of the Securities Act.
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,
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 Debentures. 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.
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 11,760,000 shares of the Company's common stock (the "Type C
Shares") at a price of $.10 per share to 57 private investors. 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 11,760,000 Type C Shares which were sold are being registered for
resale to the public by the holders thereof by way of their inclusion in the
Registration Statement.
Basis for Section Rule 506 Exemption Claimed
With respect 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) The Company 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) The Company made reasonable 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 the Company believes to be all
relevant information concerning the Company, and the Company believes such the
purchasers are knowledgeable with respect to the affairs of the Company.
(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
54
<PAGE>
is capable of evaluating the merits and risks of such investments and is able to
bear the economic risk thereof.
(e) The Company made no sales of unregistered securities during the six
month period 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.
ITEM 6. 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 years ended June 30, 1997 ("Fiscal 1997"), and June 30, 1998
("Fiscal 1998"). This discussion also includes events which occurred subsequent
to the end of Fiscal 1998 and 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 Report which discuss factors which affect the Company's business, including
the discussion at the end of this Management's Discussion and Analysis, under
the subcaption "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 Report.
The Company is in the very early stages of the business of manufacturing
its patented cryogenic scrap tire recycling equipment (the "TCS-1 Plant"). It is
also currently in the process of establishing and initiating operations in a
second business segment which will involve owning and operating, directly or
indirectly, on exclusive or joint venture bases, product manufacturing plants
which will manufacture finished products out of recycled rubber crumb. The first
of such operations will involve the establishment of a rubber mat molding and
flocking plant at the Company's Montreal facility for the production of rubber
floor mats pursuant to the IM2 Agreement, (see Item 1 of this Report "Existing
and Proposed Business - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb
and Manufacture and Sale of Finished Products").
In January 1998, the fully-automated front-end tire preparation module,
and in March 1998, the cryogenic tire freezing section of the first full-scale
TCS-1 Plant (the "First Production Model") were completed and delivered to OTRP.
As discussed in more detail, below, the Company received a total of $880,000 in
respect thereof and this Plant is presently installed at the Company's 90,000
square foot Montreal manufacturing facility (see also Item 1 of this Report
"Existing and Proposed Businesses - Sales and Marketing - Agreements with Oceans
Tire Recycling & Processing Co., Inc.["OTRP"] and Proposed TCS-1 Plant
Operations: Sales of Rubber Crumb and Manufacture and Sale of Finished
Products"). All major components of the First Production Model were successfully
tested and were operational on a non-continuous running basis by May 1998. In
mid-June 1998, the Company initiated the second stage of testing, which
consisted of testing all major components and all functions of the First
Production Model, individually, on a continuous running basis. By September 1998
(subsequent to the period covered by this Report), results of second stage tests
indicated that approximately 85% of the TCS-1 Plant components met all of the
Company's specifications. In addition, under continuous testing conditions,
certain unanticipated design anomalies were discovered, which required
modification. The Company also identified several opportunities for improvements
in the original design of the TCS-1 Plant, which the
55
<PAGE>
Company believes will increase economy and efficiency of its operation. In
September 1998, the Company retained the Montreal engineering firm of Beaudoin,
Hurens and Associates, Inc. ("BHA") to: (i) prepare and/or finalize all design
and engineering drawings, operation and technical manuals, and other
documentation respecting the TCS-1 Plant; and (ii) make an independent
engineering assessment of the Company's findings from its second stage testing
of the TCS-1 Plant to verify and authenticate the modifications which were
required to assure the Plant's conformity with targeted performance criteria.
The Company retained Plasti-Systemes Inc. of Montreal to do all mechanical
fabrications required during the final stage of the project. The foregoing
modifications, including engineering fees, required previously unbudgeted
expenditures in the aggregate amount of approximately $500,000, approximately
$250,000 of which had been paid as of December 31, 1998. The required
modifications were completed subsequent to the period covered by this Report in
December of 1998 on a single fracturing mill and a single freezing tower in the
First Production Model. Completion of the second fracturing mill and freezing
tower, which will be included therein, is scheduled to occur in April of 1999.
Management presently estimates that commencement of full-scale commercial
manufacture of TCS-1 Plants will occur in March of 1999.
The Company will also be required to make additional capital investments
and expenditures over the next twelve months in connection with the
establishment at the Company's Montreal facility of rubber mat molding
operations under the IM2 Agreement. Management estimates that costs for the
entire project will aggregate to approximately $925,000. This includes: (i)
approximately $325,000 for modifications to the Company's Montreal facility,
necessary to accommodate these operations and for materials handling equipment,
approximately $168,000 of which had been paid as of December 31, 1998; and (ii)
approximately $600,000 to acquire and install a complete rubber mat molding and
flocking plant (with the exception of the molds which will be furnished by IM2),
approximately $132,000 of which had been paid as of December 31, 1998. The
Company plans to use the output of the First Production Model of the TCS Plant
in its rubber mat molding operations.
The First Production Model, which is presently installed at the Company's
manufacturing facility, was the subject of a Lease and Purchase Agreement (the
"OTRP Agreement") between the Company and Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a company controlled by Louis Sanzaro, the Company's chief
operations officer. The OTRP Agreement called for a total purchase price, for
the purchasable components of the Plant, of $1,225,000 and total five-year
operating lease payments for the leasable components of the Plant, of $750,000
(see Item 1 of this Report "Existing and Proposed Businesses - Equipment
Manufacturing - Sales and Marketing Agreements with Oceans Tire Recycling &
Processing Co., Inc."). In December 1997, OTRP and the Company agreed that, to
the extent necessary for OTRP to obtain sale and lease-back financing for the
front-end module ("Front-End") and for certain parts of the Air Plant portion of
the Plant, the said OTRP Agreement would be deemed to be modified, as required
for such purpose. OTRP arranged with an equipment financing company for sale and
lease financing, pursuant to which: (i) the said financing company purchased the
Front-End and certain designated portions of the TCS-1 Plant's Air Plant
directly from the Company; and (ii) leased such equipment back to OTRP and/or
the OTRP principals. The Company received a total purchase price of $880,000 in
respect of the foregoing sales, with irrevocable acceptances and final payments
obtained in December 1997 and April 1998, respectively. The Company and OTRP
agreed that the remaining provisions of the OTRP Agreement would be deemed to be
reformed or rescinded so as to allow ownership of the components of the First
Production Model to be transferred, sold, or allocated, as the parties agree
will be in their best interests (see Item 1 of this Report, "Existing and
Proposed Businesses - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products" and Item 2, "Description of
Property").
On December 16, 1998, subsequent to the period covered by this Report, the
Company entered into two sale and lease-back transactions respecting the single
fracturing mill and the single freezing tower contained in the First Production
Model. Such transactions were effected by and among the Company,
56
<PAGE>
North Shore Leasing & Funding Inc. ("NLFI"), and Ocean Utility Contracting, Inc.
("OUCI"), a company affiliated with OTRP through common ownership and control.
Pursuant thereto, the Company sold the foregoing components to NLFI and NLFI
leased them back to OUCI. The Company received an aggregate of $300,000 by way
of the purchase prices for the two components. The Company and OUCI have agreed
that all of OUCI's rights under the respective leases will be assigned to the
Company and the Company will assume all of OUCI's liabilities thereunder (see
Item 1 of this Report "Existing and Proposed Businesses - Sale and Lease-back
Transactions"). The Company and OTRP have not yet finalized the structure and
ownership of the First Production Model, but it is anticipated that they will
each contribute, among other things, the respective portions of the Plant which
they own (or lease) and that profits and liabilities from operation of the First
Production Model will be divided in proportion to their respective
contributions.
Because of the lengthy delays in the commencement of commercial
operations, the Company has also had to, and may in the near future be forced to
continue to, cover its overhead costs from sources other than revenues from
operations. As at January 15, 1999, the Company estimates that overhead costs,
which will be incurred prior to the generation of revenues adequate to cover
them, will aggregate to approximately $250,000.
Liquidity and Capital Resources
The activities of the Company since its formation in 1987 and the
inception of its current business in 1993 have been financed by sources other
than operations. Such financing was principally provided by the sale of
securities in private transactions, including three private placements to a
limited number of accredited investors, which the Company completed on May 11,
1998, and which yielded aggregate net proceeds of $2,063,795 (see "The Company -
Material Financing Activities"). In total, funds raised by the Company from
private sales of its securities are 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
During the fiscal years ended June 30, 1997 and June 30, 1998 and the
interim six-month period ended December 31, 1998, the Company received
additional funding from Quebec and Canadian government grants, loans, loan
guarantees and refundable tax credits for purposes of completing the development
of the TCS-1 Plant and for the international marketing of such plants (see Item
1. of this Report, "Existing and Proposed Businesses - Canadian Operations -
Canadian Financial Assistance - Grants, Loans, and Commitments"). Canadian and
Quebec government research and development tax incentives take the form of both
tax deductions from otherwise taxable income and tax credits respecting the
eligible research and development expenditures of the Company (see "Existing and
Proposed Businesses - Canadian Operations"). Insofar as tax credits for
scientific research and experimental
57
<PAGE>
development are concerned, such credits are offered by both the governments of
Canada and of Quebec. The tax credits are calculated as a percentage of research
and development expenditures deemed eligible by the Revenue Departments of each
government. The percentages vary according to the size of the company (defined
according to the asset base and revenues generated by the company), the
residency of the majority of the voting control and other factors. In the case
of both the provincial and the federal governments, where the amount of the tax
credit exceeds other tax liabilities, such as taxes on income and on capital,
and subject to certain other conditions which a company meets, the amount of any
difference is paid to the company, thus the term, "Refundable Tax Credits". The
effective rate of the credit varies from one company to another as a function of
a number of factors, not least of which are: (i) the nature of the costs being
claimed such as labor costs versus non-labor costs (the credit for labor costs
is higher than for non-labor costs); and (ii) the proportion of expenditures
which can be attributed to research and development but which are not deemed
eligible for the tax credits by their nature. Insofar as the Company is
concerned, the tax credits have varied from approximately 25% to 30% of total
research and development expenditures, including certain types of expenditures
deemed ineligible for tax credits. During the last three fiscal years, virtually
all of the activities connected with the development and construction of the
First Production Model of the TCS-1 Plant have qualified as expenses eligible
for refundable tax credits.
As a further measure to stimulate research and development, the Quebec
Government, through the Societe de developpement industriel du Quebec, a public
sector corporation wholly owned by the Government of Quebec, (the "SDI") (a
former English version of this name was the Quebec Industrial Development
Corporation), has put into place a loan guarantee program (the "SDI Loan
Guarantee Program") which provides the SDI's guarantee of repayment of 75% of
the amount of bank loans made to companies in anticipation of such companies
receiving refundable tax credits. The SDI Loan Guarantee Program therefore
enhances a company's ability to borrow from financial institutions up to 75% of
the amount of the anticipated tax credit for expenditures already incurred
("Allowable Post-Expenditure Loans"), prior to the receipt of the anticipated
tax credit. Alternatively, the SDI Loan Guarantee Program allows companies to
borrow, prior to making any expenditures, up to 60% of the amount of the
anticipated tax credit based on budgeted expenditures not yet incurred (80% of
the amount of an Allowable Post-Expenditure Loan). This provides the cash flow
essential to the research and development efforts. In the absence of any tax
liabilities, these tax credits have functioned as monetary grants and
constituted receivables which were used, prior to their being paid to the
Company, to secure conventional bank financing, supported in part by the SDI
guarantee noted above.
In connection with the Refundable Tax Credits, during the first quarter of
1998, the Bank of Montreal ("BOM") approved a loan to the Company of up to
Cdn$937,000, or approximately US$655,900 ("the BOM Tax Credit Loan") to be used
to pay expenses which would then be eligible for refundable tax credits. As at
June 30, 1998, Cdn.$828,230 (approximately US$579,761) had been lent to the
Company pursuant to the BOM Tax Credit Loan. Subsequent to the period covered by
this Report, during the six-months ended December 31, 1998, the Company borrowed
an additional Cdn.$108,770 (approximately US$76,139) under the BOM Tax Credit
Loan. As at June 30, 1998 and December 31, 1998, respectively, the outstanding
balance payable on the BOM Tax Credit Loan was Cdn$597,820 (approximately
US$418,474) and Cdn$502,520 (approximately US$351,764). The BOM Tax Credit Loan
was secured by: (i) a first-ranking lien on all of the assets, tangible and
intangible, present and future of the Company's Canadian subsidiary, Tirex R&D;
(ii) a lien on the Company's patent for the cryogenic tire disintegration
process and apparatus of the TCS-1 Plant; and (iii) personal guarantees of two
officers and directors of the Company.
The SDI, under its above described Loan Guarantee Program, guaranteed
repayment of 75% of the BOM Tax Credit Loan ("the SDI Guarantee"). The SDI
Guarantee was secured by a lien on the Company's projected tax credit
receivables.
58
<PAGE>
Borrowings drawn down under the BOM Tax Credit Loan bear interest, from
the date the funds are drawn down until the outstanding principal and all
accrued and unpaid interest thereon are repaid, at an annual rate equal to the
Bank of Montreal Prime Rate (which, for reasons of inter-bank competition, is
usually equivalent to Canadian Prime Rate) plus 1.25%. Interest on the
outstanding balance of the BOM Tax Credit Loan is due and payable monthly. The
outstanding principal amount is repayable upon the Company's receipt of tax
credit refunds from the Canadian and/or Quebec tax authorities and the release
of the funds by SDI to the Bank of Montreal. During the last three fiscal years,
and the six-month interim period ended December 31, 1998, the Company made
research and development expenditures, generated tax credit claims, and received
funds by way of borrowings under the BOM Tax Credit Loan, as set forth in the
following table:
59
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Period Amount of Amount of R&D Amount of Tax Amount Amount of Tax Cumulative
R&D Expenses R&D Expenditures Credits Borrowed Credit Received Outstanding
Were Incurred Expenditures Eligible for Estimated by Against Balance of
Incurred Tax Credits BOM and SDI Estimated Loan as at End
Tax Credits of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
July 1, 1995 to -0- -0- -0- -0- -0- -0-
June 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------
July 1, 1996 to Cdn$1,576,761 Cdn$1,576,761 Cdn$579,305 -0-(1) -0-(2) -0-
June 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------
July 1, 1997 to Cdn$2,723,443 Cdn$2,723,443 Cdn$982,113 Cdn$828,230(1) Cdn$307,208(2) Cdn$597,820
June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Interim Period Cdn$1,167,892 (3) (4) Cdn$108,770(1) Cdn$245,517(5) Cdn$502,520
July 1, 1998 to (6)
December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to this table appear on the following page.
60
<PAGE>
(1) Prior to June 30, 1998, the Company received three disbursements
from the BOM in the aggregate amount of Cdn$828,230 (approximately
US$579,761) with the first of these disbursements received on
January 30, 1998. These amounts were based upon estimated tax credit
receivables in the following amounts: (i) Cdn$579,305 (approximately
US$405,514) for research and development expenditures made by the
Company during the fiscal year ended June 30, 1997; and (ii) a
portion of the Cdn$982,113 (approximately US$687,479) for research
and development expenditures made by the Company during the fiscal
year ended June 30, 1998. Subsequent to June 30, 1998, the Company
received a further cash disbursement of Cdn$108,770 (approximately
US$76,139), in respect of eligible tax credit expenditures incurred
prior to June 30, 1998, effecting the complete draw down of the
entire authorized loan amount of Cdn$937,000 against tax credit
receivables for the cumulative period ended June 30, 1998.
(2) All funds by way of Tax credits received by the Company during
fiscal 1998 were attributable to research and development
expenditures made by the Company during fiscal 1997.
(3) As of February 17, 1999, and in accordance with the tax laws and
procedures of the Revenue Departments of the governments of Canada
and of Quebec, the Company had not yet submitted a claim for tax
credits based upon any research and development expenditures made
since July 1, 1998. The Company expects that a portion of such
expenditures will be eligible for Refundable Tax Credits. In
connection therewith, the Company will seek credit facilities
similar to the BOM Tax Credit Loan, with one or more lending
institutions, based upon estimated tax credit receivables.
(4) Although the Company made research and development expenditures in
the amount of Cdn$1,167,892 during the six-month period, July 1,
1998 through December 31, 1998, and while the Company believes that
a portion of such expenditures will be eligible for Refundable Tax
Credits, it should be noted that no credit facilities were or have
yet been made available to the Company to finance these
expenditures. The SDI Loan Guarantee Program, which guaranteed
repayment of 75% of the BOM Tax Credit Loan, was available only for
bank loans based on estimated tax credit receivables for research
and development expenditures made on or before June 30, 1998. It
should be noted further that the entire amount available to the
Company under the BOM Tax Credit Loan has already been borrowed by
the Company in connection with research and development expenditures
made by the Company during the years ended June 30, 1997 and 1998.
However, the SDI Loan Guarantee Program is still in existence and
may be available to guarantee new loans which may be made to the
Company by other Canadian lending institutions. Accordingly, (as
noted above in footnote 3 to this table), the Company intends to
seek new credit facilities, similar to the BOM Tax Credit Loan, to
finance research and development expenditures made after June 30,
1998.
(5) Tax credits received by the Company during this interim period, July
1, 1998 through December 31, 1998, are attributable to research and
development expenditures made by the Company during the fiscal year
ended June 30, 1997. As at December 31, 1998, the Company had not
yet received any tax credits for research and development
expenditures made from July 1, 1997 through December 31, 1998.
However, as described below in footnote 6 to this table, subsequent
to December 31, 1998, some funds were received in respect of
research and development expenditures made during the fiscal year
ended June 30, 1998, on a "preliminary advance payment" basis.
61
<PAGE>
(6) The annual Canadian federal government audit of eligible research
and development expenditures for the fiscal year ending June 30,
1998 took place in January 1999. Results of the audit are expected
prior to March 31, 1999. However, as a result of a preliminary,
cursory review of the accounts, a preliminary advance payment check
in the amount of Cdn$320,000, representing approximately half of the
amount of the Canadian federal tax credit claimed on the Government
of Canada, was received by the Company in January 1999, of which
amount, the sum of Cdn$175,000 was used to reduce the outstanding
balance of the BOM Tax Credit Loan, in accordance with the terms and
conditions of the SDI Loan Guarantee.
During the last three fiscal years and the six month interim period ended
December 31, 1998, the Company also received additional financial assistance by
way of loans and grants from Quebec governmental agencies, for the design and
development of the TCS-1 Plant and for export market development as follows:
1. In March of 1996, the Company qualified for an interest-free, unsecured
loan (the "FORD-Q Loan") of up to $500,000 (Canadian), or approximately $
350,000 (U.S.). This loan was made available by the Government of Canada under
the Industrial Recovery Program for Southwest Montreal, which is administered by
the federal government agency, Canada Economic Development for Quebec Regions
("CEDQR"), which was previously known as the Federal Office of Regional
Development - Quebec or "FORD-Q". Under the terms of the loan, the Company
received funds in the total amount of Cdn$500,000 or approximately US$350,000,
representing 20% of eligible expenditures made by the Company to design,
develop, and manufacture the first full-scale model of the TCS-1 Plant. The loan
money was disbursed pursuant to the submission of claims of eligible expenses
incurred. The Company did not have funds available to expend for these purposes
until February of 1997. Because of the limited funds available to the Company at
that time, the Bank of Montreal agreed to make short-term loans (the "BOM
Secured Loans") to the Company, secured by CEDQR's acceptance of the Company's
claims for reimbursement of expenditures. All of the BOM Secured Loans were
repaid by the Company as funds were released to the Company under the CEDQR
Loan.
The proceeds of the CEDQR Loan were paid to the Company during the fiscal
years ended June 30, 1997 and 1998, as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
Fiscal 1997 $246,752 $172,725
Fiscal 1998 $253,248 $177,275
Under the terms of the CEDQR Loan, repayment must commence twelve months from
the date CEDQR declares that the project has been completed. This occurred on
March 31, 1998. The repayment schedule therefore calls for four, graduated
annual payments as follows:
Canadian Dollars US Dollar Approximation
---------------- -----------------------
March 31, 1999 $ 50,000 $ 35,000
March 31, 2000 $100,000 $ 70,000
March 31, 2001 $150,000 $105,000
March 31, 2002 $200,000 $140,000
62
<PAGE>
The terms and purposes of the CEDQR Loan are discussed in more detail in
"Existing and Proposed Businesses - Canadian Operations - Canadian Financial
Assistance - Grants, Loans, and Commitments".
2. In April of 1996, the Company qualified for a grant from Societe
Quebecoise de Recuperation et de Recyclage ("Recyc-Quebec"), a self-financed,
Quebec Government-owned corporation established to facilitate and promote
materials recovery and recycling. The amount of such grant was $75,000 Canadian
(approximately $52,500 U.S.). Of this amount, the Company received $50,000
Canadian (approximately $35,000 US) during the fiscal year ended June 30, 1997.
The terms of the grant provide that the Company will receive the balance of
$25,000 Canadian (approximately $17,500 U.S.) when the Company files a final
report on the completion of the project. The Company anticipates that such
report will be filed in or about February 1999. The terms and purposes of this
grant are discussed in more detail in "Existing and Proposed Businesses -
Canadian Operations - Canadian Financial Assistance - Grants, Loans, and
Commitments".
3. The Company has also qualified for five interest-free, unsecured loans
from the Government of Canada in the aggregate amount of $ 232,773 Canadian
(approximately $ 162,900 U.S.). These loans were made available by CEDQR, under
the Innovation, Development, Entrepreneurship Assistance - Small and Medium
Enterprises Program ("IDEA-SME Program"). Under these loan agreements, during
Fiscal 1997 and 1998, the Company received $30,000 Canadian (approximately $
21,000 U.S.) and $ 202,773 Canadian (approximately $ 141,900 U.S.) respectively.
The IDEA-SME Program loans represent up to 50% of approved Company expenditures,
based on submitted claims, subject to maximum amounts for each loan.
Expenditures are required to have been made for the purposes of identifying and
developing export markets for Canadian products. All of the projects which gave
rise to these loans have been declared completed by CEDQR and the repayment
terms have accordingly been established. The following table identifies the
nature of the projects for which these loans were granted, the maximum amount of
the loans approved the government agency, the aggregate amounts received by the
Company as of October 31, 1998 and the repayment terms of each loan.
63
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amount of Funds
Received By
Company as of
Maximum Amount December 31, Rate of
of Loan 1998 Interest
Nature of Project Repayment Terms
---------------------------------------------------------
Amount of Payment
Date Due
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Research Feasibility Cdn $20,000 Cdn At the end of any fiscal year 1% of gross annual None
Study for Iberian Peninsula $20,000 in which the Company has revenue from sales
revenues from sales of TCS-1 in Iberia
Plants in the Iberian Peninsula
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Feasibility Cdn $20,000 Cdn At the end of any fiscal year 1% of gross None
Study for India $20,000 in which the Company has anual revenue
revenues from sales of TCS-1 from sales
Plants in India in India
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Respecting Cdn $95,000 Cdn June 30, 2001 Cdn$6,333 None
Potential United States Markets $95,000 June 30, 2002 Cdn$12,666
for Rubber Crumb June 30, 2003 Cdn$18,999
June 30, 2004 Cdn$25,333
June 30, 2005 Cdn$31,666
- ------------------------------------------------------------------------------------------------------------------------------------
Iberian Market Development Cdn $95,000 Cdn At the end of any fiscal year 1.5% of gross None
Activities Related to Positioning $95,000 in which the Company has annual revenue
the Company to Market TCS-1 revenues from sales of TCS-1 from sales
Plants, Rubber Crumb, and Related1 Plants in Iberia in Iberia
Products in Iberia
- ------------------------------------------------------------------------------------------------------------------------------------
Market Research Activities Cdn $98,000 $98,000 June 30, 2001 Cdn $ 6,533.33 None
Respecting the Feasibility of Cdn June 30, 2002 Cdn $13,066.66
using Rubber Crumb in June 30, 2003 Cdn $19,600.00
Thermoplastic Elastomer Compounds June 30, 2004 Cdn $26,133.33
in the United States and Canada. June 30, 2005 Cdn $32,666.66
============================================================================================================================ =======
</TABLE>
These loans and the projects which they supported are discussed in more
detail in "Existing and Proposed Businesses - Canadian Operations" and "Existing
and Proposed Businesses - Sales and Marketing".
64
<PAGE>
The Company believes it will be able to cover the balance of the capital
investments and expenditures which it will be required to make in connection
with: (i) modifications which were made to the TCS-1 Plant; (ii) the
establishment, and commencement of operations, of the rubber mat molding and
flocking plant; (iii) commencement of full scale, commercial manufacture of
TCS-1 Plants; and (iv) meeting its overhead on a level sufficient to sustain the
Company for at least the next twelve months, from a combination of some or all
of the following sources: (i) expected cash flow from sales of four TCS-1 Plants
to ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see
Item 1 of this Report "Existing and Proposed Businesses - Sales and Marketing -
The Enercon Agreements"); (ii) Canadian and Quebec government and governmental
agency grants, loans, and refundable tax credits; (iii) sale and lease back
financing on inventory and equipment owned by the Company; (iv) conventional
asset based debt financing against receivables and inventory; (v) refunds of all
of the 15% sales taxes paid by the Company on all goods and services purchased
in connection with the Company's manufacturing activities, which the Company, as
a manufacturer and exporter of goods is entitled to (in September 1998, the
Company received Cdn $200,000 by way of such tax refunds for the quarter ended
June 30, 1998); (vi) subcontractor financing; (vii) vendor financed equipment
purchases and/or (viii) a research and development tax credit facility from the
Bank of Montreal for the 1999 calendar year. The Company is presently actively
pursuing all of the foregoing avenues of financing. In addition, management
believes that the Company will be able to obtain sufficient production financing
to cover the costs of constructing subsequent TCS-1 Plants, using the
constituent components of the Plant to be financed, as collateral for debt
financing to cover its construction costs.
Whether the funds, which the Company obtains, from any of the above
proposed sources, will be sufficient to enable the Company to reach a profitable
operating stage, will be entirely dependent upon: (i) the amount of such
financing which the Company is actually able to raise; (ii) Enercon's receipt of
its funding; (iii) the as yet unproven ability of the TCS-1 Plant to operate
continuously on a long-term commercial basis in accordance with its anticipated
performance specifications; and (iv) the ability of the proposed rubber mat
molding facility to operate profitably (see, below, in this Item 6, "Risk Factor
No. 2 - "Need For Substantial Additional Capital" and Item 1 of this Report,
"Existing and Proposed Businesses - Equipment Manufacturing - The TCS-1 Plant",
and "Existing and Proposed Businesses - Equipment Manufacturing - Sales and
Marketing - The Enercon Contracts").
Any failure or delay in the Company's receipt of the required financing
would be directly reflected in a commensurate delay or failure in the
commencement of: (i) full scale manufacturing of TCS-1 Plants; and (ii) the
commercial operation of the First Production Model and the establishment and
initiation of rubber mat molding operations. It should be noted also that the
period of time during which any funds raised 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 further flaws
or defects in the design or construction of the First Production Model, which
may become apparent when it is subjected to continuous operation on a long term,
commercial basis. Moreover, given the early stage of development of the Company,
it is impossible at this time to estimate with any certainty the amount of
income from operations, if any, during the next twelve months.
There can be no assurance that the Company will be able to obtain outside
financing on a debt or equity basis on terms favorable to it, if at all. In the
event that there is a failure in any of the finance-related contingencies
described above, the funds available to the Company may not be sufficient to
cover the costs of its operations, capital expenditures and anticipated growth
during the next twelve months. In such case, it would be necessary for the
Company to raise additional equity capital. During Fiscal 1998, in an effort to
put such funding into place, the Company entered into a non-binding letter of
intent with H.J. Meyers & Co., Inc. ("Meyers"), for a proposed public offering
of its securities in an amount of not less than $8,000,000. On or about
September 16, 1998, however, Meyers abruptly ceased doing business. Therefore,
if the Company should wish to raise funds through a public offering, it will be
required to locate
65
<PAGE>
another broker-dealer, ready, willing, and able to underwrite a public offering
of the Company's securities. At this time, the Company is not able to give any
assurances that, in such event, it will be successful in locating an underwriter
or that its efforts will ultimately result in a public offering. If the proceeds
from the above described potential sources of funding should be insufficient for
the Company's requirements and it 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.
As at June 30, 1998, the Company had total assets of $3,814,648 as
compared to $1,555,620 at June 30, 1997 reflecting an increase of $2,259,028.
Fiscal year-end total assets at June 30, 1997 had reflected a previous increase
of $1,357,988 over $197,632 at June 30, 1996. Management attributes the increase
in total assets at June 30, 1998 principally to (i) continuing consulting
agreements which have been recorded as prepaid expenses on the Balance Sheet in
the approximate amount of $970,000; all compensation payable under such
agreements was paid by way of the issuance of an aggregate of 4,000,000 share of
Common Stock to two consultants and the granting of the CGT Option, the terms of
which are discussed, below, in Risk Factor No. 6 "Dilutive and Other Adverse
Effects of Presently Outstanding Debentures, Warrants, and Options"; the
attributed value of all shares of Common Stock issued as compensation under such
consulting agreements and the CGT Option has been included in Paid-in Capital;
(ii) Property and Equipment in the amount of $977,288 which represents an
increase of $190,630 over Property and Equipment of $786,658 at June 30, 1997;.
(iii) cash assets in the amount $398,971 at June 30, 1998, which reflects an
increase of $243,934 over cash assets in the amount of $155,037 at June 30,
1997. The cash position of the Company at June 30, 1997 had reflected an
increase of $154,797 over $240 in cash assets at June 30, 1996; (iv) research
and development tax credit receivables ("R&D TCR's") in the amount of $855,818
at June 30, 1998, which reflects an increase of $535,498 over R&D TCR's in the
amount of $320,320 at June 30, 1997 R&D TCR's at June 30, 1997 had reflected an
increase of $269,918 over $50,402 in R&D TCR's at June 30, 1996; and (v) the
recognition of deferred financing costs in the amount of $158,255.
As at June 30, 1998, the Company had total liabilities of $3,360,588 as
compared to $1,695,350 at June 30, 1997, reflecting an increase in liabilities
of $1,665,238. Total liabilities at June 30, 1997 had reflected a previous
increase of $1,327,921 over $367,429 in total liabilities at June 30, 1996.
Management attributes such increases in total liabilities at June 30, 1998
primarily to: (i) advances from the Canadian federal government agency, Canada
Economic Development-Quebec Regions (CEDQR), formerly known as, and sometimes
referred to herein as, the Federal Office for Regional Development-Quebec
(FORD-Q), pursuant to loans contributed by such agency under the Industrial
Recovery Program for Southwest Montreal (IRPSWM) and the Innovation,
Development, Entrepreneurship and Access Program for Quebec Small and
Medium-Size Enterprises (IDEA-SME) in the amount of $500,012, which represents
an increase of $299,467 over CEDQR balances of $200,545 at June 30, 1997; (ii)
the issuance during Fiscal 1998, in two of the Private Placements (including
debentures assumed in the merger with RPM) of 10% Convertible Subordinated
Debentures in the aggregate principal amount of $1,035,000; (iii) bank
indebtedness in the amount of $407,926 which represents an increase of $285,375
over bank indebtedness of $122,551 at June 30, 1997; and (iv) outstanding loans
to officers in the aggregate amount of $195,969, which represents an increase of
$__________ over $__________ in outstanding loans at June 30, 1997 (see Item 12
of this Report, "Certain Relationships and Related Transactions" - "Loan
Transactions with Terence C. Byrne and Affiliated Entity" and "Loans to Louis
Sanzaro and Affiliate.
Reflecting the foregoing, the financial statements indicate that as at
June 30, 1998, the Company had a working capital surplus (current assets minus
current liabilities) of $373,198 and that as at June 30, 1997, the Company had a
working capital deficit of $1,013,659. The primary causes of this net increase
in net working capital were: (i) an increase in research and development tax
credits receivable in the
66
<PAGE>
amount of $585,900, (ii) an increase of prepaid expenses and deposits respecting
on-going consulting agreements in the amount of $970,000, and, (iii) a decrease
in deposits payable of $336,500.
The Company currently has limited material assets (see, below, Risk Factor
No. 3. "History of Losses and Accumulated Deficit"). The success of the
Company's tire recycling equipment manufacturing business, its proposed rubber
mat molding business, and its ability to continue as a going concern will be
dependent upon the Company's ability to obtain adequate financing to commence
profitable, commercial manufacturing and sales activities and the TCS-1 Plant's
ability to meet anticipated performance specifications on a continuous, long
term, commercial basis.
Results of Operations
As noted above, the Company is presently in the very early stages of the
business of manufacturing and selling TCS-1 Plants and is also currently engaged
in establishing a complete rubber mat molding and flocking facility in which it
intends to utilize the First Production Model of the TCS-1 Plant. The Company
intends to begin manufacturing TCS-1 Plants and operating its rubber mat molding
facility on commercial bases by March of 1999. The Company had no income from
operations during Fiscal 1997; It generated $880,000 in revenues during fiscal
1998 from the sale of the single front-end module and the single fracturing mill
of the First Production Model of the TCS-1 Plant. However, unless and until the
Company successfully develops and commences TCS-1 Plant manufacturing and sales
operations and/or profitable rubber mat molding operations on a full-scale
commercial 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.
The financial statements which are included in this Report reflect total
general and administrative expenses of $1,970,277 for Fiscal 1998 which reflects
an increase of $1,691,329 over Fiscal 1997, when general and administrative
expenses were $278,948. During fiscal 1998, the Company's total operating costs
increased by $2,198,031, from $2,366,535 for fiscal 1997 to $4,564,566 for
fiscal 1998. The majority of such increase is the result of various factors,
including: (i) an increase of $510,000 in respect of valuations attributed to
stock bonuses granted to officers and counsel; (ii) an increase of $358,000 in
respect of valuations attributed to stock issued for various consulting and
professional fees; (iii) an increase of $112,000 in financing fees, by way of
commissions and expense allowance to the Selling Agent in the Type A and Type B
Private Placements; (iv) an increase of $229,000 in travel and entertainment
costs; (v) an increase of $406,000 in respect of valuations attributed to stock
issued in consideration for the release of an exclusive rights agreement (see
Item 12 of this Report, "Certain Relationships and Related Transactions -
Consulting and Executive Agreements with Louis Sanzaro"); and (vi) an increase
of $306,000 in costs directly associated with the development of the TCS-1
Plant. Total research and development costs during Fiscal 1998 were $2,581,928
which reflected an increase of $498,640 over research and development costs for
Fiscal 1997. During the year ended June 30, 1998, shares of Common Stock with an
aggregate attributed value of $1,870,000 were issued in exchange for services as
compared to Common Stock with an aggregate attributed value of $1,600,000 during
the year ended June 30, 1997.
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 that the recipients of such shares
accepted such numbers of shares as a function of a combination of their
perceived valuation of both present and possible future value of the shares,
rather than the actual value of the stock at the time it was issued. Management
believes that, as of the dates such shares were issued in lieu of cash
compensation, their actual and potential value, if any, could not be determined,
and that any attempt to specify a current valuation with any reasonable
assurance, would be flawed, without
67
<PAGE>
substance, and highly contingent upon, and subject to, extremely high risks
including but not limited to the following factors: (i) the absence of a
reliable, stable, or substantial trading market for the Company's common stock,
the possibility that such a market might never be developed, and the resultant
minimal, or total absence of, market value for any substantial block of common
stock; (ii) the very high intrinsic risks associated with early development
stage businesses, such as the Company's; (iii) theCompany's lack of sufficient
funds, as at such issuance dates, to implement its business plan and the absence
of any commitments, at such times, from potential investors to provide such
funds; (iv) the restrictions on transfer arising out of the absence of
registration of such shares; and (v) the uncertainty respecting the Company's
ability to continue as a going concern, (See "Existing and Proposed Businesses",
"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 June 30, 1998, the Company has
incurred a cumulative net loss of $10,051,483. Approximately $1,057,356 of such
cumulative net 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 expending 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.
Risk Factors
The Company's liquidity, capital resources, and results of operations
indicate that an investment in the Company remains speculative, involves a high
degree of risk, and should not be made by persons who cannot afford the loss of
their entire investment. Prospective investors in the Company should carefully
consider all of the information contained in this Report before deciding whether
to purchase securities of the Company, and, in particular, the factors set forth
below.
Information contained in this Report 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 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.
1. Development Stage Company: No Assurance as to Future Profitable
Operations. 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. The Company's existing business (the
design and manufacture of tire recycling equipment) and its proposed business
(the operation of tire recycling equipment and the production of products using
the recycled rubber produced therefrom), are both subject to all of the risks
inherent in the establishment of new businesses and there is no assurance that
the Company will generate net income or successfully expand its operations in
the future. Moreover, as a new enterprise, it 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. The likelihood of the
success of the Company in either business segment 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. Because of the
Company's very limited business history, there is little evidence for investors
to analyze in order to make an informed judgment as to the merits of an
investment in the Company. Any such investment should
68
<PAGE>
therefore be considered a high risk investment in an unseasoned start-up company
with the possibility of the loss of the entire investment.
2. Need For Substantial Additional Capital. During the period between
January 7, and May 11, 1998, the Company 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. 6 "Dilutive and Other Adverse Effects of
Presently Outstanding Debentures, Warrants, and Options" and "The Company -
Material Financing Activities"). Upon completion of the last of such financing
activities in May of 1998, management believed that the proceeds realized
therefrom (together with Canadian and Quebec government and governmental agency
grants and loans, in various forms) would provide the Company with 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 Plant (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 "Description of Property"); and (iii) cover the Company's
overhead costs and expenses through the end of October 1998. The Company has,
however, had to revise its estimates regarding the adequacy of such funding for
several reasons, including but not limited to the necessity for certain
unanticipated modifications to the TCS-1 Plant design and the Company's entry
into a second business segment involving the operation of a TCS-1 Plant and the
production of molded rubber floor mats.
During the "Stage 2" test phase of the First Production Model, the Company
encountered certain unanticipated design flaws in the TCS-1 which required
modification and it also identified several opportunities for improvements in
the original design of the TCS-1 Plant, which the Company believes will increase
economy and efficiency of its operation. The required modifications were
completed in December 1998 with respect to a single fracturing mill and a single
freezing tower in the First Production Model. Completion of the second
fracturing mill and freezing tower to be installed therein is scheduled to occur
in April of 1999. The costs of the foregoing modifications, including
engineering fees, aggregated to a previously unbudgeted amount of approximately
$500,000, approximately $250,000 of which had been paid by the Company as of
December 31, 1998.
The Company is also currently involved in establishing rubber mat molding
operations under the IM2 Agreement. In connection therewith, the Company will
incur additional costs and expenses in an estimated aggregate amount of
approximately $925,000. This includes: (i) approximately $325,000 for
modifications to the Company's Montreal facility, necessary to accommodate these
operations, and for materials handling equipment; and (ii) approximately
$600,000 to cover the costs of purchasing and installing a complete rubber mat
molding and flocking plant (see "Existing and Proposed Businesses - Product
Manufacturing and Sales of Rubber Crumb" and "Description of Property").
The Company has also had to, and may, in the near future be forced to
continue to, cover its overhead costs from sources other than cash flow from
operations because of the unanticipated and lengthy delays in the commencement
of commercial operations.
The Company believes that it will be possible to meet its immediate goals
of: (a) commencing full scale commercial production of TCS-1 Plants; (b)
commencing rubber mat molding operations under the IM2 Agreement; and (c)
covering its overhead expenses until sufficient cash flow is generated by
operations, out of a combination of some or all of the following sources: (i)
funds on hand; (ii) expected cash flow from sales of four TCS-1 Plants to
ENERCON America Distribution Limited ("Enercon") of Westerville, Ohio. (see
"Existing and Proposed Businesses - Sales and Marketing - The Enercon
Agreements"); (iii) Canadian and Quebec government and governmental agency
grants, loans, and refundable tax credits; (iv) sale and lease back financing on
inventory and equipment owned by the Company; (v) conventional asset based debt
financing against receivables and inventory; (vi) refund of
69
<PAGE>
all of the 15% salestax paid by the Company on all goods, and services purchased
in connection with the Company's manufacturing activities; (vii) subcontractor
financing; (viii) a research and development tax credit facility from the Bank
of Montreal for the 1999 calendar year; and/or (ix) vendor financing by way of
installment purchases of equipment. However, the sufficiency of such funds, if
the Company does receive them, will be completely dependent upon the TCS-1
Plant's as yet unproven ability to operate without significant problems, on a
long-term, continuous, commercial basis.
Assuming the Company is able to cover the costs necessary to: (i) complete
the second fracturing mill and freezing tower; and (ii) install a complete
rubber mat molding and flocking facility, from the sources described above, full
scale commercial manufacture of TCS-1 Plants and rubber mat molding operations
are presently expected to occur during March 1999. However, any failure or delay
in the Company's receipt of the required financing would be directly reflected
in a commensurate delay or failure in the commencement of commercial operations
(see "Existing and Proposed Businesses - Equipment Manufacturing - The TCS-1
Plant", and "Existing and Proposed Businesses - Equipment Manufacturing - Sales
and Marketing - The Enercon Contracts" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations").
The Company's more long term 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. Receipt of any projected revenues is entirely
dependent upon the TCS-1's meeting performance expectations, ENERCON's ability
to meet its payment obligations under its agreements with the Company, Enercon
obtaining all required permits and licenses to operate a Plant, the Company's
obtaining sufficient production, financing and capacity to meet delivery
requirements, and the rubber crumb produced by the TCS-1 meeting customer
requirements. The Company believes that if all of the foregoing contingencies
are met, it will have sufficient cash flow to fund its operations for at least
the next twelve months. If revenues from operations within the next twelve
months should fail to meet current projections, the Company may attempt to make
an underwritten public offering of its securities in order to insure that it
will have sufficient working capital. The Company notes that on August 13, 1997,
it received a Letter of Intent from H.J. Meyers, Inc. ("Meyers"), a
broker-dealer registered with the National Association of Securities Dealers,
Inc., for the underwriting of such a proposed public offering (the "Proposed
Public Offering") in an amount of not less than $8,000,000. On or about
September 16, 1998, however, Meyers abruptly ceased doing business. If the
Company should determine that it is necessary or desirable to effect a public
offering, it will have to locate another broker-dealer, ready, willing, and able
to underwrite a public offering of the Company's securities. There can be no
assurance that the Company will succeed in finding an underwriter or that a
public offering will in fact be completed or that the Company will receive
adequate financing from any such public offering. In the event that the
projected revenues are not generated and a public offering does not occur within
twelve months, the Company intends to endeavor to obtain sale and lease-back
financing on equipment owned by the Company, conventional asset based debt
financing against receivables and inventory, and/or to seek other avenues of
financing through private offerings of its debt or equity securities. The
Company believes that at least one, or a combination of more than one, of the
foregoing avenues of financing will enable it to commence full scale production
of the TCS-1 Plant and its proposed product manufacturing and rubber crumb sales
operations on a level sufficient to sustain the Company for at least the next
twelve months. However, given the early stage of development of the Company, it
should be noted that it is impossible at this time to estimate with any
certainty what the Company's income from operations will be during the next
twelve months and that
70
<PAGE>
there can be no assurance that the Company will be able to obtain outside
financing on a debt or equity basis on terms favorable to it, if at all. While
management does not believe that it will be the case, prospective investors in
the Company should note that if all of the above described internal and external
sources for financing should fail to be sufficient, the Company could be
required to reduce its operations, seek an acquisition partner or sell
securities on terms that may be highly dilutive or otherwise disadvantageous. In
the past, the Company has experienced operational difficulties and delays of
more than five years, three of which years occurred during the tenure of the
current management. All such difficulties and delays were the result of working
capital constraints and the Company may continue to experience such problems in
the future. Should such problems continue or reoccur in the future, they could
have a material adverse effect on the Company's business, financial condition
and results of operations. The working capital constraints which the Company
experienced were the result of its being undercapitalized from the outset and
therefore without sufficient resources to hire required personnel or pay vendors
of products and services, including but not limited to subcontractors needed to
design and build the First Production Model of the TCS-1 Plant. The Company
estimates that it required financing in excess of $2,000,000 to complete the
design, development, and construction of the said First Production Model of its
TCS-1 Plant plus funds to maintain finance-raising activities. The Company
actively sought financing under its former management from 1992 through 1994 and
continued to do so under its current management beginning in January 1995. It
did not raise sufficient financing to design and construct the First Production
Model to the point where initial testing could be commenced until May 1998. Lack
of sufficient working capital also required management, who worked for the
Company for no, or very limited, cash compensation, to devote a substantial
amount of their time and effort to raising the required financing. The Company
estimates, that if it had sufficient financing in January of 1995 when members
of current management commenced its search for funding, it might have been able
to complete the design, development, and construction of the First Production
Model by October 1996. Instead, it required an additional three years for the
Company to raise sufficient funds to meet its initial goals and objectives. The
absence of operations and the resultant lack of significant cash flow from 1995
until the present, compounded the Company's problems because even the overhead
required to sustain fund raising activities had to be financed from outside
sources. This further delayed the Company's ability to devote sufficient
resources to completing the design, development, and construction of the First
Production Model of the TCS-1. By way of example, the First Production Model was
scheduled for delivery by February of 1997. Instead, the last of the three major
components of such model was completed in June of 1998 and, as discussed above,
the First Production Model underwent extended testing and "debugging" procedures
until December 1998.
3. History of Losses and Accumulated Deficit. The Company has experienced
operating losses in each fiscal period since its formation in 1987, including
the period since the 1993 inception of its tire recycling business plan. As at
June 30, 1998, the Company had a deficit accumulated since formation in the
aggregate approximate amount of $10,051,483, approximately $8,994,127 of which
was accumulated since the 1993 inception of the Company's present business plan.
The Company expects to incur additional operating losses through at least the
end of the fiscal year ending June 30, 1999 and possibly thereafter (see, above,
Risk Factor No. 1 "Development Stage Company: No Assurance as to Future
Profitable Operations"). Since its inception, the Company has generated
extremely limited revenues from operations (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
4. Going Concern Assumption. The Company's independent auditors' report
on the Company's financial statements for the years ended June 30, 1997 and
1998, contains an explanatory paragraph
71
<PAGE>
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 $10,051,483 as at June 30,
1998. The Company will 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.
5.ab No Guarantee of Product Acceptance in Market. The first production
model of the TCS-1 Plant was completed in May of 1998 and is expected to be
ready for commercial production, on a complete "turn-key" basis, in March 1999.
Consequently, there is not yet any history of commercial operations of the TCS-1
Plant. There can be no assurance that the TCS-1 Plant will be accepted in the
market for tire disintegration equipment. Moreover, the Company's market
research has focused on the potential demand for the TCS-1 Plant, and the rubber
crumb it is designed to produce, 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 Plant, if any. There can be no
assurance that sufficient market penetration can be achieved so that projected
production levels of the TCS-1 Plant will be absorbed by the market (see
"Existing and Proposed Businesses-Sales and Marketing").
6. Dilutive and Other Adverse Effects of Presently Outstanding Debentures,
Warrants, and Options. As of February 12, 1999, there were outstanding options
and warrants pursuant to which the Company is obligated to sell common stock, as
follows:
(a) 2,000,000 common stock purchase warrants (the "Type A Warrants") to
purchase a like number of shares of the Company's common stock at an
exercise price of $.001 per share, the resale of all of which shares
are included in the Registration Statement.
(b) 10% convertible Type A Debentures in the aggregate principal amount
of $500,000, with principal and interest convertible, in whole or in
part, into shares of the Company's common stock at a conversion
ratio equal to a percentage ranging between 67.5% and 61.5% of the
closing bid price of the Company's common stock on the trading date
immediately preceding the date of the Company's receipt of a notice
of conversion from a holder of the Type A Debentures. Accordingly,
if, on February 16, 1999, all of the principal amount, but none of
the interest, due on the Type A Debentures had been converted into
common stock (based on the market price of the common stock as at
February 12, 1999), a total of 4,357,298 shares of common stock
would have been issued in respect of such conversion. The resale of
all of which shares would be included in the Registration Statement.
To the extent that the interest portion of the Debenture is not
converted, all accrued interest will be payable in cash.
(c) 10% convertible Type B Debentures in the aggregate principal amount
of $535,000, with principal and interest convertible, in whole or in
part, 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. If the principal amount of
all of the Type B Debentures, but not the interest, were converted,
the aggregate number of shares
72
<PAGE>
issuable would be 2,675,000, the resale of all which shares are
included in the Registration Statement. To the extent that the
interest portion of the Type B Debenture is not converted, all
accrued interest will be payable in cash.
(d) an option to purchase 235,294 shares, held by Lenford Robins, an
unaffiliated consultant, exercisable at a price of $.17 per share.
Mr. Robins is an expert in all types of equipment financing through
sale and leaseback arrangements, and otherwise, and has provided,
and continues to provide, consulting services to the Company with
respect to locating, structuring, and arranging such financing for
purchasers and potential purchasers of TCS-1 Plants. From the Summer
of 1996 through the Spring of 1997, Mr. Robins provided substantial
consulting services in connection with sale and leaseback financing
for Ocean's Tire Recycling & Processing Co., Inc. ("OTRP").
(e) (i) options to purchase, on or before March 31, 1999, an aggregate
of 250,000 shares, at an exercise price of $.1875 per share; and
(ii) options to purchase, on or before June 30, 1999, an aggregate
of 250,000 shares, at an exercise price of $.28 per share. Each of
the above described options are held among three individuals,
including Sharon Sanzaro (the spouse of Louis Sanzaro, an officer
and director of the Company), who hold such options as designees or
assignees of Ocean/Venture III, Inc., a company controlled by Mr.
Sanzaro. These options were granted in consideration of the
agreements of Ocean/Venture III, Inc. given on March 31, 1996, and
June 30, 1996 to extend the maturity date of certain indebtedness
which the Company owed to Ocean/Venture III, Inc. for periods which
ranged from 90 to 120 days from each of such dates.
(f) an option, held by a former 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 average market price of the Company's common stock during
the five trading days immediately prior to the date of conversion
provided, however, that 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. If the shares of convertible preferred
stock had been converted into shares of the Company's common stock
as at February 16, 1999, a total of 3,836,930 shares would have been
issued in respect of such conversion. For a discussion in more
detail of the terms of this option and the 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; and
(g) 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 $.1195 per share
with respect to 969,365 shares and at an exercise price with respect
to the balance of the shares equal to fifty percent (50%) of the
average of the final bid and ask prices of the common stock of the
Company, as quoted in the OTC Bulletin
73
<PAGE>
Board during the ten business days preceding the exercise date. If
all of the other presently outstanding debentures, options, and
warrants were exercised, as described above, the total number of
shares of common stock of the Company issued and outstanding would
be 91,699,663, prior to the exercise of the CGT Option, in which
case, the number of shares subject to the CGT Option would be
10,188,851, the resale of all of which shares would be included in
the Registration Statement.
The holders of the convertible debentures, the warrants, and the
outstanding options 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. Moreover, if the above described
debentures, warrants, and options (the "Convertible Securities") are converted
or exercised, most of the shares of common stock issued upon such exercise or
conversion (the "Underlying Shares") will be available for immediate sale into
the public market, commencing on the effective date of the Registration
Statement. The sale or availability for sale of substantial amounts of common
stock in the public market could adversely affect the prevailing market price of
the Company's common stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities. In addition, even
if the Convertible Securities are not converted or exercised, the terms on which
the Company may obtain additional financing may be adversely affected by the
existence of such securities. For example, the holders of the Convertible
Securities could convert or exercise them at a time when the Company is
attempting to obtain additional capital through a new offering of securities
which have terms more favorable (to the Company) than those provided by the then
outstanding Convertible Securities.
7. Additional Dilution from Issuance of Shares for Services. To date, the
Company has had no significant operating revenues. Accordingly, the bulk of its
cash assets have been, and may continue to be, utilized to cover the expenses
associated with the development of the TCS-1 Plant. Given the foregoing, the
Company regularly pays certain of its financial obligations by issuing
restricted shares of its common stock, at a discount, in lieu of cash. The
discounts at which such shares were issued was generally, but not always, set at
50% of the average market price of the stock, as traded in the over-the-counter
market and quoted in the OTC Bulletin Board. Such discounts were either
negotiated at arms length with third parties or determined arbitrarily by the
Company, in which cases they bore no relationship to the Company's assets,
earnings, book value or other such criteria of value. Such issuances have, and
may continue to, result in substantial dilution to the Company's existing
shareholders.
Since January of 1995, the Company has issued a total of 32,756,186
shares, constituting 41.94% of the issued and outstanding shares of the Company
in lieu of cash compensation due under employment and consulting agreements with
its executive officers, employees, and corporate counsel and in additional
compensation by way of directors shares and stock bonuses. In addition, during
that period, the Company issued 12,888,243 shares, constituting approximately
16.5% of the issued and outstanding common stock of the Company to affiliated
and non-affiliated consultants and subcontractors for consulting services of
various types. For as long as the Company has insufficient cash resources to
meet its obligations to its officers, counsel, and outside vendors, the Company
will, to the extent possible, continue to issue shares of its common stock at
negotiated or arbitrary discounts. In addition, the Company intends to submit to
its shareholders, proposals to adopt three stock option plans for the benefit of
its employees (See Risk Factor No. 9 "Possible Voting Control by Management and
Corporate Counsel" and Risk Factor No. 27 "Adverse Effects of Proposals to Be
Presented at Annual Shareholders Meeting: Anti-Takeover Provisions, Limitations
on Shareholders Voting Rights, and Stock Bonuses to Management", "Management -
Executive Compensation", "Management - Security Ownership of Certain Beneficial
Owners and Management", and "Certain Relationships and Related Transactions").
74
<PAGE>
8. Possible Depressive Effect on Price of Securities of Future Sales of
Common Stock. The resale of 11,952,857 of the 78,095,141 common shares of the
Company, issued and outstanding as of February 4, 1999, has been included in the
Registration Statement. 11,760,000 of such shares will be freely tradeable
commencing on the effective date of the Registration Statement or, if the
holders thereof shall choose to withdraw the registration of such shares, they
will be tradeable under Rule 144 commencing May 11, 1999. The resale of an
estimated 21,220,449 shares issuable upon the exercise or conversion of
presently outstanding options, warrants, and debentures have also been included
in the Registration Statement and will be freely tradeable upon the later of:
(i) the effective date of the Registration Statement; or (ii) their issuance.
Alternatively, if the holders of the convertible debentures and some of such
warrants (but not the options) shall choose to withdraw them from the
Registration Statement, they will become tradeable under Rule 144 on
commencement dates ranging from January 7, 1999 to May 11, 1999. The sale or
other disposition of much of the currently outstanding shares of common stock is
restricted by the Securities Act. Unless such sales are registered, these shares
may only be sold in compliance with Rule 144 promulgated under the Securities
Act or some other exemption from registration thereunder. Rule 144 provides,
among other matters, that if certain information concerning the operating and
financial affairs of the Company is publicly available, persons who have held
restricted securities for a period of one year may thereafter sell in each
subsequent three month period up to that number of such shares equal to one
percent of the Company's total issued and outstanding common stock. The sale or
availability for sale of substantial amounts of common stock in the public
market after the offering being made by the Registration Statement could
adversely affect the prevailing market price for the Company's common stock and
could impair the Company's ability to raise additional capital through the sale
of its equity securities.
9. Possible Voting Control by Management and Corporate Counsel: Possible
Depressive Effect on Market Prices. As of February 4, 1999, the Company's
officers and directors were the beneficial owners of an aggregate of 29,391,199
shares, constituting approximately 37.16% of the Company's outstanding common
stock. The Company intends to hold the 1999 annual meeting of its shareholders
prior to the end of the current fiscal year. (See Risk Factor No. 27 "Adverse
Effects of Proposals to Be Presented at Annual Shareholders Meeting:
Anti-Takeover Provisions, Limitations on Shareholders Voting Rights, and Stock
Bonuses to Management"). In addition to the proposals discussed in Risk Factor
No. 27, the Board of Directors has proposed that the shareholders approve the
adoption of three stock option plans. If adopted, two of these plans will be for
the benefit of all of the Company's employees, but management and key employees
are expected to be the principal beneficiaries thereof. The third of these
proposed plans, is intended to be specifically for the purpose of awarding
options for the purchase of shares of common stock at a nominal exercise price
of $.001 per share, to key employees and members of management in respect of
certain specified performance achievements attained or to be attained by the
Company due to their efforts.
The other two stock option plans to be presented to the Shareholders,
consist of a statutory and a non-statutory plan. Key management and other
employees will also be eligible to receive option grants under each of such
plans. The exercise price of options granted under the statutory plan must be
not less than 100% of the market price on the day the option is granted unless
the grantee owns 10% or more of the total issued and outstanding common stock of
the Company, in which case the exercise price must be not less than 110% of the
market price on the day the option is granted. The non-statutory plan to be
proposed to the shareholders calls for an exercise price of not less than 50% of
the market price on the date the option is granted.
The concentration of ownership by the Company's officers and directors
may, along with other "anti-takeover" measures which the Board of Directors
plans to submit to the shareholders, discourage potential acquirors from seeking
control of the Company through the purchase of Common Stock, and this
75
<PAGE>
possibility could have a depressive effect on the price of the Company's
Securities. (See "Risk Factor No. 25 "Adverse Effects of Proposals to Be
Presented at Annual Shareholders Meeting: Anti-Takeover Provisions, Limitations
on Shareholders Voting Rights, and Stock Bonuses to Management" and "Principal
Shareholders").
10. Proposed Reverse Split: Possible Negative Effect on Value of
Securities. As of February 4, 1999, there were 78,095,141 shares of the
Company's common stock issued and outstanding. While the Company considers that
it would be highly unlikely if all of the currently outstanding options and
warrants were to be exercised and all of the currently outstanding debentures
were to be converted with respect to the principal amount of such debentures,
there could be up to 103,887,814 shares of common stock issued and outstanding.
On August 13, 1997, the Company received a Letter of Intent from H.J. Meyers,
Inc. (the "Meyers Letter of Intent"), a broker-dealer registered with the
National Association of Securities Dealers, Inc., for the underwriting of a
proposed public offering. On or about September 16, 1998, however, H. J. Meyers
abruptly ceased doing business. The Company intends to endeavor to effect a
public offering of its securities and is presently in negotiations with another
potential underwriter. The Meyers Letter of Intent had required that the Company
have not more than ten million (10,000,000) shares of common stock issued and
outstanding prior to the proposed public offering. The Company believes that any
potential underwriter for a public offering of the Company's securities will
require that the Company effect a reverse split to reduce the number of shares
of its common stock issued and outstanding because the total number of shares of
common stock currently outstanding is disproportionately large in relation to
the Company's level of sales, net income and net worth. Additionally, the
Company's common stock has had a low market value per share in recent months,
which may, the Company believes, tend to reduce stockbroker and investor
interest in the Company. Further, the Company believes that the current per
share price of the Company's common stock may limit the effective marketability
of the Company's common stock because of the reluctance of many brokerage firms
and institutional investors to recommend lower-priced stocks to their clients or
to hold them in their own portfolios. In light of the above, the Company intends
to call a meeting of its shareholders and to submit to them a proposal to
reverse split the number of shares of common stock issued and outstanding at a
ratio of one post-split share for every five pre-split shares, or at some other,
possibly higher, ratio, as the board of directors shall agree is in the best
interests of the Company and its shareholders. Based upon the number of shares
issued and outstanding as of February 4, 1999, and assuming that the Reverse
Split is approved by the shareholders and effected at a one-for-five ratio,
there will be a decrease in the number of outstanding shares of common stock of
the Company to approximately 15,619,028 shares. Because of standard
anti-dilution clauses or market price sensitive exercise or conversion prices
contained in all presently outstanding convertible debentures, warrants, and
options, such reverse split would also affect the number of shares of common
stock issuable upon conversion or exercise of such debentures, warrants, or
options. Negotiations with potential underwriters may result in a different
reverse-split ratio or even a second reverse split.
The Company believes that a decrease in the number of shares of common
stock outstanding may increase the trading price and marketability of such
shares. However, the market price of the Company's common stock should also be
expected to reflect Company performance and other factors, some of which may be
unrelated to the number of shares outstanding. Accordingly, there can be no
assurance that the market price of the Common Stock after the Reverse Split will
actually increase in an amount proportionate to the decrease in the number of
outstanding shares. The Reverse Split may leave stockholders with one or more
"odd lots" of the Company's stock, i.e. stock holdings in amounts of less than
100 shares. These shares may be more difficult to sell, or require a greater
commission per share to sell, than shares in lots of 100.
76
<PAGE>
Upon the effectiveness of the Reverse Split, if it is approved by the
Shareholders, the presently issued certificates shall be deemed to represent the
number of shares equal to the number of pre-split shares originally represented
by such certificate divided by the ratio of the reverse split, and rounded up to
the next full number. EXAMPLE: if the reverse split is effected at a
one-for-five ratio, a certificate which originally represented an 10,523
pre-split shares would be deemed to represent 10,523 divided by five (2,104.6),
rounded up to the next full number, i.e., 2,105 shares. Thus no fractional
shares of common stock will result from the reverse split (see "Risk Factor No.
6, Dilutive and Other Adverse Effects of Presently Outstanding Debentures,
Warrants and Options").
11. Dependence on Major Customers. To date the Company has received orders
for fifteen TCS-1 Plants, eight of which were ordered by Ocean/Ventures III,
Inc.("O/V III") of Toms River, New Jersey ("O/V III") and parts of one of which
have been purchased by Oceans Tire Recycling & Processing Co., Inc. ("OTRP"), a
company under common control with O/V III. The eight Plants ordered by O/V III
constitute approximately fifty-six percent (56%) of the Company's present
backlog. The Company has also received orders for four TCS-1 Plants from ENERCON
America Distribution Limited ("Enercon") of Westerville, Ohio. The Enercon
orders constitute approximately twenty-eight percent (28%) of the Company's
present backlog. The loss of either of these two customers would have a major
adverse effect on the Company.
Both O/V III and OTRP are controlled by Louis V. Sanzaro, an officer and
director of the Company. Mr. Sanzaro's past and present relationships and
transactions with the Company are discussed in detail in "Existing and Proposed
Businesses - Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products."
Completion and consummation of all currently outstanding orders for TCS-1
Plants, are entirely dependent upon the TCS-1's meeting performance
expectations, each customer's obtaining lease or other financing for the
purchased portions of the Plant (as well as all required permits and licenses to
operate a Plant), and to the Company's obtaining sufficient production,
financing and capacity to meet delivery requirements. (See "Existing & Proposed
Businesses - "Equipment Manufacturing - Dependence on
77
<PAGE>
Major Customer" and "Proposed TCS-1 Plant Operations: Sales of Rubber Crumb and
Manufacture and Sale of Finished Products."
12. Uncertainty of Product and Technology Development: Technological
Factors. The Company has completed initial development and construction, of the
first production model of the TCS-1 Plant. The Company's success will depend
upon the TCS-1 Plant's meeting targeted performance and cost objectives and its
timely introduction into the marketplace. Such an outcome will be subject to the
risks inherent in the development of a new product, technology, and, business,
including unanticipated delays, expenses, and difficulties, as well as the
possible insufficiency of funding to complete development (see Risk Factor No. 2
"Need for Substantial Additional Capital", above). There can be no assurance
that under commercial usage conditions, the TCS-1 Plant 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 Plant after the commencement of commercial
manufacture and sales, resulting in loss or delay in market acceptance.
13. International Sales and Operations. The Company plans to market the
TCS-1 Plant in Europe and India during the 1999 calendar year, and in other
areas throughout the world as opportunities arise. There can however, be no
assurances that the TCS-1 Plant will be successfully marketed or that any
anticipated international sales of TCS-1 Plants will take place. In addition,
the Company may enter into joint ventures with purchasers of TCS-1 Plants for
the purpose of engaging in the business of operating tire recycling businesses
equipped with TCS-1 Plants. To the extent that the Company engages in
international sales and/or operations, it will be subject to various risks
associated therewith, including but not limited to changes in tariff rates, lack
of reliability and availability of qualified labor, and instability of political
climate or economic environment. In addition, the value of any capital equipment
owned by such joint ventures and any operating lease or equipment purchase
financing payments received by the Company, may, under certain conditions, be
valued or paid in non-U.S. currencies, all of which will be subject to
independent fluctuating exchange rates with the U.S. dollar which may have an
adverse affect on the Company's revenues or asset values in terms of the U.S.
dollar.
14. 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 Plant which will
utilize such technology. On April 7, 1998, the Company was issued a United
States patent on its Cryogenic Tire Disintegration Process and Apparatus (Patent
No. 5,735,471). This patent will expire on December 18, 2016. In November 1998,
the Company filed this patent with the Canadian Patent Office. The Company is
presently unable to state how long the Canadian review will take. While the
Company expects a Canadian patent to be granted, it is unable to give any
assurance that this will in fact be the case. 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 Plant. 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
78
<PAGE>
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.
15. 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 shares of common stock of the Company may, therefore, have
difficulty in reselling such shares. 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, in the future, that 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 less than $4,000,000 in net
tangible assets, a public float(5) 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, as of February 4, 1999, had 78,095,141 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. 6 "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 Nasdaq 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 SmallCap system,15.ab 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 the underwriting arrangements typically found in
a 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.
- ---------
(5) "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.
79
<PAGE>
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. 16. 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.
16. 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 SmallCap 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 SmallCap Stock Market or a
major stock exchange. 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 and the Underlying Share 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 substantially less than $5 (see "Market Information"). Accordingly, any
broker-dealer sales of the Company's shares 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 of the Company's common
stock 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.
17. Management's Lack of Industry Experience. Although Management has
significant 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").
80
<PAGE>
18. 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, Chairman of the
Board of Directors and Chief Executive Officer; Louis Sanzaro, President and
Chief Operating Officer, and Louis V. Muro, Vice President in charge of
engineering. The loss of any of these persons could have a material adverse
affect on the Company's business, prospects, operating results, and financial
condition. The Company has entered into employment agreements with Messrs.
Byrne, Sanzaro, and Muro (see "Management - Employment Contracts and Termination
of Employment and Changes - in - Control Arrangements"). The Company does not
presently have key man life insurance policies and does not intend to obtain any
unless required to do so under future financing arrangements. There can be no
assurance that such policies will be available to the Company on commercially
reasonable terms, if at all. Additionally, 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.
19. 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
presently in the process of making arrangements to own the First Production
Model of the TCS Plant and to operate it as a "Tirex Advanced Products Plant"
for the purpose of selling rubber crumb produced by operation of the TCS-1 Plant
and manufacturing finished products, made wholly or partially from such rubber
crumb (see "Existing and Proposed Businesses - Proposed TCS-1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products"). The TCS-1
Plant is a "closed loop" system which does not use any chemicals, solvents,
gases or other substances, which could result in emissions of any kind from the
operation of the Plant and to the best of the Company's knowledge, will not
result in the emission of air pollution, the disposal of combustion residues,
the storage of hazardous substances (as is the case with other tire recycling
processes such as pyrolysis), or the production of any significant amounts of
solid waste which would have to be landfilled. However, the operation of a TCS-1
Plant will 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. While the Company does not believe that such
storage will normally involve quantities of tires so large or storage periods so
extensive as to constitute the "stockpiling" of scrap tires, it should be noted
that stockpiling, should it occur, could constitute a particularly serious
environmental problem. Among the numerous problems relating to scrap tires, is
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. The Company and other operators of TCS-1
Plants will therefore 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. Establishing and operating
a TCS-1 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. The process of obtaining required regulatory approvals may be
lengthy and expensive for both the Company and for its TCS-1 Plant 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
81
<PAGE>
requirements can result in, among other things, fines, suspensions of approvals,
seizure or recall of products, operating restrictions, and criminal
prosecutions.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company, and of all TCS-1 Plant Operators, may
impose financial burdens 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 Plants
discouraging potential customers from purchasing a TCS-1 Plant. 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 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
Plant customers to operate profitably and in compliance with such regulations.
However, 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 new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals. Actions by federal,
state, and local governments concerning environmental or other matters could
result in regulations that could therefore increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 Plant and make such by-products less profitable or even impossible
to sell at an economically feasible price level, which could result in the
Company's or its TCS-1 customers' businesses being less profitable, or
unprofitable, to operate. Continually changing government compliance standards
and technology, could also affect the Company's future capital expenditure
requirements relating to environmental compliance. Likewise, the burden of
compliance with laws and regulations governing the installation and/or operation
of TCS-1 Plants could discourage potential customers from purchasing a TCS-1
Plant which would adversely affect the Company's business, prospects, results,
and financial condition. As a result, the business of the Company could be
directly and indirectly affected by government regulations (See "Existing and
Proposed Businesses - Government Regulation").
20. Production and Supply. The Company intends to begin manufacturing the
TCS-1 Plant on a commercial basis in March 1999. In connection therewith, the
Company will be dependent on arrangements with its subcontractors for the
manufacture and assembly of the principal components incorporated into the TCS-1
Plant (see Existing & Proposed Businesses "Agreements With 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 Plant 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 the Company to meet all TCS-1 Plant 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 Plants
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 Existing & Proposed BusinesseS: "Production
and Supply").
82
<PAGE>
Components of the TCS-1 Plants, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 Plant, 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.
21. 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 been issued a United States patent respecting its
proprietary disintegration system, the Company may not have the financial
resources to successfully defend such patent, were it is to become necessary, 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 Plant. 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.
22. 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. Management intends to meet such competition by
developing technological innovations which will make the TCS-1 Plant more
economical and efficient than other tire disintegration methods although no
assurance can be given that this will prove to be the case. (see "Existing and
Proposed Businesses - Competition").
23. Lack of Liability Insurance. The proposed TCS-1 Plant may expose the
Company to possible product liability claims if, among other things, the
operation of the TCS-1 Plant 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 Plant.
Should the Company determine that such insurance is necessary, 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.
24. 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.
83
<PAGE>
25. The Company's amended Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of "Class A Stock". Twenty thousand of such shares
are reserved for issuance as preferred stock under an outstanding option
therefor. The Board of Directors has the power to issue the balance of the Class
A Stock in such series and classes and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
The issuance of any series of preferred stock having rights superior to those of
the common stock may result in a decrease in the value or market price of the
common stock and could be used by the Board of Directors as a means to prevent a
change in control of the Company. Such preferred stock issuances could make the
possible takeover of the Company, or the removal of management of the Company,
more difficult. The issuance of such preferred stock could discourage hostile
bids for control of the Company in which shareholders could receive premiums for
their common stock or warrants, could adversely affect the voting and other
rights of the holders of the common stock, or could depress the market price of
the 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. See also, Risk Factor No. 27 "Adverse
Effects of Proposals to Be Presented at Annual Shareholders Meeting:
Anti-Takeover Provisions, Limitations on Shareholders Voting Rights, and Stock
Bonuses to Management".
26. Prior Notice Not Required For Shareholder Actions. None of the
Company's securities is registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "34 Act"). As a result, the Company is not subject
to the Proxy Rules of Section 14 of the 34 Act. The Company is thus able to take
shareholder actions in conformance with Section 228 of the Delaware General
Corporation Act, which permits it to take any action which is required to, or
may, be taken at an annual or special meeting of the shareholders, without prior
notice and without a vote of the shareholders. Instead of such vote, the written
consent or consents in writing, setting forth the action so taken, can be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted on such action.
The only notice which shareholders other than those who consented to such
action, are entitled to, is required to be given promptly after the action has
been taken.
27. Adverse Effects of Proposals to Be Presented at Annual Shareholders
Meeting: Anti-Takeover Provisions, Limitations on Shareholders Voting Rights,
and Stock Bonuses to Management. The Company intends to hold the 1999 annual
meeting of its shareholders prior to the end of the current fiscal year. This
will be the first meeting of the Shareholders ever called by the Company. The
Board of Directors has proposed that the Company's Certificate of Incorporation
should be amended and restated to contain provisions that may make it more
difficult to acquire control of the Company by means of tender offer,
over-the-counter purchases, a proxy fight, or otherwise. If adopted by the
required vote of the Company's shareholders, the amendments will include: (i)
the addition of a "fair price" provision to the Certificate of Incorporation
that regulates business combinations with any person or group beneficially
owning fifteen percent (15%) or more of the Company's common stock, including a
voting requirement of seventy-five percent (75%) of the voting power of all
outstanding voting shares of the Company (excluding shares held by such fifteen
percent (15%) stockholder or group of stockholders) for a business combination,
unless the business combination is approved by a majority of the members of the
Board of Directors who have held office since prior to the date of the 1999
annual meeting (the "Continuing Directors") or satisfies certain minimum price
and procedural requirements; (ii) the addition to the Certificate of
Incorporation of a provision granting authority to the Board of Directors to
adopt one or more shareholder rights plans, rights agreements, or other forms of
"poison pills" in the future without further shareholder approval, (iii) the
addition to the Certificate of Incorporation of a provision classifying the
Board of Directors into three classes; (iv) the addition to the Certificate of
Incorporation of a seventy-five percent
84
<PAGE>
(75%) voting requirement for any stockholder action to be taken by written
consent; (v) an amendment to the Certificate of Incorporation requiring the
affirmative vote of the holders of seventy-five percent (75%) of the outstanding
voting stock to amend, alter and repeal the By-laws and to allow the Board of
Directors to amend, alter or repeal the By-laws without stockholder consent;
(vi) the addition to the Certificate of Incorporation of a provision electing to
be governed by the provisions of Section 203 of the Delaware General Corporation
Law which, under certain circumstances, imposes restrictions on proposed
business combinations between a company and an interested stockholder of such
company; (vii) the addition of a seventy-five percent (75%) voting requirement
in order to amend, alter or repeal the foregoing proposed amendments to the
Certificate of Incorporation; (viii) an amendment to the By-laws eliminating the
ability of stockholders to call a special meeting; and (ix) the addition to the
By-laws of a provision requiring that stockholders submit director nominations
and other business to be considered at meetings of stockholders at least 90 days
in advance of any such meeting of stockholders. The proposed amendments are not
being submitted to the shareholders in response to any effort, of which the
Company is aware, to accumulate the Company's common stock or to obtain control
of the Company.
The proposed amendments, individually and collectively, may have the
effect of making more difficult and discouraging a merger, tender offer or proxy
fight, even if such transaction or occurrence may be favorable to the interests
of some or all of the Company's stockholders. The proposed amendments also may
delay the assumption of control by a holder of a large block of the Company's
common stock and the removal of incumbent management, even if such removal might
be beneficial to some or all of the stockholders. Furthermore, the proposed
amendments may have the effects of deterring or frustrating certain types of
future takeover attempts that may not be approved by the incumbent Board of
Directors, but that the holders of a majority of the shares of Company's common
stock may deem to be in their best interests or in which some or all of the
stockholders may receive a substantial premium over prevailing market prices for
their stock.
By having the effect of discouraging takeover attempts, the proposed
amendments also could have the incidental effect of inhibiting certain changes
in management (some or all of the members of which might be replaced in the
course of a change of control) and also the temporary fluctuations in the market
price of the Company's common stock that could result from actual or rumored
takeover attempts. Moreover, tender offers or other non-open market acquisitions
of stock are usually made at prices above the prevailing market price of a
company's stock. In addition, acquisitions of stock in the open market by
persons attempting to acquire control may cause the market price of the stock to
reach levels that are higher than might otherwise be the case. Approval of the
some or all of the proposed amendments may deter such purchases, particularly
purchases for less than all of the Company's shares, and therefore may deprive
holders of the Company's common stock of an opportunity to sell their shares at
a temporarily higher market price.
Purchasers of the Company's shares should note that such amendments, if
adopted, will result in there being special requirements for supermajority
shareholder approval of any subsequent business combination and the possibility
that after an acquiror (for purposes of this discussion, an "Interested
Shareholder") purchases a certain percentage of the Company's common stock, it
will be forced to pay a higher price to other Company shareholders in such a
business combination. This would likely would make it more costly for a third
party to acquire control of the Company. Thus, the proposed amendments may
decrease the likelihood of a tender offer for less than all of the shares of the
common stock of the Company, which may adversely affect stockholders who desire
to participate in such a tender offer. In certain cases, the proposed fair price
amendment's minimum price provisions, while providing objective pricing
criteria, could be arbitrary and not indicative of value. In addition, an
Interested Stockholder may be unable, as a practical matter, to comply with all
of the procedural requirements. In these circumstances, unless an Interested
Stockholder were able to obtain special stockholder approval of a proposed
Business Combination, it would be forced either to negotiate with the Board of
Directors on terms
85
<PAGE>
acceptable to the Board or to abandon the proposed business combination. The
proposed amendments also would give veto power to minority stockholders with
respect to a proposed Business Combination that is opposed by a majority of
Continuing Directors but that is desired by a majority of the Company's
stockholders unless the minimum pricing and procedural requirements were met. If
members of the Company's current management and principal shareholders were to
maintain their current stock ownership, they would have the ability to block the
requisite vote. In addition, the proposed amendments may tend to insulate
incumbent directors against the possibility of removal in the event of a
takeover attempt because only the Continuing Directors would have the authority
to reduce to a simple majority or eliminate the special stockholder vote
required for a particular Business Combination.
While some of the proposed amendments would directly affect the
possibility of the Company's being the subject of a tender offer or a hostile
takeover, others will directly limit the ability of minority shareholders to
participate in Company affairs. The classified Board of Directors provisions,
will divide the Board of Directors into three classes of directors serving
staggered two-year terms, with two directors to be elected at each annual
meeting of shareholders. This will extend the time required to change the
composition of the Board of Directors. The provision requiring shareholders to
give 90 days advance notice to the Company of any nomination for election to the
Board of Directors, or other business to be brought at any shareholders' meeting
will make it more difficult for shareholders to nominate candidates to the Board
of Directors who are not supported by management. This provision will make it
more difficult to implement shareholder proposals even if a majority of
shareholders are in support thereof. Each of these provisions may also have the
effect of deterring hostile take-overs or delaying changes in control or
management of the Company. In addition, the indemnification provisions of the
Company's Certificate of Incorporation and Bylaws may represent a conflict of
interest between management and the shareholders since officers and directors
may be indemnified prior to any judicial determinations as to their conduct.
Under Delaware law, each of the proposed amendments to the Certificate of
Incorporation and By-laws described above requires the affirmative vote of the
holders of a majority of the Company's outstanding shares of common stock. All
of the proposals are permitted by law. If stockholders approve any or all of the
proposed amendments, the Company will file a Restated Certificate of
Incorporation that reflects the proposed amendments with the Secretary of State
of the State of Delaware. Each of the proposed amendments adopted by the
Company's stockholders will become effective regardless of whether any of the
other proposed amendments to be acted upon at the Meeting is adopted.
In addition to the proposed amendments to the Certificate of Incorporation
and By-laws, the present Certificate of Incorporation authorizes the Board of
Directors to issue shares of Class A Stock having such rights, preferences and
privileges as designated by the Board of Directors without stockholder approval
(see "Risk Factor No. 25 "Possible Adverse Effects of Authorization and Issuance
of Preferred Stock").
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, required to be included in this
Report pursuant to Item 310(a) of Regulation S-B, are set forth below.
86
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
THE TIREX CORPORATION
(A Developmental Stage Company)
I N D E X
Page
----
Report of Independent Auditors 88
Consolidated Balance Sheet 89
Consolidated Statements of Operations 90
Consolidated Statements of Stockholders' Equity (Deficit) 91
Consolidated Statements of Cash Flows 93
Notes to Consolidated Financial Statements 95
87
<PAGE>
Report of Independent Auditors
Board of Directors
The Tirex Corporation
We have audited the accompanying consolidated balance sheet of The Tirex
Corporation (a development stage company) as of June 30, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended, June 30, 1998 and 1997 and for the cumulative period
from March 26, 1993, (date of inception) to June 30, 1998. 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 The Tirex
Corporation (a development stage company) at June 30, 1998, and the results of
their operations, and their cash flows for the years ended June 30, 1998 and
1997, and for the cumulative period from March 26, 1993, (date of inception) to
June 30, 1998, 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.
Pinkham & Pinkham, P.C.
Certified Public Accountants, PA
February 9, 1999
Cranford, New Jersey
88
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Consolidated Balance Sheet
June 30, 1998
Assets
Current assets
Cash and cash equivalents (Note 1) $ 398,971
Notes receivable (Note 8) 225,969
Sales tax receivable 133,868
R&D Investment tax credit receivable (Note 1) 855,818
Prepaid expenses and deposits 618,266
----------
2,232,892
Property and equipment, at cost, net of accumulated
depreciation of $16,747 (Notes 1 & 4) 977,288
Other assets
Organization costs, net of accumulated
amortization of $863 (Note 1) 536
Prepaid expenses and deposits 445,677
Deferred financing costs (Note 3) 158,255
----------
604,468
----------
$3,814,648
==========
Liability and Stockholders' Equity
Current liabilities
Notes payable (Note 5) $ 407,926
Accrued expenses (Note 8) 1,274,150
Deposits payable (Note 8) 143,500
Current portion of long-term debt (Note 6) 34,118
-----------
1,859,694
Other liabilities
Long term debt (net of current portion) (Note 6) 465,894
Convertible subordinated debentures,
long-term portion (Note 7) 1,035,000
-----------
1,500,894
Stockholders' equity (Notes 1,2,7,8,9,10,11 & 12)
Common stock, $.001 par value, authorized
120,000,000 shares, issued and outstanding,
63,641,438 shares 63,642
Class A stock;.001 par value, authorized 5,000,000
shares issued and outstanding, 0 shares --
Additional paid-in capital 10,258,116
Deficit accumulated during the development stage (10,051,483)
Unrealized gain on foreign exchange 183,785
454,060
------------
$ 3,814,648
============
See Notes to Consolidated Financial Statements
89
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Consolidated Statements of Operations
Cumulative
Period from
March 26, 1993
(Date of
Inception)
Year Ended June 30, to
1997 June 30, 1998
1998 (Restated) (Restated)
---- ---------- ----------
Revenues $ 880,000 $ -- $ 934,725
Cost of sales 796,490 -- 810,842
------------ ------------ ------------
Gross profit 83,510 -- 123,883
Operations
General and administrative 1,970,277 278,948 2,956,340
Depreciation and amortization 12,361 4,299 24,028
Research and development 2,581,928 2,083,288 6,046,100
------------ ------------ ------------
Total expense 4,564,566 2,366,535 9,026,468
------------ ------------ ------------
Loss before other income and
expenses (4,481,056) (2,366,535) (8,902,585)
------------ ------------ ------------
Other income (expenses)
Interest expense (53,387) (8,531) (64,006)
Interest income 2,540 -- 2,540
Income from stock options -- -- 10,855
Loss on disposal of equipment -- (2,240) (2,240)
Loss on foreign
exchange (Note 1) (38,538) 1,027 (38,691)
------------ ------------ ------------
(89,385) (9,744) (91,542)
------------ ------------ ------------
Net loss $ (4,570,441) $ (2,376,279) $ (8,994,127)
============ ============ ============
Net loss per common share $ (.10) (.08) $ (.50)
============ ============ ============
Weighted average shares of common
stock outstanding (Note 1) 45,704,410 27,992,502 17,988,254
============= ============ ============
See Notes to Consolidated Financial Statements
90
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Paid-in Developmental Unrealized
Common Stock Capital Stage Foreign Total
Shares Amount (Restated) (Restated) Exchange (Restated)
------ ------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 3,383,020 3,383 194,980 (1,057,356) -- (858,993)
Stock issued for reorganization 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 the year -- -- -- (165,296) -- (165,296)
---------- ------ ------- --------- ------ --------
Balance at June 30, 1993 22,496,676 22,497 998,694 (1,222,652) -- (201,461)
Stock issued 2,000 2 (2) -- -- --
Exchange for debt -- -- 149,170 -- -- 149,170
Payments received for stock
previously issued -- -- 237,430 -- -- 237,430
Net loss for year -- -- -- (179,296) -- (179,296)
---------- ----- ------- --------- ------ -------
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 5,592 513,908 -- -- 519,500
Shares issued in exchange
for debt 200,000 200 24,300 -- -- 24,500
Issuance of common stock 402,857 401 21,915 -- -- 22,316
Net loss for year -- -- -- (575,771) -- (575,771)
---------- ------- ---------- --------- -------- -------
Balance at June 30, 1995 16,794,390 16,792 1,957,315 (1,977,719) -- (3,612)
---------- ------- ---------- --------- -------- -------
</TABLE>
See Notes to Consolidated Financial Statements
91
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Paid-in Developmental Unrealized
Common Stock Capital Stage Foreign Total
Shares Amount (Restated) (Restated) Exchange (Restated)
------ ------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 16,794,390 16,792 1,957,315 (1,977,719) -- (3,612)
Stock issued for services 3,975,662 5,090 846,612 -- -- 851,702
Shares issued in exchange
for debt 391,857 392 29,008 -- -- 29,400
Issuance of common stock 710,833 710 80,161 -- -- 80,871
Net loss for year -- -- -- (1,127,044) -- (1,127,044)
---------- ------- --------- --------- ------- ---------
Balance at June 30, 1996 21,872,742 22,984 2,913,096 (3,104,763) -- (168,683)
Stock issued for options -- -- 912,838 -- -- 912,838
Stock issued for services 5,067,912 3,955 690,234 -- -- 694,189
Shares issued in exchange
for debt 251,382 252 43,965 -- -- 44,217
Issuance of common stock 10,257,936 10,259 335,132 -- -- 345,391
Grants issued -- -- 408,597 -- -- 408,597
Net loss for year -- -- -- (2,376,279) -- (2,376,279)
------------ ------- --------- ---------- ------- ---------
Balance at June 30, 1997 37,449,972 37,450 5,303,862 (5,481,042) -- (139,730)
Stock issued for services 4,396,466 4,396 922,180 -- -- 926,576
Stock issued for options -- -- 948,500 -- -- 948,500
Issuance of common stock 21,795,000 21,796 1,176,755 -- -- 1,198,551
Unrealized foreign exchange -- -- -- -- 183,785 193,785
Stock options issued and
outstanding -- -- 1,236,913 -- -- 1,236,913
Grants issued -- -- 669,906 -- -- 669,906
Net loss for year -- -- -- (4,570,441) -- (4,570,441)
------------ ------- ----------- ------------ -------- ---------
Balance at June 30, 1998 63,641,438 $63,642 $10,258,116 $(10,051,483) $183,785 $ 454,060
============ ======= =========== ============ ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
92
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
March 26, 1993
(Date of
Inception)
Year ended June 30, to
1997 June 30, 1998
1998 (Restated) (Restated)
---- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,570,441) $(2,376,279) $(8,994,127)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation and amortization 11,952 4,299 23,620
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 and expenses 926,576 1,608,143 3,934,207
Stock options issued in exchange for services 2,185,413 -- 2,185,413
Unrealized gain on foreign exchange 183,785 -- 183,785
Change in assets and liabilities:
(Increase) decrease in:
Employee advances 185,942 (185,942) --
Sales tax receivable (83,584) (50,284) (133,868)
R&D investment tax credit receivable (585,900) (269,918) (855,818)
Other assets (1,063,943) -- (1,070,143)
Increase in:
Accrued expenses 381,896 656,325 1,295,274
Due to stockholders -- -- 5,000
----------- ----------- -----------
Net cash used in operating activities (2,428,304) (607,199) (3,406,881)
----------- ----------- -----------
Cash flow from investing activities:
Increase in note receivable (216,240) (8,571) (225,969)
Equipment (72,871) (5,924) (113,632)
Equipment assembly costs (117,759) (606,028) (901,011)
Organization cost -- -- 6,700
Reduction of security deposit -- -- (1,542)
Deferred start up costs 74,683 (74,683) --
----------- ----------- -----------
Net cash used in investing activities (332,187) (695,206) (1,235,454)
----------- ----------- -----------
Cash flows from financing activities:
Loan granted to director 10,881 (10,881) --
Deferred financing costs (158,255) -- (158,255)
Proceeds from deposit (336,500) 415,000 143,500
Proceeds from note payable 285,375 98,551 407,926
Proceeds from issuance of convertible
debentures 1,035,000 -- 1,035,000
Proceeds from loan payable 299,467 200,545 535,012
Proceeds from issuance of stock options -- -- 20,000
----------- ----------- -----------
Sub-total $ 1,135,968 $ 703,215 $ 1,983,183
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
93
<PAGE>
THE TIREX CORPORATION
A Developmental Stage Company
Consolidated Statements of Cash Flows
Cumulative
Period from
March 26, 1993
(Date of
Inception)
Year Ended June 30, to
1997 June 30, 1998
1998 (Restated) (Restated)
---- ---------- ----------
Sub-total from prior page $1,135,968 $ 703,215 $1,983,183
Proceeds from grants 669,906 408,597 1,078,503
Proceeds from issuance of common
stock 21,796 10,258 54,216
Proceeds from additional paid-in
capital 1,176,755 335,132 1,925,147
---------- ---------- ----------
Net cash provided by financing
activities 3,004,425 1,457,202 5,041,049
---------- ---------- ----------
Net increase in cash 243,934 154,797 398,714
Cash and cash equivalents - beginning
of year 155,037 240 257
---------- ---------- ----------
Cash and cash equivalents - end of period $ 398,971 $ 155,037 $ 398,971
========== ========== ==========
Supplemental Disclosure of Non-Cash Activities:
In 1998 and 1997, the Company recorded an increase in common stock and in
additional paid-in capital of $126,347 and $44,217, respectively, which was
in recognition of the payment of debt. In 1998 and 1997 stock was issued in
exchange for services performed and expenses in the amount of $800,229 and
$1,608,143 respectively. In 1998 stock options were issued in exchange for
services totaling $2,185,413.
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 $ -- $ -- $ 30,432
=========== ========== ==========
Income taxes paid $ -- $ -- $ --
=========== ========== ==========
See Notes to Consolidated Financial Statements
94
<PAGE>
The TIREX CORPORATION INC. AND SUBSIDIARY
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
Change of Name
In June, 1998 the Company changed its name from Tirex America, Inc.
to The Tirex Corporation.
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.
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
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
95
<PAGE>
of the Company and Louis V. Muro was appointed as an officer and
director of the Company to fill the vacancy created thereby.
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 finder's 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.
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
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.
Developmental Stage
At June 30, 1998 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing
and testing equipment and administrative activities.
Basis of Consolidation
The consolidated financial statements include the consolidated
accounts of The Tirex Corporation and its subsidiaries and Tirex
Canada, Inc.. Tirex Canada, Inc. is held 49% by the Company and 51%
by the shareholders of the Company. The shares owned by the
shareholders are held in
96
<PAGE>
escrow by the Company's attorney and are restricted from transfer .
All intercompany transactions and accounts have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of
deposits with maturities of 90 days or less, were deemed to be cash
equivalents
Property and Equipment
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed provided using the
straight-line method over the estimated useful lives of five years.
Repairs and maintenance costs are expensed 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.
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Adoption of Statement of Accounting Standard No. 123
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 encourages, but does not required companies to
record at fair value compensation cost for stock-based compensation
plans. The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and
APB 25 is immaterial.
Organization Costs
Organization costs are being amortized on a straight-line basis over
a sixty month period.
97
<PAGE>
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 changes the standards for
computing and presenting earnings per share (EPS) and supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share."
SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim
periods. This Statement requires restatement of all prior-period EPS
data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are
the exclusion of common stock equivalents in the determination of
Basic Earnings Per Share and the market price at which common stock
equivalents are calculated in the determination of Diluted Earnings
Per Share.
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computed using the weighted
average number of shares of common stock and dilutive common
equivalent shares related to stock options and warrants outstanding
during the period.
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued) Adoption of Statement of
Accounting Standard No. 128
The adoption of SFAS 128 had no effect on previously reported loss
per share amounts for the year ended June 30, 1997. For the years
ended June 30, 1998 and 1997, primary loss per share was the same as
basic loss per share and fully diluted loss per share was the same
as diluted loss per share. A net loss was reported in 1998 and 1997,
and accordingly, in those years the denominator was equal to the
weighted average outstanding shares with no consideration for
outstanding options and warrants to purchase shares of the Company's
common stock, because to do so would have been anti-dilutive. Stock
options for the purchase of 9,212,673 and 2,000,000 shares at June
30, 1998 and 1997, respectively, and warrants for the purchase of
2,000,000 shares at June 30, 1998 and 1997 were not included in loss
per share calculations, because to do so would have been
anti-dilutive.
98
<PAGE>
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, note receivable, accounts payable and
accrued expenses, approximates fair value due to the relatively
short maturity of such instruments.
The fair value of the Company's debt instruments are based on the
amount of future cash flows associated with each instrument
discounted using the Company's borrowing rate. At June 30, 1998 and
1997, respectively, the carrying value of all financial instruments
was not materially different from fair value.
Income Taxes
The Company has net operating loss carryovers of approximately $4
million as of June 30, 1998, 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.
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 $855,818.
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
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 $4,500,042 during the year ended June 30,
1998.
In March 1993, the Company, which was still in the development
stage, developed a new Business Plan. As at June 30, 1998 the
Company was in the process of constructing a production quality
machine for the cryogenic disintegration of used tires. At June 30,
1998, the Company was still in the development stage.
99
<PAGE>
The Company is currently in the process of formulating a plan to
effect an additional public offering, the proceeds of which would be
used for working capital and capital acquisitions. The ability of
the Company to continue as a 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 - Financing Costs
During the year ended June 30, 1998 the Company incurred $158,255 in
connection with debt financing (see Note). These costs have been
capitalized in other assets and are being amortized over the terms
of the financing. Amortization of financing costs and the write-off
of other long-term assets for the year ended June 30, 1998 was
$112,355.
Note 4 - Property and Equipment
Financing Costs
As of June 30, 1998 plant and equipment consisted of the following:
Furniture, fixtures and equipment $ 34,575
Leasehold improvements 58,250
Construction in progress 901,210
---------
994,035
Less accumulated depreciation and
amortization 16,747
---------
$ 977,288
=========
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Depreciation and amortization expense charged to operations was
$12,361 and $4,299 for the years ended June 30, 1998 and 1997,
respectively.
Note 5 - Notes Payable
The Company has available a $700,000 line of credit which bears
interest at the Canadian prime rate plus 1.25% . At June 30, 1998,
$407,926 was outstanding against this line of credit. The note is
collateralized by the personal guarantees of certain officers,
certain equipment of Tirex Canada and guaranteed by The Tirex
Corporation. The loan is guaranteed at a rate of 80% by the Societe'
de Developpement industriel du Quebec and is repayable from the
research and developmental investment tax credits received. The
Canadian prime rate of interest at June 30, 1998 was 8%.
100
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Note 6- Long-Term Debt
Federal Office of Regional Development (Ford-Q) 1998
Loan payable under the Industrial Recovery
Program amounting to 20% of certain eligible
costs incurred (maximum loan $500,000) repayable
in annual installments over a forty-eight
month period following completion of the project,
unsecured and non-interest bearing. (If the
Company defaults the loans become interest bearing) $341,180
Loans payable under the Program for the
Development of Quebec SME's based on 50%
of approved eligible costs for the preparation
of market development studies in certain regions.
Loans are unsecured and non-interest bearing.
(If the Company defaults the loans become
interest bearing).
- Loan payable over five years commencing
June 2000 due June 2004 64,823
- Loan payable over five years, commencing
June 2001, due 2005 9,918
- Loan payable in amounts equal to 1% of the annual
sales in India through June 30, 2002 13,647
- Loan payable in amounts equal to 1% of annual
sales in Spain through June 30, 2007 13,647
- Loan payable in amounts equal to 11/2% of annual
sales in Spain and Portugal through June 30, 2004 56,797
---------
500,012
Less: current portion 34,118
---------
$465,894
=========
101
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Minimum principal repayments of each of the next five years as
follows:
1999 $ 34,118
2000 90,415
2001 129,517
2002 168,617
2003 32,581
Thereafter 44,764
---------
$500,012
=========
Note 7 - Convertible Subordinated Debentures
Convertible subordinated debentures consist of the following:
Type A Type B
------ ------
Balance a June 30, 1998 $500,000 $535,000
Interest rate 10% 10%
Maturity Earlier of (i)-the Earlier of (i)-two
completion of a public years from the issue
offering yielding gross date or (ii)-the
proceeds of not less than completion of a public
8,000,000, (ii)-the closing offering of its
on financing inexcess of securities by the Maker
4,500,000, (iii)-
December 31, 1999
Redemption rights If not converted the If not converted the
holder may require the holder may require the
Company to redeem at any Company to redeem at
time after maturity at a any time after maturity
premium of 125% for the principal
amount plus interest
102
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
Conversion ratio 75% of the average of the $.20 per share
closing bid price of the common
stock as reported by NASDAQ during
the five day period preceding the
Company's receipt of a notice of
conversion by a debenture holder.
Warrants As part of the debenture package,
the Company issued 2,000,000
warrants to purchase a like number
of shares of common stock at $.001
per share
Note 8 - Related Party Transactions
On July 22, 1994, 3,000,000 shares of The Tirex Corporation, 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 entered into various employment agreements with the
executive officers and general Counsel whereby the Company will pay
a total of $565,000 a year plus benefits. All of the employment
agreements call for terms ranging from 3 - 8 years. 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.
Included in accrued expenses at June 30, 1998 is $17,076 of salary
to officers which the company subsequently issued common stock for.
At June 30, 1998 and 1997, the Company had notes receivable from
various officers in the amount of $195,969 and $9,729, respectively.
One note in the amount of $70,405 bears interest at an annual rate
of 8% above prime through September 1998 and 2% above prime through
September 1999 (the due date).The remaining notes are non-interest
bearing and will be repaid during the year ending June 30, 1999.
At June 30, 1998 the Company had a note receivable for $30,000 from
a Company in which a director has a financial interest. The note
bears interest at prime plus 2% and is due on demand.
Deposits payable included an amount of $118,500 which are payable to
companies which are owned by a director of the Company.
103
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
The revenue recognized during the year ended June 30, 1998 was
received by a Company in which a director in the Company has a
financial interest.
Note 9 - Exchange of Debt for Common Stock
In 1997, the Company recorded increases in common stock and paid-in
capital of $50,000, which was in recognition for the exchange of
common stock for debt owed to certain related parties to the
Company.
Note 10 - Common Stock
During the years ended June 30, 1998 and 1997, the Company issued
common stock to individuals in exchange for services performed
totaling $926,577 and $1,651,245, respectively. Included in these
amounts are payments to officers of the Company in exchange for
salary in the amount of $361,945 and $1,393,114, 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 11 - 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, 1997. 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 2,000,000
or more shares of common stock. The conversion to common stock ratio
varies depending on when the conversion is made. At May 29, 1997,
the exercise period was extended until May 18, 1999.
Compensatory Common Stock Options
Compensation Cost
For the Year Ended
Number of Shares June 30, 1998
---------------- -------------
Balance July 1, 1997 -- $ --
Stock options granted during the year
ended June 30, 1998 15,712,673 2,185,413
Stock options exercised during the year
ended June 30, 1998 (6,500,000) (948,500)
----------- -----------
Balance at June 30, 1998 9,212,673 $ 1,236,913
=========== ===========
104
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
The options expire at various dates through April 2000. The exercise
price ranges from .001 to .40 with the weighted average exercise
price equal to .1177.
Note 12 - Acquisition by Merger of RPM Incorporated
During November 1997, the Company entered into a merger agreement
with RPM Incorporated ("RPM"). The Company acquired all of the
assets and liabilities of RPM by acquiring all of the outstanding
common stock of RPM in exchange for common stock in the Company on a
unit for unit basis. RPM ceased to exist following the exchange.
The assets and liabilities acquired by the Company from RPM consist
of the proceeds from the sale of debentures as well as the
debentures of $535,000. The financing fees on the issuance of the
debentures totaling $61,755 is included in the statement of
operations for the year ended June 30, 1998. A total of 535,000
shares were issued as a result of the merger valued at $16,050. A
total of $16,050 was received for this stock.
The Company entered into an additional agreement with the former
shareholders of RPM for a consulting agreement for a period of 5
years expiring in June, 2002. In exchange for this consulting
agreement, 3,000,000 shares of common stock were issued valued at
$240,000. Other than the consulting agreement and the issuance of
the debentures, RPM was inactive.
For accounting purposes the Company recorded the merger as a
purchase and not as a pooling of interests.
Note 13 - Government Assistance
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During
the year ended June 30, 1998 the company received approximately
$670,000 which has been recorded as paid in capital.
Note 14 - Commitments
The Company leases office space under an agreement for 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:
June 30, Amount
-------- -------
1999 $18,967
2000 18,967
-------
$37,934
=======
105
<PAGE>
THE TIREX CORPORATION
(A Developmental Stage Company)
Notes to Consolidated Financial Statements
The Company also leases warehouse space at an annual minimum rent of
$82,000 for the first year, $169,000 for the second year and
$211,000 per year for the third through the fifth year. The lease
expires 2003. The Company is also responsible for its proportionate
share of any increase in real estate taxes and utilities. Under the
terms of the lease, the Company is required to obtain adequate
public liability and property damage insurance. The minimum future
rental payments under this lease are as follows:
June 30, Amount
-------- ---------
1999 $108,800
2000 176,900
2001 204,100
2002 204,100
2003 170,100
---------
$ 864,000
=========
Rental expense for the year ended June 30, 1998 amounted to $55,532.
Note 15 - Subsequent Event
Subsequent to the year end, the Company received an additional
amount of approximately $55,000 under the Innovation, Development,
Entrepreneurship and Access Program for Quebec SME's (IDEA-SME).
Note 16 - Warrants
Note 6 and note 10 address stock warrants and options that are
outstanding at June 30, 1998. The Company also has warrants and
options outstanding to purchase 843,750 shares of common stock which
expire at various dates through July 1999. These rights can be
exercised at various rates from .125 through .40.
Note 17 - Prior Period Adjustments
The financial statements for June 30, 1997 and for the cumulative
period from March 26, 1983 to June 30, 1998 have been stated to
reflect additional officers compensation of $912,838. These
financial statements have also been restated to reclassify $306,250
of consulting fees to June 30, 1996. The stock was issued during the
year ended June 30, 1997 for services performed in the prior year.
In addition, the financial statements for the cumulative period from
March 26, 1993 to June 30, 1998 have been adjusted to reflect
additional officers compensation totaling $366,050 and other
compensation totaling $32,280. In addition, grants issued during the
year ended June 30, 1997 totaling $408,597 have been reclassified to
research and development expense.
106
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There was no resignation or dismissal of the Company's principal
independent accountant during the two most recent fiscal years and the interim
period subsequent thereto.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers and Significant Employees
The following sets forth, as of February 19, 1999, the names and ages of
all directors, executive officers, and other significant employees of the
Company; 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 41 Chairman of the Jan. 18, 1995
Board of Directors and
Chief Executive Officer
Louis V. Muro 66 Vice President Jan. 1, 1996
of Engineering
and Director
John L. Threshie, Jr. 44 Vice President, and
Assistant Secretary Not Applicable
Louis Sanzaro 48 President, January 17, 1997
Chief Operating Officer,
and Director
Michael D.A. Ash 49 Secretary, Treasurer, and
Chief Financial and
Accounting Officer Not Applicable
John G. Hartley 51 Director February 21, 1995
Henry Meier 42 Director February 11, 1999
Jean Frechette 50 President and Chief Not Applicable
Operating Officer of
The Tirex Corporation
Canada Inc. and of
Tirex Canada R&D Inc.
107
<PAGE>
The board of directors has no standing committees other than the executive
committee which consists of three members. The present members of the executive
committee are Terence C. Byrne, Louis V. Muro, and Louis Sanzaro. The executive
committee can exercise all powers of the full board with respect to the
management of the Company's business.
Subsequent to the period covered by this report, on February 11, 1999, the
Company instituted an overall management restructuring and reorganization, which
is presently being implemented by the Company. The reasons for such
reorganization did not involve any disagreements among management members or
between the Company and any such individuals. Rather, it was the agreed
consensus of all members of management that the Company is presently in the
process of evolving out of the developmental stage and into an early operational
stage and that, reflecting such development, its management and personnel
requirements are growing and changing. The current reorganization of the
Company's management is being effected for the purpose of better positioning the
Company to change its focus from pure research and development activities to a
combination of commercial, revenue producing operations and continuing research
and development activities. The Company believes that the reorganization of its
management will maximize and enhance its ability to meet the changing needs and
requirements of its business as it grows and develops.
The management reorganization included the following: Alan Crossley and
John L. Threshie, Jr. resigned from the Board of Directors. Mr. Threshie
resigned from the position of secretary, has been appointed assistant secretary,
and continues to serve as vice president of the Company. Mr. Crossley continues
to serve as Director of European Market Development. The Company intends to ask
Mr. Crossley to join an advisory board proposed to be established. Further,
Terence C. Byrne resigned his positions as president, treasurer, and chief
financial and accounting officer, and was appointed chairman of the board of
directors. Mr. Byrne continues to hold the office of chief executive officer of
the Company. Louis Sanzaro resigned his position as vice president and was
appointed president the Company. Mr. Sanzaro was also appointed to the executive
committee of the board of directors to fill the vacancy created by John G.
Hartley's resignation therefrom. Mr. Sanzaro continues to hold the office of
chief operating officer of the Company. Jean Frechette joined the Company in
August 1998 as president, chief operating officer, and the director of the
Company's wholly-owned subsidiary, The Tirex Corporation Canada, Inc. In January
1999, Michael Ash joined the Company and as part of the reorganization, he was
appointed secretary, treasurer, and chief financial and accounting officer.
Finally, Vijay Kachru resigned her position of vice president of marketing
development. Ms. Kachru will continue to be employed by the Company in other
capacities.
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
the Company. A significant employee is a person who is not an executive officer
of the Company but who is expected to make a significant contribution to the
business of the Company.
108
<PAGE>
TERENCE C. BYRNE. Mr. Byrne joined the Company on January 18, 1995 and has
served as chief executive officer and director of the Company since such date.
From January 18, 1995 through February 11, 1999, Mr. Byrne served as president,
treasurer, and chief financial and accounting officer of the Company. On
February 11, 1999, Mr. Byrne was appointed chairman of the board of directors.
He has also served as the chairman of the board of directors and the chief
executive officer of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc.
since June 1998 and May 1995 respectively. 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
Plants 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
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.
He has also served as the vice president in charge of engineering and as a
director of The Tirex Corporation Canada Inc. and Tirex Canada R&D Inc. since
June 1998 and May 1995 respectively. 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 L. THRESHIE, JR. Mr. Threshie has served as a vice president of the
Company since June 1995. He was appointed Assistant Secretary of the Company on
February 11, 1999. From December 1996 until February 11, 1999, Mr. Threshie held
the position of secretary, and from June 1995 until February 11, 1999, as a
director, of the Company. He also served as a director for The Tirex Corporation
Canada Inc. and Tirex Canada R&D Inc. from June 1998 and June 1995,
respectively, until February 11, 1999. He has more than fourteen years of
experience in the areas of management, marketing and sales primarily in the
field of advertising. Mr. Threshie holds a Bachelor of Science Degree in
Business from the University of North Carolina. He was employed as an insurance
and
109
<PAGE>
financial broker by 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. From 1983 to 1988 Mr.
Threshie was employed as a senior account executive at the advertising firm of
Saatchi and Saatchi, Inc. From 1979 to 1983 Mr. Threshie was employed by
Milliken & Co. as a sales representative.
LOUIS SANZARO. Mr. Sanzaro has been a director of the Company since
January 1997 and a director of The Tirex Corporation Canada Inc. since June
1998. He served as a consultant to the Company from January 1, 1997 until June
1998, when he was appointed Vice President of Operations and Chief Operating
Officer (see, below, "Certain Relationships and Related Transactions"). On
February 11, 1999, Mr. Sanzaro resigned as vice president of operations and was
appointed to the position of president of the Company. Mr. Sanzaro 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.
JOHN G. HARTLEY. Mr. Hartley holds a Bachelor of Science Degree in
Economics from Manchester University in England. In addition to serving as a
director for the Company, he has served as a director for The Tirex Corporation
Canada Inc since June 1998. He has acted as a director of Pacer Plants Inc.
since 1985. Pacer Plants is a publicly held company with offices in Boston,
Mass. and is engaged in the business of Plants 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.
MICHAEL D.A. ASH. Mr. Ash joined the Company on January 11, 1999. On
February 11, 1999, Mr. Ash was appointed secretary, treasurer, and chief
financial and accounting officer of the Company. Mr. Ash graduated with a
Bachelor's Degree in business Administration, Magna Cum Laude, from Bishop's
University in Quebec in 1970, and with an MBA, with Distinction, from Harvard
Business School in 1975. Mr. Ash is also a Chartered Accountant, (Canadian
equivalent to a CPA), having qualified for this professional designation in 1972
while employed by Coopers & Lybrand. Since graduation from Harvard, Mr. Ash has
spent most of his career with the Government of Canada, first with the Office of
the Comptroller General in Ottawa and, for the last eighteen years, with a
federal regional economic and industrial development agency in Montreal where he
gained wide-ranging exposure to a very large number of companies and industrial
sectors, ranging from developmental companies to major multi-national
corporations. For ten years during this time period, Mr. Ash was also a
part-time lecturer in accountancy at Concordia University in Montreal for
students registered in the program leading to the Chartered Accountancy
designation.
110
<PAGE>
HENRY P. MEIER. Mr. Meier was appointed to the board of directors of the
Company on February 11, 1999. He holds a Bachelor of Science Degree in Business
from Rider University, Lawrenceville, New Jersey and a Master's Degree in
Business from Monmouth University, West Long Branch, New Jersey. Mr. Meier has
worked as a Certified Public Accountant since 1984, maintaining own accounting
practice (Henry P. Meier C.P.A.) since 1993. From 1992 until 1996, Mr. Meier was
Chief Financial Officer of Basic Line, Inc., a multi-million dollar plastic
houseware manufacturer. Since 1996, he has served as Chief Financial Officer of
the "Ocean Group", a group of companies specializing in the fields of
remanufacturing of construction and demolition debris for reuse, tire recycling,
construction payroll leasing and real estate ownership from 1996 to present.
Louis Sanzaro, the Company's President and Chief Operating Officer is a
controlling person of all entities included in the "Ocean Group".
JEAN FRECHETTE. Mr. Frechette has served as the president, chief operating
officer and a director of the Company's wholly owned subsidiary, The Tirex
Corporation Canada, Inc., since August 17, 1998. He has also served in similar
capacities for Tirex Canada R&D Inc. since August 17, 1998. Mr. Frechette holds
degrees and certificates in business management, commercialization, market
development, and distribution. Before joining the government of Quebec in 1990
he served in the private sectors of industrial and commercial companies for more
than 20 years in various management positions. From 1990 to 1993, Mr. Frechette
was employed by the Government of the Province of Quebec to manage a government
study respecting value added distribution services and to report on the problems
facing Quebec companies. From 1993 to 1996, Mr. Frechette served as Acting
Director for the Department of Market Development and Commercial Activities and
the Administration of Business Laws of the Government of Quebec. During that
period he also served on the Committee for the Reorganization of the Department
of Industry, Trade, Technologies, and Commerce and on the Inter Provincial Trade
Barriers Board. In 1996, Mr. Frechette was asked by the office of the Vice Prime
Minister to join the Foreign Investment Services and to prepare and execute
strategies to attract foreign investment to Quebec. Serving in this capacity
until July 1998, Mr. Frechette has been involved with bringing together foreign
investment capital and Canadian companies in need of financing. During his
tenure, Mr. Frechette introduced potential foreign investments, in the amount of
approximately four billion Canadian dollars (CA $4,000,000,000), to Canadian
companies. As of July 31, 1998, approximately CA $1.4 billion dollars of such
foreign capital has been invested. Non Canadian investors brought into Canadian
Companies under Mr. Frechette's purview have included, among others, ABB,
Biomatrix, Haig, Komatsu, Nordx/CDT, Lockheed Martin, Mitec Telecom, Ilco -
Unican, CES Group, Iris, SCI Systems, and Osram Sylvam.
111
<PAGE>
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.
ITEM 10. EXECUTIVE COMPENSATION
Current Remuneration
Except for individually negotiated employment agreements with its
executive officers, 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 agreements, none of its executive
officers or directors have ever 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,
1996, 1997, and 1998 by the Company's chief executive and all executive officers
of the Company serving as such as at June 30, 1998 or at any time during the
year ended June 30, 1998 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") In all instances
where cash salary payments are described as having been "waived", unregistered
shares of the Company's common stock were issued in lieu of such cash payments
and no further payments, in cash or stock, are due in respect of such waivers.
Stock issued in lieu of cash salary payments was valued at one-half the average
market price of such stock during the periods in which such salary was earned.
Determination of the market price for such purpose was based upon 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. The 50% discount from the market price was
determined arbitrarily, by negotiation between the iteria such as assets, book
value, or prospective earnings. The market prices of the Company's common stock
and the liquidity of such market has historically been volatile. Future
announcements concerning the Company or its competitors, including the results
of testing, technological innovations or new commercial products may have a
significant impact on the market price of the Company's securities. Management
believes that, as of the dates when such shares were issued, 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 (see, below, Note 7 to the
Summary Compensation Table).
112
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
============================================================================================
Annual Compensation
- --------------------------------------------------------------------------------------------
Name and Principal
Position Year
- --------------------------------------------------------------------------------------------
Salary Bonus Other
($) ($) ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $250,000(1)(7)(8) (7) (8) (9) $5,075(10)
---------------------------------------------------
Terence C. Byrne 1997 $250,000(2)(7)(8) (7) (8) (9) $ 422(10)
President, and Chief Executive Officer ---------------------------------------------------
1996 $250,000(3)(7)(8) (7) (8) (9) $ 0
- --------------------------------------------------------------------------------------------
Louis V. Muro 1998 $150,000(4)(7)(8) (7) (8) (9) $4,224(10)
Vice President of Engineering ---------------------------------------------------
1997 $150,000(5)(7)(8) (7) (8) (9) $1,056(10)
---------------------------------------------------
1996 $150,000(6(7)(8) (7) (8) (9) $ 0
============================================================================================
</TABLE>
Notes To Summary Compensation Table Appear on Following Page:
113
<PAGE>
(1) For the year ended June 30, 1998, Mr. Byrne received cash salary payments
from the Company in the aggregate amount of $70,362.68. (This does not include
cash disbursements made to Mr. Byrne during fiscal 1998 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 $179,637.32 in salary payments and $3,750 in
reimbursable expenses due to him under the terms of his employment agreement
with the Company (the "Byrne Executive Agreement") for fiscal 1998. 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 and reimbursable expenses, 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 or such expenses were
incurred. The number of Compensation Shares issued to Mr. Byrne for services
rendered pursuant to his Executive Agreement during fiscal 1998 and for
unreimbursed expenses incurred during fiscal 1998 aggregated to 1,303,920
shares. However, in September 1998 computational errors that resulted in
understatements of salary paid to Mr. Byrne for the periods July 1, 1997 -
November 30, 1997 and December 1, 1997 - March 31, 1998 were discovered. As a
consequence thereof, Mr. Byrne was informed that he would have to return to the
Company for cancellation an aggregate of 508,109 (the "Return Shares") of the
1,303,920 Compensation Shares. 22,804 of the Return Shares consist of
Compensation Shares received by Mr. Byrne in December 1997 and 485,305 Return
Shares consist of Compensation Shares received by Mr. Byrne in April 1998. In
December 1998, Mr. Byrne returned the 485,305 Return Shares received by him in
April 1998. The 22,804 Return Shares received by him in December 1997 were
subsequently transferred to an assignee of Mr. Byrne. Mr. Byrne is currently
arranging for the return of these shares. For a discussion in detail of all
issuances of Compensation Shares made to Mr. Byrne during fiscal 1998, 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 June
30, 1998, 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, 1997, Mr. Byrne received cash salary payments
from the Company 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.
114
<PAGE>
(3) For the year ended June 30, 1996, Mr. Byrne received cash salary payments
from the Company 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.
(4) For the fiscal year ended June 30, 1998, Mr. Muro received cash salary
payments from the Company, in the aggregate amount of $62,023.44. (This does not
include cash disbursements made to Mr. Muro during fiscal 1998 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 $87,976.06 in salary
payments and $3,750 in reimbursable expenses due to him under the terms of his
employment agreement with the Company (the "Muro Executive Agreement") for
fiscal 1998. 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 or such expenses were incurred. The
number of Compensation Shares issued to Mr. Muro for services rendered pursuant
to his Executive Agreement and for unreimbursed expenses incurred during fiscal
1998 aggregated to 650,957 shares. However, in September 1998 computational
errors that resulted in understatements of salary paid to Mr. Muro for the
periods July 1, 1997 - November 30, 1997 and December 1, 1997 - March 31, 1998
were discovered. As a consequence thereof, Mr. Muro was informed that he would
have to return to the Company for cancellation an aggregate of 230,077 (the
"Return Shares") of the 650,957 Compensation Shares. 4,298 of the Return Shares
consist of Compensation Shares received by Mr. Muro in December 1997 and 225,779
Return Shares consist of Compensation Shares received by Mr. Muro in April 1998.
In December 1998, Mr. Muro returned all of the Return Shares. For a discussion
in detail of all issuances of Compensation Shares made to Mr. Muro during fiscal
1998, 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 June 30, 1998, 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) For the fiscal year ended June 30, 1997, Mr. Muro received cash salary
payments from the Company 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") for 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. 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.
115
<PAGE>
(6) 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. 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 from the Company 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 for 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.
(7) Management believes that it is impossible to determine the actual current or
potential value, if any, of 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 "Existing and Proposed Businesses" and "Market
for the Company's Common Equity and Related Stockholder Matters").
(8) 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. 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.
(9) On May 29, 1997, the Company awarded stock bonuses to Mr. Byrne and Mr. Muro
(the "Stock Bonuses"), for the fiscal years ended June 30, 1995 and 1996 (the
"1995/1996 Bonuses"). On September 3, 1997, the Company 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, the Company 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
116
<PAGE>
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 and Mr. Muro 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. The 1997 Bonuses consisted of
options to purchase the following numbers of shares: Mr. Byrne - 2,000,000; Mr.
Muro - 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".
(10) Represents additional compensation received in the form of car allowance
payments.
Compensation of Directors
The directors of the Company are not compensated for their services as
such, except as follows: Three of the Company's five present directors received
unregistered shares of the Company's common stock ("Directors Shares"). Messrs.
Byrne and Hartley received Directors Shares in consideration of their agreements
to join the Company's board of directors in January of 1995. Mr. Sanzaro
received Directors Shares as compensation for services under the terms of his
Directors Compensation Agreement, dated July 7, 1997. Directors Shares were
issued, or transferred to the Company's directors as follows: 2,500,000 shares
were transferred by two members of the Company's former management to Terence C.
Byrne on January 18, 1995; 100,000 shares were issued by the Company to John G.
Hartley on February 16, 1995; and 100,000 shares were issued to Louis Sanzaro on
or about July 7, 1997. At the time the Directors Shares were transferred or
issued to the respective directors, they accepted shares based upon a
combination of their perceived valuation of both present and possible future
value of the shares, rather than the actual value of the Company's common stock
at that time. It was the position of the recipients of such shares that, as of
the dates they were received, their actual and potential value, if any, could
not be determined, and that any attempt to specify such valuation with any
reasonable assurance, would have been flawed, without substance, and highly
contingent upon, and subject to, extremely high risks including but not limited
to the following factors: (i) the absence of a reliable, stable, or substantial
trading market for the Company's common stock, the possibility that such a
market might never be developed, and the resultant minimal,
117
<PAGE>
or total absence of, market value for any substantial block of common stock;
(ii) the very high intrinsic risks associated with early development stage
businesses, such as the Company's; (iii) the Company's lack of sufficient funds,
as at such issuance dates, to implement its business plan and the absence of any
commitments, at such times, from potential investors to provide such funds; (iv)
the restrictions on transfer arising out of the absence of registration of such
shares; and (v) the uncertainty respecting the Company's ability to continue as
a going concern (See the discussions included above, in "Existing and Proposed
Businesses" and "Market for the Company's Common Equity and Related Stockholder
Matters").
118
<PAGE>
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 (the "Executive Agreements"). The respective commencement and
termination dates, and annual salaries under the Executive Agreements, as
amended, are as follows:
OFFICER COMMENCEMENT DATE TERMINATION DATE SALARY
- ------- ----------------- ---------------- ------
Mr. Byrne January 18, 1995 December 31, 2003 US$250,000
Mr. Muro January 1, 1996 December 31, 2000 US$150,000
Mr. Sanzaro(6) June 15, 1998 June 14, 2002 US$175,000
Mr. Threshie January 1, 1996 December 31, 1999 US$ 62,500
Mr. Frechette August 17, 1998 August 16, 2003 US$150,000
Mr. Ash January 4, 1999 January 3, 2002 US$125,000
All of the above agreements 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. 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, 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
one-year period following termination of employment with the Company and for
various other terms and conditions of employment.
The Executive Agreements with Messrs. Byrne, Muro, Frechette, Sanzaro and
Ash also include severance provisions which provide, among other things, for
severance compensation in the event that the employment of the executive is
terminated by the Company other than for cause, or by the
- ---------
(6) Mr. Sanzaro's Executive Agreement cancelled and replaced an earlier
Consulting Agreement between the Company and Mr. Sanzaro (see "Certain
Relationships and related Transactions").
119
<PAGE>
executive for "good reason", as that term is defined in the Executive
Agreements, or pursuant to a change in control of the Company. The various
Executive Agreements provide for severance compensation, as follows: (i) In the
case of Messrs. Byrne, Sanzaro, and Muro, 200% of the amount of the base salary
for a period of twelve months; (ii) In the case of Messrs. Frechette and Ash,
the amount of severance compensation depends on when, during the term of their
Executive Agreements, termination occurs, as follows: If termination occurs
during: (a) year one - no severance compensation; (b) year two - 50% of the
amount of base salary for a period of twelve months; (c) year three - 100% of
the amount of base salary for a period of twelve months; and (d) subsequent to
year three - 200% of the amount of base salary for a period of twelve months.
Certain executives have received signing bonuses or other stock
compensation in consideration of their discontinuing their other business
activities and entering into their executive agreements with the Company. During
the last two fiscal years, these included Messrs. Frechette and Ash, who
received one million shares, and Mr. Sanzaro, who received 500,000 shares, as
signing bonuses. Under the terms of his Executive Agreement, Mr. Sanzaro also
received an additional 2,500,000 shares for agreeing to release the Company from
its prior commitment to appoint him as its exclusive distributor of TCS-1 Plants
and to pay him commissions on all sales of TCS-1 Plants made in North America.
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 Agreements. 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 was the case with the value of Directors Shares, at the various dates
when Compensation Shares were issued to the executive officers, they accepted
such shares based upon a combination of their perceived valuation of both
present and possible future value of the shares, rather than the actual value of
the Company's common stock at that time. It was the position of the recipients
of such shares that, as of the dates they were received, their actual and
potential value, if any, could not be determined, and that any attempt to
specify such valuation with any reasonable assurance, would have been flawed,
without substance, and highly contingent upon, and subject to, extremely high
risks including but not limited to the following factors: (i) the absence of a
reliable, stable, or substantial trading market for the Company's common stock,
the possibility that such a market might never be developed, and the resultant
minimal, or total absence of, market value for any substantial block of common
stock; (ii) the very high intrinsic risks associated with early development
stage businesses, such as the Company's; (iii) the Company's lack of sufficient
funds, as at such issuance dates, to implement its business plan and the absence
of any commitments, at such times, from potential investors to provide such
funds; (iv) the restrictions on transfer arising out of the absence of
registration of such shares; and (v) the uncertainty respecting the Company's
ability to continue as a going concern (see "Existing and Proposed Businesses"
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
120
<PAGE>
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 and Mr. Muro 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, hypothecated, donated or otherwise disposed of, in
accordance with the Rules and Regulations of the Securities Act of 1933, as
amended, and, under certain circumstances, included in a registration statement
on Form S-8.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners.
The following table sets forth information as of February 11, 1999, 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 R&D. Neither the
Company nor Tirex R&D 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
Owner Ownership
- --------------------------------------------------------------------------------
Common Batholomew International 13,026,406(2) 16.68%
The Tirex Investments, Ltd.
Corporation P.O. Box 484
Basel House
108 Halkett Place
St. Helier, Jersey JE4 5SS
Chanel Islands
Common Terence C. Byrne 18,941,794(3) 24.25%
The Tirex 489 Grosvner Street
Corporation Westmount, Quebec
H3Y 2S5
Class A
Common 34(4) 34%
Tirex
R&D
121
<PAGE>
PRINCIPAL SHAREHOLDERS TABLE (CONTINUED)
- --------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of Percent of
Class Beneficial Beneficial Class
Owner Ownership
- --------------------------------------------------------------------------------
Common CG TIRE, INC. 8,677,238(5) 10%
The Tirex The Continental General
Corporation Tire Recycling Effort
1800 Continental Blvd.
Charlotte, NC 28273
Common Frances Katz Levine 4,985,460(6) 6.38%
The Tirex 621 Clove Road
Corporation Staten Island, NY 10310
Common Louis Sanzaro 4,561,905 5.84%
The Tirex 1497 Lakewood Road
Corporation Toms River NJ 08755
Common Louis V. Muro 4,328,550 5.54%
The Tirex 374 Oliver Avenue
Corporation Westmount, Quebec
Canada H3Z 3C9
Class A
Common 17(4) 17%
Tirex
R&D
Common The Nais Corporation 4,731,902(7) 6.06%
The Tirex 94 Washington Avenue
Corporation Lawrence, NY 11559
Notes
The footnotes to this table appear after the "Security Ownership of
Management Table" which is set forth on the following page.
122
<PAGE>
Security Ownership of Management
The following table sets forth information as of February 11, 1999, 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 R&D by
each of the executive officers and directors of the Company and Tirex R&D and by
all respective 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 Ownership
- --------------------------------------------------------------------------------
Common Terence C. Byrne 18,941,794(3) 24.25%
The Tirex 489 Grosvner Street
Corporation Westmount, Quebec
H3Y 2S5
Class A
Common 34 (4) 34%
Tirex
R&D
Common Louis V. Muro 4,328,550 5.54%
The Tirex 374 Oliver Avenue
Corporation Westmount, Quebec
Canada H3Z 3C9
Class A
Common 17 (4) 17%
Tirex
R&D
Common Louis V. Sanzaro 4,561,905 5.84%
The Tirex 1497 Lakewood Road
Corporation Toms River, NJ 08755
Common John L. Threshie, Jr.
The Tirex 200 Lansdowne,
Corporation Westmount, Quebec
Canada, H3Z 3E1 44,050 *
123
<PAGE>
MANAGEMENT SHAREHOLDINGS TABLE (CONTINUED)
- --------------------------------------------------------------------------------
Title Name and Amount and
of Address of Nature of Percent of
Class Beneficial Beneficial Class(1)
Owner Ownership
- --------------------------------------------------------------------------------
Common John G. Hartley 20,000 (8) *
The Tirex 7/9 Boulevard D'Italie
Corporation Monte Carlo MC 98000
Monaco
Common Michael Ash 1,000,000(9) 1.3%
The Tirex 310 Montee Sabourin
Corporation St. Bruno, Quebec
Canada, J3V 4P6 -0-
Common Henry P. Meier 494,900 *
The Tirex 1904 Waverly Place
Corporation Oakhurst, New Jersey 07755
Common All directors and 29,391,199 37.18%
The Tirex officers as a group
Corporation (7 persons)
Class A All directors and 51 (4) 51%
Common officers as a group
Tirex (7 persons)
R&D
- ---------
* Percentages less than 1% not shown
Notes:
(1) The percentages listed in the tables are calculated on the basis of
78,095,141 shares of the common stock, $.001 par value, of the Company
outstanding as at February 11, 1999, with the following exceptions: (a) The
percentage deemed to be beneficially owned by CG TIRE, Inc. is calculated on the
basis of 78,095,141 shares of common stock currently issued and outstanding plus
8,677,238 shares of common stock which, CG Tire has the right to acquire
pursuant to its option within 60 days from the date of this Report (see, below,
footnote 5 to this Table), and (b) the percentages deemed to be beneficially
owned by Michael Ash and by all officers and directors as a group are calculated
on the basis of 78,095,141 shares of common stock currently issued and
outstanding plus 1,000,000 shares of common stock which Mr. Ash has the right to
receive within 60
124
<PAGE>
days pursuant to the terms of his employment agreement with the Company (see,
below, footnote 9 to this Table).
(2) Bartholomew International Investments Ltd. is owned by the Bartholomew
Trust, the beneficiaries of which are Terence C. Byrne, his spouse, and his two
sons.
(3) Includes: (i) 1,114,413 shares held of record by Mr. Byrne as of February
11, 1999; and (ii) 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; (iii) 13,026,406 shares
held of record by Bartholomew International Investments, Ltd.; and (iv)
4,731,902 shares owned by the NAIS Corporation, over which shares Mr. Byrne has
voting power pursuant to an irrevocable proxy granted to him in connection with
the December 18, 1998 settlement of a lawsuit brought by the Nais Corporation
against the Company (see Item 3 of this Report, "Legal Proceedings");
(4) Messrs. Byrne and Muro hold all shares of Tirex R&D Class A Common Stock
pursuant to the terms of a Shareholders agreement among them and the Company
(the "Tirex R&D 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 R&D. The terms of the Tirex R&D Shareholders Agreement are discussed in
more detail, below, in "Certain Relationships and Related Transactions", under
the caption "Transfer of 17% of Tirex R&D Shares From Mr. Forbes to Mr. Byrne."
(5) Includes 8,677,238 shares which CG TIRE, Inc. (CGT) has the right to acquire
at anytime prior to April 23, 2000 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 May 18, 1998. The Option, which has a three-year term, was granted to
CGT on April 24, 1997, in consideration of CGT's agreement to (i) 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 Plant 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.
(6) Includes 3,875,271 shares held of record by Ms. Levine's spouse, Robert
Levine, over which shares Ms. Levine disclaims any beneficial ownership.
(7) Pursuant to the settlement of a lawsuit brought by NAIS against the Company
all shares held of record by NAIS are subject, for so long as they are held by
NAIS or any assignee of NAIS, to a voting proxy held by Terence C. Byrne. (See
Footnote 3 to this Table and Item 3. "Legal Proceedings").
(8) 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
125
<PAGE>
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 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.
(9) Under the terms of his employment agreement, Michael Ash is entitled to
receive a signing bonus in the amount of 1,000,000. As of February 16, 1999, the
Company had not yet issued such shares.
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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The following is a description of any transactions during the last two
completed fiscal years, the current fiscal year or any 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 (in
some instances, transactions valued at less than $60,000) have also been
included) 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. The Company does not have any requirement
respecting the necessity for independent directors to approve transactions with
related parties. All transactions are approved by the vote or unanimous written
consent of the full board of directors or the executive committee of the board
of directors, which, during the period covered by this Report, consisted of
Terence C. Byrne, John Hartley, and Louis V. Muro. On February 11, 1999, as part
of an overall management reorganization, Mr. Hartley resigned from, and Mr.
Sanzaro was appointed to, the executive committee. All members of the board of
directors, individually and/or collectively, could have possible conflicts of
interest with respect to transactions with related parties.
Issuance of Stock in Lieu of Salaries and Unreimbursed Expenses
During the years ended June 30, 1998 and 1997, the Company's executive
officers and, since December 22, 1996, its in-house corporate and securities
counsel, Frances Katz Levine 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; shares have been issued for the periods indicated as
follows:
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
126
<PAGE>
issuance of 329,738 shares to Mr. Byrne, 197,847 shares to Ms. Levine, 186,777
shares to Mr. Muro, and 62,392 shares 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 (50% of $.314 or approximately $.157 per
share) during the three-month period ended September 30, 1996. On April 28,
1997, the Company authorized the issuance to Vijay Kachru, who was an officer of
the Company until February 11, 1999, 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 of 285,876 shares to Mr. Byrne, 233,402 shares to Ms. Levine,
166,853 shares to Mr. Muro, and 84,260 shares 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 (50% of .2866 or approximately
$.1433 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 of 195,495 shares to Mr. Byrne, 142,776 shares to Ms. Levine, 106,224
shares to Mr. Muro, 9,037 shares to Mr. Threshie, and 31,383 shares 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 (50% of .428
or approximately $.214 per share) during the three-month period ended March 31,
1997.
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 of 319,108 shares to Mr. Byrne, 250,843 shares to Ms. Levine, 135,686
shares to Mr. Muro, 18,915 shares to Mr. Threshie, and 35,572 shares 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 (50% of .333
or approximately $.166 per share) during the three-month period ended June 30,
1997.
Year Ended June 30, 1998
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 shares to Mr. Muro, 24,000 shares to Mr. Threshie, and 47,692
shares 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.
127
<PAGE>
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
shares to Mr. Muro, 44,081 shares to Mr. Threshie, and 67,548 shares 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 (50% of $.28
per share or approximately $.14 per share) during the four-month period ended
March 31, 1998.
For the three month period ended June 30, 1998, Mr. Byrne waived payment
of $31,707, Ms. Levine waived payment of $36,615.90, Mr. Muro waived payment of
$16,916, Mr. Threshie waived payment of $1,307.10, Ms. Kachru waived payment of
$1,608.22, and Mr. Sanzaro, whose employment as an executive officer of the
Company commenced on June 15, 1998, waived payment of $7,291.67. In connection
therewith, in December, 1998 the Company authorized the issuance of 208,177
shares to Mr. Byrne; 240,327 shares to Ms. Levine; 111,027 shares to Mr. Muro;
8,579 shares to Mr. Threshie; 10,555 shares to Ms. Kachru; and 47,859 shares to
Mr. Sanzaro. 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 common
stock (50% of $.3044177 or approximately $.1523588 per share) during the three
month period ended March 31, 1998.
In September 1998 computational errors were discovered that resulted in
understatements of salary paid to all of the Company's executive officers and to
the Company's corporate and securities counsel for the five month period ended
November 30, 1997 and the four month period March 31, 1998. As a consequence
thereof, all of the Company's executive officers and its corporate and
securities counsel during the periods in question, received share overpayments
of Compensation Stock with regard to such periods. Such officers and legal
counsel were promptly notified that they would have to return such share
overpayments to the Company so that the shares representing such overpayments
could be cancelled. Pursuant to the foregoing, (i) Mr. Byrne was required to
return an aggregate of 508,109 Compensation Shares consisting of 22,804
Compensation Shares issued to him in December 1997 and 485,305 Compensation
Shares issued to him in April 1998; (ii) Mr. Muro was required to return an
aggregate of 230,077 Compensation Shares consisting of 4,298 Compensation Shares
issued to him in December 1997 and 225,779 Compensation Shares issued to him in
April 1998; (iii) Mr. Threshie was required to return an aggregate of 83,593
Compensation Shares consisting of 24,800 Compensation Shares issued to him in
December 1997 and 59,593 Compensation Shares issued to him in April 1998; (iv)
Ms. Kachru was required to return an aggregate of 162,930 Compensation Shares
consisting of 47,692 Compensation Shares issued to her in December 1997 and
115,238 Compensation Shares issued to her in April 1998; and (v) Ms. Levine was
required to return an aggregate of 31,353 Compensation Shares issued to her in
April 1998. Each of Messrs. Byrne, Muro and Threshie, Ms. Kachru and Ms. Levine
agreed to return such Compensation Shares representing overpayments and, as at
February 16, 1999, all of such Compensation Shares have been returned except for
22,804 Compensation Shares issued to Mr. Byrne in December 1997. These 22,804
Compensation Shares were transferred to an assignee of Mr. Byrne following their
issuance and Mr. Byrne has advised the Company that arrangements are being made
by him regarding their return for cancellation. In addition to the foregoing,
for the nine-month period ended March 31, 1998 Mr. Threshie and Ms. Kachru
received cash salary overpayments in the respective amounts of $712.63 and
$236.17. These amounts were treated by the Company as additional salary payments
to Mr. Threshie and Ms. Kachru during the three month period ended June 30, 1998
for the purpose of calculating the amount of Compensation Stock due to Mr.
Threshie and Ms. Kachru for such period.
On April 20, 1998, in consideration of executive services rendered under
the terms of his employment agreement and unreimbursed expenses paid by him for
the account and on behalf of the Company, during the six-month period which
commenced on July 1, 1997 and ended on December 31, 1997, the Company issued
597,966 shares of its Common Stock to Alan Crossley, the Company's Managing
Director of European Market Development. For purposes of such issuance, the
shares were
128
<PAGE>
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. On May 29, 1997, Mr. Crossley, through
GAPCO, Inc., a corporation under his control, also accepted an additional 84,658
shares of the Company's common stock as part of the compensation due to him
under his consulting agreement. (See "Certain Relationships and Related
Transactions - Consulting and Employment Agreements with Alan Crossley"). In
consideration of executive services rendered under the terms of his employment
agreement and unreimbursed expenses paid by him for the account and on behalf of
the Company during the six-month period which commenced on January 1, 1998 and
ended on June 30, 1998, the Company paid Mr. Crossley in cash. The unreimbursed
expenses incurred by Mr. Crossley for the account and on behalf of the Company
during the twelve month period ended June 30, 1998 which were subsequently
repaid to Mr. Crossley in connection with his employment agreement, in a
combination of cash and stock, aggregated to Cdn$115,000.
Subsequent Period
For the three month period ended September 30, 1998, Mr. Byrne waived
payment of $28,486; Ms. Levine waived payment of $41,492.23; Mr. Muro waived
payment of $14,763; Mr. Threshie waived payment of $325; Ms. Kachru waived
payment of $337.65; and Mr. Sanzaro waived payment of $43,750. In December 1998
the Company authorized the issuance of 269,589 shares to Mr. Byrne, 392,679
shares to Ms. Levine; 139,716 shares to Mr. Muro; 3,076 shares to Mr. Threshie;
3,195 shares to Ms. Kachru; and 414,046 shares to Mr. Sanzaro. 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 common stock (50% of $.2113293 or
approximately $.1056646 per share) during the three month period ended September
30, 1998.
Loan Transactions with Terence C. Byrne and Affiliated Entity
On several occasions during the fiscal year ended June 30, 1998 and in the
period subsequent thereto, the Company required immediate cash infusions to meet
its financial obligations. To assist the Company on such occasions, Terence C.
Byrne, or an entity with which Mr. Byrne is affiliated, made loans to the
Company, as follows:
January 23, 1998 Loan to Company. On January 23, 1998, Mr. Byrne made a
loan to the Company in the amount of $102,000, pursuant to the Company's
promissory note, of even date therewith. The terms of the note provided for
repayment on the first to occur of: (i) thirty days from January 23, 1998; (ii)
the Company's receipt from either or both of the Type A and Type B Private
Placements, which the Company was then effecting through H.J. Meyers & Co., Inc.
(the "Private Placements"), proceeds in the amount of $100,000 over and above
the first $401,000 in proceeds therefrom; or (iii) proceeds from any other
equity financing provided that the total amount of proceeds from the Private
Placements and such other equity financing exceeded, in the aggregate, the sum
of $500,000 (US). The note bore interest on the unpaid principal balance at the
annual rate of 7%. This note was repaid on May 15, 1998.
October 27, and November 30, 1998 Loans to Company. On October 27, 1998,
at the behest of Terence C. Byrne, Bartholomew International Investments Limited
("Bartholomew"), a corporation owned by The Bartholomew Trust, the beneficiaries
of which are Mr. Byrne and his spouse and children, made a loan to the Company
in the amount of $150,000. The loan was made pursuant to the Company's
promissory note which bore interest at an annual rate of 2% over the Bank of
Montreal's Prime Rate and which was due and payable on July 26, 1999. On or
about November 30, 1998, Mr. Byrne personally lent the Company an additional
$14,000 on identical terms. On or about
129
<PAGE>
December 2, 1998, as part of the Company's negotiations to obtain short term
bank debt financing, Bartholomew agreed to forego any interest on, and repayment
in cash of, the $150,000 loan, and Mr. Byrne agreed to forego any interest on,
and repayment in cash of, the $14,000 loan and both parties accepted in full
satisfaction of such loan, unregistered shares of the Company's common stock
valued at fifty percent (50%) of the average of the high ask and low bid prices
of such stock, as traded in the over-the-counter market and quoted in the OTC
Electronic Bulletin Board on December 1, 1998. In connection therewith, on
December 2, 1998, the Company authorized the issuance of a total of 2,523,077
shares of this corporation's unregistered common stock to Bartholomew.
Loans To Mr. Byrne From time to time, during the course of the fiscal
year ended June 30, 1998, as was practical and expedient, the Company paid
certain expenses for and on behalf Mr. Byrne. All of such payments were treated
as loans made by the Company to Mr. Byrne. The aggregate amount of such loans
outstanding as at June 30, 1998, was $121,564. On December 15, 1998, Mr. Byrne
repaid $100,000 of such loans and has advised the Company that he will repay the
balance as promptly as possible.Such loans are recorded on the books and records
of the Company and do not bear interest or state any required maturity date.
Consulting and Executive Agreements with Louis Sanzaro
On January 28, 1998, the Company entered into a consulting agreement with
Louis Sanzaro (the "Consulting Agreement"), who is currently an officer and
director of the Company. The Consulting 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 not yet agreed, at
that time, to enter into a formal consulting agreement with respect to such
services. The Consulting Agreement was for a three-year term ending December 31,
1999 and provided for Mr. Sanzaro to render advice, opinions, "hands-on"
assistance with respect to, and, in some cases, effectuation of, among other
things, the following: (i) developing pro-forma financial projections respecting
the operations of a TCS-1 Plant and marketing of rubber crumb generated thereby;
(ii) designing and developing a complete maintenance program for the TCS-1
Plant; (iii) developing specialized accounting software to be used with all
TCS-1 Plants; (iv) designing and developing logistics respecting Plant
configuration; (v) testing new equipment at construction and assembly site,
adjusting, and designing modifications, as required; and (vi) site-planning and
Plant installation. Compensation for all consulting services rendered by Mr.
Sanzaro under the terms of the Consulting Agreement, consisted 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.
The Sanzaro Consulting Agreement was cancelled and replaced by an
employment agreement between the parties (the "Sanzaro Executive Agreement"),
pursuant to which, Mr. Sanzaro was appointed as the Company's Vice President of
Operations and Chief Operating Officer Mr Sanzaro. Since February 11, 1999, Mr.
Sanzaro has served under the Sanzaro Executive Agreement as President of the
Company. For a discussion in detail of the terms of the Sanzaro Executive
Agreement, reference is made to the discussion included above, under "Management
- - Employment Contracts and Termination of Employment and Change-in-Control
Arrangements" - "Executive Agreements And Special Compensation Agreements").
Shares Issued to Louis Sanzaro in Consideration of Terminating Right to be
Appointed Exclusive Sales Representative in North America
Prior to his being appointed an officer of the Company, Mr. Sanzaro and
the Company had agreed, in principal that Mr. Sanzaro would be appointed as the
Company's exclusive sales distributor
130
<PAGE>
in the United States and Puerto Rico. Under the terms of the Sanzaro Executive
Agreement, Mr. Sanzaro released the Company from its obligation to appoint him
as its exclusive sales distributor and to pay him commissions on sales of TCS-1
Plants made in the United States and Puerto Rico. In consideration for such
release, the Company issued to Mr. Sanzaro 2,500,000 shares of its common stock.
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 Plants. Also on that same date, the
Company entered into an Equipment Lease and Purchase Agreement (the "OTRP L&P
Agreement") with Oceans Tire Recycling & Processing Co., Inc. ("OTRP") for the
purchase and lease of the various components which comprise the first production
model of the TCS-1 Plant. Louis Sanzaro, an officer and director of the Company
is a controlling person of both O/V III and Oceans Tire. For details respecting
Mr. Sanzaro's relationship with the Company prior to January 1997, reference is
made to the discussion included, above, in "Existing and Proposed Business -
Equipment Manufacturing" under the subcaption, "Dependence on Major Customer."
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"). For details of the terms and provisions of the O/V III L&P
Agreement and the OTRP L&P Agreement, as well as certain ancillary agreements
executed or agreed to in connection therewith, reference is made to the
discussions contained above, in "Existing and Proposed Businesses" under the
subcaptions, "The O/V III Agreements" and "Agreements with Oceans Tire Recycling
& Processing Co., Inc".
In December 1997, OTRP and the Company agreed that, to the extent
necessary for OTRP to obtain sale and lease-back financing for the front-end
module ("Front-End") and for certain parts of the Air Plant portion of the
Plant, the said OTRP Agreement would be deemed to be modified, as required for
such purpose. In connection therewith OTRP arranged with an equipment financing
company for sale and lease-back financing, pursuant to which: (i) the said
financing company purchased the Front-End and certain designated portions of the
TCS-1 Plant's Air Plant directly from the Company; and (ii) leased such
equipment back to OTRP pursuant to its arrangements with OTRP and/or the OTRP
principals.
It is the present intention of the parties to reform or rescind the
remaining provisions of the OTRP Agreement for the purpose of transferring
ownership of the entire First Production Model to the Company, any one of its
existing subsidiaries, or to some other entity established jointly, or singly,
by the parties, or either one of them, for such purpose. The structure and terms
of the ownership of the First Production Model have not yet been finalized.
However, in connection therewith, on December 16, 1998, the Company entered into
two sale and lease-back transactions by and among the Company, North Shore
Leasing & Funding Inc. ("NLFI"), and an affiliate of OTRP, Ocean Utility
Contracting, Inc. ("OUCI"). Such transactions consisted of the Company's sales
to NLFI of the single fracturing mill and the single freezing tower, which are
components of the TCS-1 Plant installed at the Company's Montreal facility and
the lease back of such components to OUCI. The Company and OUCI have agreed that
all of OUCI's rights under the leases will be assigned to the Company and the
Company will assume all of OUCI's liabilities thereunder. Both leases provide
that at the end of the lease term, the lessee will have the right to purchase
the leased equipment for $1.00. Such right to purchase will be included in
OUCI's assignment to the Company of its rights under the said leases (see this
Item 1. "Existing and Proposed Businesses - Proposed TCS-1 Plant Operations:
Sales of Rubber Crumb and Manufacture and Sale of Finished Products" under the
subcaption, "Proposed Ownership, Establishment, and Operation of Tirex Advanced
Products Plant").
131
<PAGE>
Loans to Louis Sanzaro and Affiliate
On September 9, 1997, the Company made an unsecured loan in the principal
amount of $30,000 to Ocean Utility Contracting Co. Inc., a New Jersey
corporation under the control of Louis Sanzaro. The loan bears interest at an
annual rate of 2% over the prime rate charged by Citibank, NA and is payable on
demand. To date, none of the principal or interest on this loan has been paid
and the Company is unable to state at this time when it intends to make demand
for payment.
The Company made a loan in the principal amount of $70,405 to Louis
Sanzaro, pursuant to Mr. Sanzaro's promissory note, dated April 8, 1998, as
amended and extended on September 5, 1998. The loan bears interest at an annual
rate of 2% over the prime rate charged by Citibank, NA (the "Prime Rate") from
the date the loan was made through the maturity date, September 5, 1999.
Repayment of this loan is secured by a security and pledge agreement between the
parties, pursuant to which Mr. Sanzaro granted to the Company a security
interest in 400,000 shares of the Company's common stock, which is presently
being held in escrow.
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 (the "Hartley Option") to purchase twenty thousand (20,000)
shares of the Cumulative Convertible Preferred Stock of the Company ("Preferred
Shares") at an exercise price of $10 per share, during a two-year exercise
period which commenced on May 19, 1995 and was scheduled to terminate on May 18,
1997. Mr. Hartley paid the Company twenty thousand dollars ($20,000) for the
said Hartley Option. On May 29, 1997, the Company amended the Hartley Option
(the "Hartley Amendment") to extend the exercise and conversion periods
thereunder to May 18, 1999. For a discussion of the reasons for the Hartley
Amendment and additional details respecting the original terms of the Hartley
Option, reference is made to Item 12 of the Company's annual report of Form
10-KSB for the year ended June 30, 1997, "Certain Relationships and Related
Transactions" under the subcaption, "Extension of Exercise Period of Option Held
by John G. Hartley".
To date, no part of the Hartley Option has been exercised. The date when
the Hartley Option is exercised, if such event should occur, is referred to
herein as the "Exercise Date". Pursuant to the terms of the Hartley Amendment,
the Preferred Shares are convertible into common stock at a conversion rate
equal to one Preferred Share (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 market price of such common
stock as at the date of conversion. The number of Preferred Shares purchasable
under the Hartley Option, at a price of $10 per share, can be increased if, at
the conversion rate in effect on the Exercise Date, 20,000 Preferred Shares are
convertible into fewer than 2,000,000 shares of common stock. Any increase in
the number of Preferred Shares purchasable under the Hartley Option shall not
exceed the amount necessary to allow the holder to purchase, in total, the
number of Preferred Shares which, as at the Exercise Date, can be converted into
2,000,000 shares of common stock.
Transfer of 17% of Tirex R&D Shares From Kenneth J. Forbes to Terence C. Byrne.
As discussed above, in "Existing and Proposed Businesses", under the
caption "Canadian Operations", in May of 1995, in order to take advantage of
such certain financial incentives, the Company formed a Canadian corporation,
3143619 Canada Inc. (referred to herein as "Tirex R&D") 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 Plant and thereafter serving as the
Company's
132
<PAGE>
manufacturing arm. There are a total of one hundred shares of Tirex R&D 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 R&D has been deemed
to be eligible for Canadian government sponsored financial incentives.
All of the Tirex R&D 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 R&D 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
R&D's right to redeem the shares held by Mr. Byrne or Mr. Muro in amounts equal
to any number of shares of Tirex R&D 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 R&D 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. On August 21,
1997, pursuant to the request of the Company 17 shares of Tirex R&D common stock
were transferred by Kenneth J. Forbes, a former Tirex R&D shareholder, to
Terence C. Byrne. 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 R&D.
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. Both the First and Second Levine
Employment Agreements provide for an annual salary of $150,000 and the
reimbursement of business related expenses. The Second Levine Employment
Agreement, which is currently in effect, has a term which expires on December
21, 2000. Such agreement provides for the payment of bonuses at the sole
discretion of the Board of Directors based upon a performance evaluation. The
Second Levine Employment Agreement also contains severance provisions similar to
those contained in the Executive Agreements between the Company and each of
Terry Byrne, Lou Muro and Lou Sanzaro. It also provides, in light of the
Company's cash position, that the Company may, in lieu of payment in cash of
salary and reimbursable expenses, issue to Ms. Levine, unregistered shares of
the Company's common stock, valued at 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 during which such salary
was earned or such expenses were incurred.
133
<PAGE>
Extension of Employment Agreements With Mr. Byrne and Mr. Muro
The Company is a party to employment agreements with Terence C. Byrne,
chairman of the board of directors and CEO of the Company, and with Louis V.
Muro, the Company's 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 Louis Sanzaro.
On July 23, 1998 the Company entered into an employment agreement with
Louis Sanzaro pursuant to which Mr. Sanzaro was employed as the Company's vice
president of operations until February 11, 1999, and since such date, as the
Company's president. The agreement was made effective as of June 15, 1998, the
date when Mr. Sanzaro began serving in such capacity. The agreement is for a
term of four years ending June 14, 2002 and provides for salary compensation at
the annual rate of $175,000. It also included a signing bonus consisting of
500,000 shares of the Company's common stock. In consideration for the Company's
entering into such employment agreement and issuing to Mr. Sanzaro an additional
2,500,000 shares of its common stock, Mr. Sanzaro released the Company from any
obligations arising out of or being connected with or related to serve as a
distributor of TCS-1 Plants in North America or to receive renumeration of any
kind in connection with sales of TCS-1 Plants theretofore or thereafter made by
the Company in North America. For a discussion in more detail of the Sanzaro
Executive Agreement, 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 Jean Frechette.
On July 24, 1998 the Company and The Tirex Corporation Canada, Inc.
("Tirex Canada") entered into an employment agreement with Jean Frechette ,
pursuant to which Mr. Frechette has been employed as the president and chief
operating officer of Tirex Canada effective August 17, 1998. The agreement is
for a five year term ending August 16, 2003 and provides for salary compensation
at the annual rate of $150,000 along with a car allowance of $500 Canadian per
month. The employment agreement also included a signing bonus of 1,000,000
shares of the Company's common stock. For a discussion in more detail of the
Frechette Executive Agreement, reference is made to the infirmation 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 currently employed
as a vice president and as assistant secretary of the Company. Mr. Threshie's
employment agreement with the Company was made effective as of January 1, 1996,
the date when Mr. Threshie began receiving a salary for serving as a vice
president. The agreement was for a three-year term ending December 31, 1998 and
provided for compensation at the annual rate of $50,000. Effective July 1, 1998
the salary provisions of the agreement were amended to provide for an annual
salary of $62,500 and as of December 31,
134
<PAGE>
1998, it was further amended to extend the term of the agreement to December 31,
1999. From December 22, 1996 until February 11, 1999, Mr. Threshie also served
as secretary of the Company. 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. However, former management failed to arrange for, or pay, any
compensation to Mr. Muro for his services as an officer of the Company during
such periods. In order to assure itself of the continued services of Mr. Muro
and to compensate him on a fair and equitable basis for the aforesaid executive
services, on January 17, 1997, the Board of Directors authorized the issuance of
a total of 1,113,636 shares of common stock. At that time, Mr. Muro agreed to
accept such shares as compensation 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 the Company, 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 the Company which would constitute, upon their
issuance, ten percent (10%) of the common stock of the Company, 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".
Consulting and Employment Agreements with Alan Crossley
On July 1, 1997, the Company entered into an employment agreement with
Alan Crossley (the "Crossley Employment Agreement"), a former director of the
Company, pursuant to which, Mr. Crossley was appointed as the Company's Managing
Director of European Market Development. This Agreement replaced and superseded
a consulting agreement between the Company and Mr. Crossley
135
<PAGE>
(the "Crossley Consulting Agreement"). The said Consulting Agreement had been
entered into on May 29, 1997 and had been made retroactively effective to
January 15, 1997. Such retroactive effectiveness reflected the time period
during which Mr. Crossley, directly and through GAPCO, Inc., a corporation
controlled by Mr. Crossley had actually rendered services to the Company, as its
European Market Development Consultant. The Crossley Consulting Agreement
provided for consulting services consisting of advice and opinions to the
Company concerning, and the undertaking and effectuation of, activities
necessary to establish and develop in Europe and in India, markets for the TCS-1
Plant and for rubber crumb and the preparation of market development studies for
the Iberian Peninsula and India. The Crossley Consulting Agreement was for a
two-year term and provided for the following compensation: (i) upon completion
of the Iberian Peninsula Market Study conducted by GAPCO, Inc., $40,000
(Canadian) to be paid in either, or a combination of, cash or unregistered
shares of the Company's common stock, valued at $.17 per share; (ii) upon
completion of the Indian Market Study conducted by GAPCO, Inc., $40,000
(Canadian) to be paid in either, or a combination of, cash or unregistered
shares of the Company's common stock, valued at $.17 per share, and (ii) an
expense allowance of up to $115,000 (Canadian) or approximately US $80,500.
Although the Crossley Consulting Agreement also provided for an annual salary of
$75,000 (Canadian), such salary was not to commence until July 1, 1997. Because
the Consulting Agreement was replaced by the Crossley Employment Agreement
effective as of January 15, 1997, no salary payments were ever due or paid under
the said Consulting Agreement. However, pursuant to the terms of the Crossley
Consulting Agreement, payments of an aggregate of $80,000 (Canadian) were paid
to Mr. Crossley, in a combination of cash and common stock, in respect of
certain market studies for the Iberian Peninsula and India conducted by GAPCO,
Inc. The stock portion of such compensation was paid on May 29, 1997 with the
issuance of 84,658 shares of the Company's common stock.
Pursuant to the agreement of the parties, the Crossley Employment
Agreement was made effective as of June 15, 1997. It provides for a one-year
term, automatically renewable for two successive one-year periods. Under the
terms of the Employment Agreement, Mr. Crossley is responsible for undertaking
and effecting activities necessary to establish and develop markets for the
TCS-1 Plant and for the crumb rubber which will be produced by the operation of
the TCS-1 Plant throughout the European Economic Union, India, Pakistan and
Saudi Arabia (collectively the "Territory"), and such other areas as the parties
may, from time to time, mutually agree. In connection therewith, Mr. Crossley is
responsible for, among other things, setting up the appropriate corporate
structure and organization for importing and distributing TCS-1 Plants and crumb
rubber into and throughout Europe. The Crossley Employment Agreement provides
for compensation by way of an annual salary of $75,000 (Canadian) and a sales
commission of eight percent (8%) of the purchase price of all sales of TCS-1
Plants sold within the Territory, provided however that, all salary payments
made or payable under the Crossley Employment Agreement will be deducted from
the amount of any such sales commissions. The Agreement also provides for
reimbursement of documented expenses for specified purposes in an amount not to
exceed $115,000 (Canadian) per year.
Bonuses and Additional Compensation to Employees
On May 30, 1997, the Company 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 of common stock, at a per share exercise price of
$.001 per share, as follows: Terence C. Byrne - 1,413,382 shares, Louis V. Muro
- - 1,115,093 shares, and Frances Katz Levine - 811,684 shares. 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
136
<PAGE>
uch year. Such bonuses were unanimously approved by the Company's full board of
directors, which, at that time, consisted of six members including 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, the Company 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 shares, Louis V. Muro - 1,000,000 shares, and Frances Katz Levine -
1,000,000 shares. Such sales were made pursuant to the exercise of options
granted to such persons and subsequently amended, as follows: On September 3,
1997, the Company 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 the
Company, 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, the Company granted to each of these persons a bonus (the "1998
Bonus"), under the terms of their respective employment agreements, for the
fiscal year which ended on June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses
consisted of amendments to the terms of the 1997 Options, which reduced the
option exercise price to $.001 per share. Both the 1997 and the 1998 bonuses
were unanimously approved by the Company's full board of directors which, at
that time, consisted of six members including Mr. Byrne and Mr. Muro.
On June 23, 1998, the Company's board of directors by unanimous written
consent, recognized that since January of 1995, on behalf, and for the benefit,
of the Company and without any cash compensation therefor, Terence C. Byrne, the
chairman of the board of directors and CEO of the Company and Frances Katz
Levine, formerly the secretary and a director, and presently corporate and US
securities counsel of the Company, had made substantial financial accommodations
and had put themselves at significant financial risk, including, but not limited
to the following: Mr. Byrne's; (i) having made personal loans to the Company,
including a loan in the amount of $102,000 made in January of 1998; (ii) having
been personally responsible for all credit card debt of the Company, covering
all travel, entertainment, and significant day-to-day operating expenses of the
Company; (iii) being the co-guarantor of all bank debt of the Company and its
subsidiaries; and (iv) being the co-guarantor on all equipment leases of the
Company; and Ms. Levine having for a continuous period of three and one-half
years, provided, rent-free and with no charge for the costs of utilities, a
fully-equipped law office, dedicated solely and exclusively to the requirements
of the Company and throughout such period, having paid, without any cash
reimbursement ever having been made to her, all costs and expenses incurred by
the Company in connection with its legal service requirements, including but not
limited to: (i) telephone charges (ii) office furnishings, equipment, and
supplies; (iii) Federal Express and other postage; and (iv) secretarial and
clerical staff. The board further stated its belief that the significant growth
and development demonstrated by the Company, from January 1995 to the present,
could not have been possible without the above described financial
accommodations made by Mr. Byrne and Ms. Levine and that, in view of the
significant contributions made, and the financial risks incurred, by these
persons, it would be fair and equitable to compensate them for the foregoing
financial accommodations made, and risks incurred, by them. In effectuation of
the foregoing, on or about July 9, 1998, the Company authorized the issuance of
4,000,000 shares of its common stock to Mr. Byrne and 2,000,000 shares of its
common stock to Ms. Levine.
137
<PAGE>
ITEM 13. EXHIBITS
FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Financial Statements
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheet - June 30, 1998
Consolidated Statements of Operations for the years ended June 30, 1997 and
1998, and cumulative for the period from inception (July 15, 1987) to
June 30, 1998
Consolidated Statements of Owners' Equity (Deficit) as at
July 15, 1987 and June 30, 1988 - 1998
Consolidated Statements of Cash Flows for the years ended June 30, 1997 and
1998 and cumulative for the period from inception (July 15,1987) to June
30, 1998
Financial Statement Schedules
Financial statements schedules have been omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
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 (20)
138
<PAGE>
(f) Agreement and Plan of Merger
(Tirex Acquisition Corp. and RPM Incorporated)
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 (21) 3
(h) Certificate of Incorporation of Tirex Acquisition Corp.,
filed with the Secretary of State of Delaware on
December 15, 1997 (20) 3(h)
(k) Certificate of Amendment to the Certificate of
Incorporation, filed with the Secretary of State of
Delaware on July 10, 1998 (19) 3
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)
(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)
139
<PAGE>
(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 the Company (17) 4(t)
(p) Amendment, Dated September 30, 1997, to GC TIRE, Inc.(20)
(q) Amendment, Dated February 16, 1998, to CG TIRE, Inc.(20)
(r) Form of "Type A" Subordinated,
Convertible Debenture
(s) Form of "Type B" Subordinated
Convertible Debenture (20) 4(t)
(t) Form of "Type A" Warrant
(u) Stock Purchase Warrant
Issued To Security Capital Trading, Inc.
(v) Form of Amendment to "Type B" Debenture (20) 4(w)
(w) Amendment to CGT Option (20) 4(x)
(x) Form of "Type A" Securities
Purchase Agreement
(y) Form of "Type B" Securities Purchase Agreement (20) 4(y)
(z) Form of "Type C" Subscription and Registration
Rights Agreement (20) 4(aa)
(aa)Option To Purchase Common Stock, Issued to
Alan Epstein, dated April 13, 1998 (18) 4.2
(bb)Form of Amendment to "Type A" Subordinated,
Convertible Debenture
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(20) 10(f)
(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
Agreement, dated June 1, 1995, between the Company
and Terence C. Byrne (11) 4.9
140
<PAGE>
(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
Recovery 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 the Company and The Nais Corp. (15) 10
between the Company and the Nais Corp.
(r) Employment Agreement, effective as of January 1, 1996,
between the Company and John L. Threshie, Jr. (13) 4.4
(s) Employment Agreement, dated April 29, 1997,
between the Company and Vijay Kachru (17) 10(cccc)
(t) Amendment No.2, dated May 1, 1997, to Stock Restriction
Agreement of April 1, 1996, between the Company
and Louis V. Muro (17) 10(dddd)
(u) Amendment No. 2, dated May 1, 1997, to Stock Restriction
Agreement of June 1, 1995 between the Company
and Terence C. Byrne (17) 10(eeee)
(v) Amendment No. 2, dated May 1, 1997, to Stock Restriction
Agreement of June 1, 1995 between the Company
and Frances Katz Levine (17) 10(ffff)
(w) Employment Agreement, dated December 22, 1997, between
the Company and Frances Katz Levine (17) 10(gggg)
(x) Amendment, dated May 1, 1997, to Employment Agreement
of December 22, 1996, between the Company and
Frances Katz Levine (17) 10(hhhh)
(y) Amendment, dated May 1, 1997, to Employment Agreement
of January 18, 1995, between the Company and
Terence C. Byrne (17) 10(iiii)
(z) Amendment, dated May 1, 1997 to Employment Agreement
of January 1, 1996, between the Company and
Louis V. Muro (17) 10(jjjj)
(aa) Equipment Lease & Purchase Agreement, dated May 29, 1997,
between the Company and Oceans Tire Recycling &
Processing Co., Inc., including Royalty Agreement
141
<PAGE>
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 the Company 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 July 8, 1997,
between the Company and Recycletron Inc., including Royalty
Agreement and Crumb rubber Brokerage Agreement, of even
date therewith,
as Exhibits thereto (17) 10(mmmm
(dd)Consulting Agreement, dated April 18, 1998, between the
Company and Alan Epstein(18) 4.1
(ee)Consulting Agreement, dated January 28, 1998, between
the Company and Louis Sanzaro (20) 10(gg)
(ff)Executive Agreement made as of July 23, 1998 between the
Company and Louis Sanzaro (19) 10.1
(gg)Executive Agreement made as of July 24, 1998 among the
Company, The Tirex Corporation Canada Inc. and
Jean Frechette (19) 10.2
(hh)Employment Agreement made as of June 22, 1998 between
the Company and Scott Rapfogel (19) 10.3
(ii)Agreement, dated December 11, 1998, between the Company
and IM2 Merchandising and Manufacturing, Inc.
(jj)Consulting Agreement, dated April 1, 1998, between
the Company and Security Capital Trading, Inc.
(kk)Offer of Federal Office of Regional Development (Quebec), dated
July 4, 1997, of repayable contribution of CA$95,000 for market
development studies and activities in the United States
(Project No. 0762)
(ll)Offer of Federal Office of Regional Development (Quebec), dated
March 9, 1998, of repayable contribution of CA$98,000 for
international market development activities
(Project No. 1158)
(mm)Offer of Federal Office of Regional Development (Quebec), dated
March 26, 1997, of repayable contribution of CA$20,000 for
preparation of market development studies for India
(Project No. 0635)
(nn)Passenger Car Equipment Lease & Purchase Agreement, dated
August 19, 1998, between the Company and ENERCON American
Distribution Ltd.
(oo)Truck Tire Equipment Lease & Purchase Agreement, dated August
19, 1998, between the Company and ENERCON American
Distribution Ltd.
(pp)Royalty Agreement, dated August 19, 1998,
between the Company and ENERCON American Distribution Ltd.
(qq)Rubber Crumb Purchase Option Agreement, dated August 19, 1998,
between Registrant and ENERCON American Distribution Ltd.
(rr)Purchase Rights Agreement, dated August 19, 1998,
between the Company and ENERCON American Distribution Ltd.
(ss)Passenger Car Equipment Lease & Purchase Agreement, dated October 9,
1998, between the Company and ENERCON American Distribution Ltd.
(tt)Truck Tire Equipment Lease & Purchase Agreement, dated October 9, 1998,
between the Company and ENERCON American Distribution Ltd.
(uu)Royalty Agreement, dated October 9, 1998,
142
<PAGE>
between the Company and ENERCON American Distribution Ltd.
(vv) Rubber Crumb Purchase Option Agreement, dated October 9, 1998,
between Registrant and ENERCON American Distribution Ltd.
(ww) Purchase Rights Agreement, dated October 9, 1998,
between the Company and ENERCON American Distribution Ltd.
(xx) Equipment Lease & Purchase Agreement, dated December 12, 1997,
between the Company and 750824 Alberta Ltd.
(yy) European Market Development Consulting Agreement, dated May 29, 1997,
with Alan Crossley
(zz) Employment Agreement, dated July 1, 1997, with Alan Crossley (aaa)
Promissory Note, dated January 23, 1998, from the Company to
Terence C. Byrne in the amount of $102,000
(bbb) Promissory Note, dated October 27, 1998, from the Company to
Bartholomew International Investments Ltd. in the amount of
$150,000
(ccc) Release, dated December 2, 1998, to Promissory Notes, dated
October 27, 1998 and November 30, 1998, from the Company to
Bartholomew International Investments Ltd. and Terence C.
Byrne, respectively.
(ddd) Promissory Note, dated November 30, 1998, from the Company to
Terence C. Byrne in the amount of $14,000
(eee) Promissory Note, dated April 8, 1998, from Louis V. Sanzaro to
the Company in the amount of $70,405.31
(fff) Security and Pledge Agreement, dated April 8, 1998, between
Louis V. Sanzaro and the Company
(ggg) Amendment, dated September 5, 1998, to Promissory Note,
dated April 8, 1998, from Louis V. Sanzaro to the Company
(hhh) Promissory Note, dated September 9, 1997, from Ocean Utility
Contracting Co., Inc. to the Company in the amount of $30,000
(iii) Management translation of Offer of Loan Guarantee, dated
January 16, 1998, from the Societe' de Developpement
Industrial du Quebec (original in French)
(jjj) Loan Agreement, dated February 21, 1996, between Bank of
Montreal the Company's subsidiary 3143619 Canada Inc.("Tirex
R&D)
(kkk) Offer of Federal Office of Regional Development (Quebec),
of repayable contribution of CA$20,000 for market
development studies for the Iberian peninsula
(Project No. 0526)
(lll) Offer of Federal Office of Regional Development (Quebec),
of repayable contribution of CA$95,000 for
market development activities for the Iberian peninsula
(Project No. 0761)
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)
143
<PAGE>
20. (a) "Type A" Private Placement Memorandum, dated
November 5, 1997, as amended February 26, 1998 (20) 20(a)
(b) "Type B" Private Placement Memorandum, dated
November 28, 1997, as amended March 6, 1998 (20) 20(b)
(c) "Type C" Private Placement Memorandum, dated
March 19, 1998 (20) 20(c)
21. 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 the Company'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
the Company's Capital Stock to 70,000,000 shares (21) 20
(c) Notice to Shareholders, dated July 13, 1998,
Pursuant to Delaware General Corporation
Law Section 228(d), respecting the amendment
of the Certificate of Incorporation, increasing
the Company's Capital Stock to 120,000,000 shares (19) 20
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.
(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.
144
<PAGE>
(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.
145
<PAGE>
(19) Filed with the Securities and Exchange Commission on July 30, 1998,
as an exhibit, numbered as indicated above, to the Company's current report on
Form 8-K dated May 27, 1998, which exhibits are incorporated herein by
reference.
(20) Filed with the Securities and Exchange Commission on May 21, 1998, as
an exhibit, numbered as indicated above, to the Company's registration statement
on Form SB-2, which exhibits are incorporated herein by reference.
(21) Filed with the Securities and Exchange Commission on February 16,
1998, as an exhibit, numbered as indicated above, to the Company's current
report on Form 8-K dated February 3, 1998, which exhibits are incorporated
herein by reference.
Reports on 8-K
The Company did not file any current reports on Form 8-K during the last
quarter of the period covered by this Report.
146
<PAGE>
SIGNATURES
In accordance with Section 15(d) of the Exchange Act of 1934, the Company
has caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
----------------------------------------
Date: March 4, 1999 Terence C. Byrne, Chairman of the Board
of Directors and Chief Executive Officer
In accordance with Section 15(d) of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
SIGNATURES TITLE Date
Principal Executive Officer:
/s/ Terence C. Byrne March 4, 1999
- -----------------------------------
Terence C. Byrne Chairman of the Board
of Directors and Chief
Executive Officer
Principal Financial and Accounting Officer:
/s/ Michael D.A. Ash March 4, 1999
- -----------------------------------
Michael D.A. Ash Secretary, Treasurer,
and Chief Financial and
Accounting Officer
A Majority of the Board of Directors:
/s/ Terence C. Byrne March 4, 1999
- -----------------------------------
Terence C. Byrne Director
/s/ Louis Sanzaro March 4, 1999
- -----------------------------------
Louis Sanzaro Director
/s/ Louis V. Muro March 4, 1999
- -----------------------------------
Louis V. Muro Director
/s/ Henry Meier March 4, 1999
- -----------------------------------
Henry Meier Director
147
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended June 30, 1998 or the subsequent interim period. As
at the date hereof, the Company plans to furnish proxy materials relating to its
annual meeting, which is presently intended to be held during the current fiscal
year. All such materials will be furnished to the Commission at the same time as
they are sent to securities holders.
148
<PAGE>
Commission File Number 33-17598-NY
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
----------
FORM 10-KSB
Annual Report
For the Fiscal Year Ended
June 30, 1998
----------
THE TIREX CORPORATION
(Exact Name of the Company as specified in Charter)
EXHIBITS
149
<PAGE>
INDEX OF EXHIBITS BEING FILED HEREWITH
Page
----
2.
(f) Agreement and Plan of Merger
(Tirex Acquisition Corp. and RPM Incorporated).................153
4.
(r) Form of "Type A" Subordinated,
Convertible Debenture..........................................174
(t) Form of "Type A" Warrant.........................................186
(u) Form of Stock Purchase Warrant
Issued To Security Capital Trading, Inc........................200
(x) Form of "Type A" Securities
Purchase Agreement.............................................213
(bb) Form of Amendment to "Type A" Subordinated,
Convertible Debenture..........................................216
10.
(ii) Agreement, dated December 11, 1998, between
the Company and IM2 Merchandising and
Manufacturing, Inc.............................................224
(jj) Consulting Agreement, dated April 1, 1998, between
the Company and Security Capital Trading, Inc..................240
(kk) Offer of Federal Office of Regional Development
(Quebec), dated July 4, 1997, of repayable contribution of
CA$95,000 for market development studies and activities
in the United States (Project No. 0762)........................246
(ll) Offer of Federal Office of Regional Development
(Quebec), dated March 9, 1998, of repayable contribution of
CA$98,000 for international market development activities
(Project No. 1158).............................................258
(mm) Offer of Federal Office of Regional Development (Quebec),
dated March 26, 1997, of repayable contribution of CA$20,000
for preparation of market development studies for India
(Project No. 0635).............................................271
(nn) Passenger Car Equipment Lease & Purchase Agreement, dated
August 19, 1998, between Registrant and ENERCON American
Distribution Ltd...............................................282
(oo) Truck Tire Equipment Lease & Purchase Agreement, dated
August 19, 1998, between Registrant and ENERCON American
Distribution Ltd...............................................302
150
<PAGE>
(pp) Royalty Agreement, dated August 19, 1998, between Registrant
and ENERCON American Distribution Ltd..........................322
(qq) Rubber Crumb Purchase Option Agreement, dated August 19, 1998,
between Registrant and ENERCON American Distribution Ltd.......328
(rr) Purchase Rights Agreement, dated August 19, 1998,
between Registrant and ENERCON American Distribution Ltd.......334
(ss) Passenger Car Equipment Lease & Purchase Agreement, dated
October 9, 1998, between Registrant and ENERCON American
Distribution Ltd...............................................339
(tt) Truck Tire Equipment Lease & Purchase Agreement, dated
October 9, 1998, between Registrant and ENERCON American
Distribution Ltd...............................................364
(uu) Royalty Agreement, dated October 9, 1998, between Registrant
and ENERCON American Distribution Ltd..........................390
(vv) Rubber Crumb Purchase Option Agreement, dated October 9, 1998,
between Registrant and ENERCON American Distribution Ltd.......396
(ww) Purchase Rights Agreement, dated October 9, 1998, between
Registrant and ENERCON American Distribution Ltd...............402
(xx) Equipment Lease & Purchase Agreement, dated December 12, 1997,
between Registrant and 750824 Alberta Ltd. (with ancillary
agreements attached as exhibits)...............................407
(yy) European Market Development Consulting Agreement,
dated May 29, 1997, with Alan Crossley.........................436
(zz) Employment Agreement, dated July 1, 1997,
with Alan Crossley.............................................442
(aaa) Promissory Note, dated January 23, 1998, from the Company to
Terence C. Byrne in the amount of $102,000.....................451
(bbb) Promissory Note, dated October 27, 1998, from the Company to
Bartholomew International Investments Ltd. in the
amount of $150,000.............................................454
(ccc) Release, dated December 2, 1998, to Promissory Notes,
dated October 27, 1998 and November 30, 1998, from the Company
to Bartholomew International Investments Ltd.
and Terence C. Byrne, respectively.............................457
(ddd) Promissory Note, dated November 30, 1998, from the Company to
Terence C. Byrne in the amount of $14,000......................461
(eee) Promissory Note, dated April 8, 1998, from Louis V. Sanzaro to
the Company in the amount of $70,405.31........................463
(fff) Security and Pledge Agreement, dated April 8, 1998, between
Louis V. Sanzaro and the Company...............................466
(ggg) Amendment, dated September 5, 1998, to Promissory Note,
dated April 8, 1998, from Louis V. Sanzaro to the Company......470
(hhh) Promissory Note, dated September 9, 1997, from Ocean Utility
Contracting Co., Inc. to the Company in the
amount of $30,000..............................................473
151
<PAGE>
(iii) Management translation of Offer of Loan Guarantee, dated
January 16, 1998, from the Societe' de Developpement
Industrial du Quebec (original in French)......................475
(jjj) Loan Agreement, dated December 17, 1997, between
Bank of Montreal the Company's subsidiary
3143619 Canada Inc.("Tirex R&D)................................491
(kkk) Offer of Federal Office of Regional Development (Quebec),
of repayable contribution of CA$20,000 for market
development studies for the Iberian peninsula
(Project No. 0526).............................................502
(lll) Offer of Federal Office of Regional Development (Quebec),
of repayable contribution of CA$95,000 for
market development activities for the Iberian peninsula
(Project No. 0761).............................................514
21. Subsidiaries of the Company............................................526
152
EXHIBIT 2 (f)
153
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 20, 1997, by and between
RPM Incorporated, a Delaware corporation (the "Company"), The Tirex Corporation,
a Delaware corporation (the "Tirex"), and Tirex Sub, Inc., a Delaware
corporation ("T-Sub" or the "Purchaser").
WHEREAS, the Boards of Directors of the Purchaser, Tirex and the Company
have each determined that it is in the best interests of their respective
stockholders for the Purchaser to acquire all of the issued and outstanding
shares of the Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
the Purchaser, Tirex, and the Company have each approved the merger of the
Company with and into the Purchaser in accordance with the General Corporation
Law of the State of Delaware (the "GCL") and on a tax free basis upon the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the GCL, the Company shall be merged (the
"Merger") with and into the Purchaser as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI hereof.
Following the Merger, the Purchaser shall continue as the surviving corporation
and the separate corporate existence of the Company shall cease.
SECTION 1.02 Effective Time. The Merger shall become effective upon filing
with the Delaware Secretary of State of a certificate of merger executed in
accordance with the relevant provisions of the GCL (the time the Merger becomes
effective being the "Effective Time").
SECTION 1.03 Effects of the Merger. The Merger shall have the effects set
forth in the GCL. Without limitation, upon the effectiveness of the Merger: (a)
the separate existence of the Company shall cease; (b) the Purchaser as the
surviving corporation shall possess all of the rights, privileges, powers,
immunities, purposes and franchises, both public and private, of each of the
Company and the Purchaser; (c) all real and personal property, tangible and
intangible, of every kind and description belonging to the Company and the
Purchaser shall be
154
<PAGE>
vested in the Purchaser as the surviving corporation without further act or
deed; (d) the Purchaser as the surviving corporation shall be liable for all the
obligations and liabilities of each of the Company and the Purchaser except that
the Company and the Purchaser shall each remain liable for and may enforce the
Merger and any claim existing or action or proceeding pending by or against
either the Company or the Purchaser as if the Merger had not taken place.
Notwithstanding the foregoing, the principal shareholders of the Company,
signatories to the indemnification agreement attached as Schedule 1.3(d) hereto,
will indemnify Tirex and the Purchaser and hold Tirex and the Purchaser, and
each of them, harmless from and against any and all losses, claims, damages.
liabilities, or obligations arising out of or in any way connected with any
activities of the Company, or by any person on behalf of the Company, prior to
the Merger which activity has not been previously disclosed to Tirex or the
Purchaser; (e) Tirex shall fully and absolutely assume all of the obligations
under the Debentures (as defined below); and (e) neither the rights of creditors
nor any liens upon or security interests in the property of either the Company
or the Purchaser shall be impaired by the Merger.
SECTION 1.04 Certificate of Incorporation and By-Laws. Without further
action by the Company or the Purchaser, the Certificate of incorporation and
By-laws of the Purchaser as in effect at the Effective Time shall continue to be
the Certificate of Incorporation and By-Laws of the Purchaser as the surviving
corporation.
SECTION 1.05 Directors. The directors of the Purchaser at the Effective
Time shall be the directors of the Purchaser as the surviving corporation until
their successors shall have been duly elected or appointed and qualified. The
directors of Tirex at the Effective Time shall be the directors of Tirex, until
their successors shall have been duly elected or appointed and qualified.
SECTION 1.06 Officers. The officers of the Purchaser at the Effective Time
shall be the officers of the Purchaser as the surviving corporation, until their
successors have been duly appointed.
SECTION 1.07 Conversion of Shares. At the Effective Time, each of the
issued and outstanding shares of Common Stock, par value $.001 of the Company
("Company Common Stock") shall, by virtue of the Merger and without any action
on the part of the holder thereof be changed by operation of law into one share
of Common Stock, par value $.001 per share of Tirex ("Tirex Common Stock").
SECTION 1.08 Shareholders' Consents. Each of the Company and T-Sub, acting
through their respective Boards of Directors, shall in accordance with
applicable law, obtain the written consent of the holders of a majority of its
issued and outstanding shares approving this Agreement and the transactions
contemplated hereby.
SECTION 1.09 Filing of Certificate of Merger. Upon the terms and subject
to the conditions hereof, as soon as practicable following the satisfaction or
waiver of the conditions set forth herein, the Company and the Purchaser shall
execute and file a Certificate
155
<PAGE>
of Merger in the manner required by the GCL and the parties hereto shall take
all such other and further actions as may be required by law to make the Merger
effective. Prior to the filings referred to in this Section, a closing (the
"Closing") will be held at the offices of Frank J. Hariton, Esq., New York, New
York (or such other place as the parties may agree) for the purpose of
confirming all of the foregoing. The consummation of the Closing is hereinafter
referred to as the "Effective Time".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants as follows to each of the Purchaser
and Tirex, that except as set forth in the Disclosure Schedule annexed hereto
(the "Company Disclosure Schedule"):
SECTION 2.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a material adverse effect on the
business operations or financial condition of the Company taken as a whole. The
Company is not by reason of the conduct of its business or the ownership of
property, or otherwise, required to qualify as a foreign corporation in any
jurisdiction. The Company has heretofore made available to the Purchaser
accurate and complete copies of the Certificate of Incorporation and By-laws, as
currently in effect, of the Company. The Company has no subsidiaries and is not
a party to any partnership, agency or joint venture agreement.
For purposes of this Agreement, the term "subsidiary" shall mean each
corporation or other entity in which a corporation owns or controls, directly
through one or more subsidiaries, any of the stock or other interests having
general voting power in the election of directors or persons performing similar
functions.
SECTION 2.02 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock, par value $.0001 per
share, of which 3,000,000 shares (the "Company Shares"), were issued and
outstanding as of the date hereof and 1,000,000 shares of preferred stock, none
of which have been issued and none of which shall be issued prior to the
Closing. All of the issued and outstanding Company Shares are validly issued,
fully paid and non-assessable and free of preemptive rights. Any and all sales
of the 3,000,000 currently issued and outstanding Company shares, which were
issued prior to March 31, 1997, in transactions exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"). Except for the
Company Shares, there are no shares of capital stock of the Company issued or
outstanding or any subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating the
Company to issue,
156
<PAGE>
transfer, sell or pay any amount with respect to any of its securities. The
Company may issue up to an additional 850,000 shares in of common stock prior to
the closing in connection with the private placement described herein, which,
when issued, shall be deemed to be Company Common Stock and be converted into
shares of Tirex Common Stock at the Effective Time on a one for one basis.
SECTION 2.03 Authority Relative to this Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and
the Shareholders of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
subject to the provisions of any bankruptcy, insolvency, moratorium or similar
law applicable to the rights of creditors generally.
SECTION 2.04 No Violations. Except for the filing and recordation of a
Certificate of Merger as required by the GCL and any and all filings required
under applicable state or federal securities laws, in the private placement
described herein or otherwise, no filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for the
consummation by the Company of the transactions contemplated by this Agreement,
except for filings, permits, authorizations, consents or approvals, the failure
to obtain which would not in the aggregate have a material adverse effect on the
financial condition, results of operations or business of the Company taken as a
whole or which would not prevent or delay in any material respect the
consummation of the transactions contemplated hereby. Neither the execution and
delivery of this Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby nor compliance by the Company with any
provisions hereof will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-laws of the Company, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument or obligation to which the Company is a party or by which it or
its properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, or
any of its properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which would not in the aggregate have a
material adverse effect on the financial condition, results of operations or
business of the Company and its subsidiaries taken as a whole prior to the
Merger or of the Purchaser or Tirex after the Merger and which would not prevent
or delay in any material respect the consummation of the transactions
contemplated hereby (each of such effects being referred to as a "Material
Adverse Effect," provided that, for
157
<PAGE>
the purposes of Article III hereof, the term "Material Adverse Effect" shall be
deemed to refer to the occurrence of any such event with respect to the
financial condition, results of operations or business of the Purchaser, and
further provided that, for the purposes of Article IV hereof, the term "Material
Adverse Effect" shall be deemed to refer to the occurrence of any such event
with respect to the financial condition, results of operations or business of
Tirex).
SECTION 2.05 Financial Statements. Except as set forth on the Company
Disclosure Schedule, the Company has never engaged in any business or fund
raising activities and has had no income or incurred no liabilities of any kind.
The Company Disclosure Schedule sets forth a balance sheet of the Company as at
September 30, 1997 (the "Company Balance Sheet"). September 30, 1997 shall
hereinafter sometimes be referred to as the Company Balance Sheet Date. The
Purchaser has been advised that the Company has not retained independent
accountants for the purpose of conducting any audit. In the event that the
Purchaser determines that it requires an audited financial statement of the
Company, the Purchaser shall prepare the same at its own cost and expense. The
principals of the Company shall cooperate with the Purchaser in the preparation
of the such financial statements, but shall not be required to retain any
professionals or incur any out of pocket expense in connection therewith.
SECTION 2.06 Properties.
(a) The Company's only property at the time of the Closing shall be cash
and cash equivalents as set forth below in Section 6.01(c) hereof.
(b) There is no violation of any law, regulation or ordinance relating to
the properties and assets of the Company and its subsidiaries except such
violations as would not, in the aggregate, have a Material Adverse Effect.
SECTION 2.07 No Undisclosed Liabilities. Except as set forth herein and on
the Company Disclosure Schedule, the Company has never engaged in any business
or fund raising activities and has had no income or incurred no liabilities of
any kind. The Purchaser acknowledges that it is aware that the Company and its
principal shareholders, Dr. Eugene Stricker and Mark Schindler have a Consulting
Agreement with Tirex pursuant to which it has provided business advice to Tirex
and has accrued and continues to accrue fees payable by Tirex at the rate of
$4,000 per month. There are no liabilities of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition situation or set of circumstances
which could reasonably result in such a liability, other than:
(a) liabilities disclosed or provided for in the Company Balance
Sheet or in the notes thereto;
(b) liabilities arising under this Agreement; and
(c) liabilities which would not, in the aggregate, have a Material
Adverse Effect.
158
<PAGE>
SECTION 2.08 Litigation. There are no actions, suits, or proceedings
pending against, or to the knowledge of the Company, threatened against the
Company before any court or arbitrator or any governmental body, agency or
official.
SECTION 2.09 Taxes. The Company has duly filed with the appropriate
federal, state and local governments or governmental agencies, all federal,
state and local income tax returns and declarations of estimated tax and all
other material tax returns and reports required to be filed and has paid in full
when due all taxes, licenses and fees, including interest and penalties, shown
to be due thereon.
SECTION 2.10 Absence of Certain Changes. Except for activities preparatory
to the conduct of the private placement discussed herein, the Company has not
engaged in any business activity since the Balance Sheet Date and, except for
activities related to and preparatory to the conduct of the private placement
discussed herein, the Company shall not engage in any material business
activities prior to the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants as follows to the Company, except as
set forth in the Disclosure Schedule annexed hereto (the "Purchaser Disclosure
Schedule"):
SECTION 3.01 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a material adverse effect on the
business operations or financial condition of the Purchaser taken as a whole.
The Purchaser is not by reason of the conduct of its business or the ownership
of property, or otherwise, required to qualify as a foreign corporation in any
jurisdiction. The Purchaser has heretofore made available to the Purchaser
accurate and complete copies of the Certificate of Incorporation and By-laws, as
currently in effect, of the Purchaser. The Purchaser has no subsidiaries and is
not a party to any partnership, agency or joint venture agreement.
For purposes of this Agreement, the term "subsidiary" shall mean each
corporation or other entity in which a corporation owns or controls, directly
through one or more subsidiaries, any of the stock or other interests having
general voting power in the election of directors or persons performing similar
functions.
SECTION 3.02 Capitalization. The authorized capital stock of the Purchaser
consists of 1,000 shares of Purchaser Common Stock, par value $.0001 per share,
of which 100 shares (the "Purchaser Shares"), were issued and outstanding as of
the date hereof. All of the
159
<PAGE>
issued and outstanding Purchaser Shares are owned by Tirex and are validly
issued, fully paid and non-assessable and free of preemptive rights. Except for
the Purchaser Shares, there are no shares of capital stock of the Purchaser
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating the Purchaser to issue, transfer, sell or pay any amount with respect
to any of its securities.
SECTION 3.03 Authority Relative to this Agreement. The Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Purchaser and
the shareholders of the Purchaser and no other corporate proceedings on the part
of the Purchaser are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Purchaser and constitutes a valid and binding agreement of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to the provisions of any bankruptcy, insolvency, moratorium or similar
law applicable to the rights of creditors generally.
SECTION 3.04 No Violations. Except for the filing and recordation of a
Certificate of Merger as required by the GCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Purchaser of the transactions contemplated by this
Agreement, except for filings, permits, authorizations, consents or approvals,
the failure to obtain which would not in the aggregate have a material adverse
effect on the financial condition, results of operations or business of the
Purchaser taken as a whole or which would not prevent or delay in any material
respect the consummation of the transactions contemplated hereby. Neither the
execution and delivery of this Agreement by the Purchaser nor the consummation
by the Purchaser of the transactions contemplated hereby nor compliance by the
Purchaser with any provisions hereof will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-laws of the
Purchaser, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease,
contract, agreement or other instrument or obligation to which the Purchaser is
a party or by which it or its properties or assets may be bound or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Purchaser, or any of its properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which would not in the aggregate have
a material adverse effect on the financial condition, results of operations or
business of the Purchaser and its subsidiaries taken as a whole and which would
not prevent or delay in any material respect the consummation of the
transactions contemplated hereby (each of such effects being referred to as a
"Material Adverse Effect," provided that, for the purposes of Article III
hereof, the term "Material Adverse Effect" shall be deemed to refer to the
occurrence of any such event with respect to the financial condition, results of
operations or business of the Purchaser).
160
<PAGE>
SECTION 3.05 Financial Statements. The Purchaser Disclosure Schedule sets
forth a balance sheet of the Purchaser as at November 15, 1997 (the "Purchaser
Balance Sheet"). November 15, 1997 shall hereinafter sometimes be referred to as
the Purchaser Balance Sheet Date. The Company has been advised that the
Purchaser has not retained independent accountants for the purpose of conducting
any audit.
SECTION 3.06 Properties.
(a) As of the date hereof, the Purchaser does not, and as at the
date of the Closing, the Purchaser will not have assets of any kind
whatsoever, except for those which the Purchaser will acquire through the
Merger.
(b) There is no violation of any law, regulation or ordinance
relating to the properties and assets of the Purchaser and its
subsidiaries except such violations as would not, in the aggregate, have a
Material Adverse Effect.
SECTION 3.07 No Undisclosed Liabilities. There are no liabilities of the
Purchaser of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition
situation or set of circumstances which could reasonably result in such a
liability, other than:
(a) liabilities disclosed or provided for in the Purchaser Balance
Sheet or in the notes thereto;
(b) liabilities arising under this Agreement; and
(c) liabilities which would not, in the aggregate, have a Material
Adverse Effect.
SECTION 3.08 Litigation. There are no actions, suits, or proceedings
pending against, or to the knowledge of the Purchaser, threatened against the
Purchaser before any court or arbitrator or any governmental body, agency or
official. None of such matters disclosed in the Purchaser Disclosure Schedule
have a reasonable likelihood of having a Material Adverse Effect.
SECTION 3.09 Taxes. The Purchaser has duly filed with the appropriate
federal, state and local governments or governmental agencies, all federal,
state and local income tax returns and declarations of estimated tax and all
other material tax returns and reports required to be filed and has paid in full
when due all taxes, licenses and fees, including interest and penalties, shown
to be due thereon.
SECTION 3.10 Absence of Certain Changes. Except for activities preparatory
to the Merger, the Purchaser has not engaged in any business activity since the
Balance Sheet
161
<PAGE>
Date and, except for activities related to and preparatory to the Merger, the
Purchaser shall not engage in any material business activities prior to the
Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF TIREX
Tirex represents and warrants to the Company as follows, except as set
forth in the Disclosure Schedule annexed hereto (the "Purchaser Disclosure
Schedule"):
SECTION 4.01 Organization. Tirex is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
or authority would not have a Material Adverse Effect. The Disclosure Schedule
sets forth the names and jurisdictions of incorporation of each subsidiary of
Tirex. Tirex has heretofore made available to the Company complete and correct
copies of its Certificate of Incorporation and By-laws, as in effect on the date
hereof.
SECTION 4.02 Authority Relative to this Agreement. Tirex has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The Company's Board of
Directors has authorized the transactions contemplated herein and have
determined that the transactions contemplated herein are in the best interests
of Tirex and its Shareholders. No other corporate proceedings on the part of
Tirex are necessary to authorize this Agreement or to consummate the
transactions so contemplated. Subject to the approval of Tirex' shareholders,
this Agreement has been duly and validly executed and delivered by Tirex and
constitutes a valid and binding agreement of Tirex, enforceable in accordance
with its terms, subject to the provision of any applicable bankruptcy,
insolvency, moratorium or similar law affecting creditors' rights generally.
SECTION 4.03 No Violations. Except for applicable requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), the Securities Act of 1933
(the "Securities Act") and the filing and recordation of a Certificate of Merger
as required by the GCL, no filing with, and no permit, authorization, consent or
approval of, any public body or authority is necessary for the consummation by
Tirex of the transactions contemplated by this Agreement, except for filings,
permits, authorizations, consents or approvals, the failure to obtain which
would not have a Material Adverse Effect. Neither the execution and delivery of
this Agreement by Tirex nor the consummation by Tirex of the transactions
contemplated hereby nor compliance by it with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of its Certificate of
Incorporation or By-laws, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default or give rise to
any right to termination, cancellation or acceleration under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or
162
<PAGE>
obligation to which it is a party or by which it or any of its properties or
assets may be bound or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to it or any of its properties or assets,
except in the case of (ii) and (iii) for violations, breaches or defaults which
are not in the aggregate material to the business, operations or financial
condition of Tirex and which would not prevent or delay in any material respect
the transactions contemplated hereby.
SECTION 4.04 Financial Statements. The Tirex Disclosure Schedule
incorporates by reference Tirex' Form 10-KSB (the "10-KSB") for the year ended
June 30, 1997 and the balance sheets of Tirex as at June 30, 1996 and June 30,
1997 (Tirex Balance Sheet"), together with statements of results of operations
and cash flows for the three fiscal years ended June 30, 1997 and the report of
Nevoso, Pivirotto, Pinkham & Foster, LLC, certified public accountants, thereon
all of which are included in the 10-KSB as well as any and all subsequent
Exchange Act filings made by Tirex. June 30, 1997 is hereinafter referred to as
the "Tirex Balance Sheet Date." Each of the balance sheets (including the
related notes) included in Tirex Disclosure Schedule fairly presents the
consolidated financial position of Tirex as at of the respective dates thereof,
and the other related statements (including the related notes) included therein
fairly present the consolidated results of operations and the cash flows of
Tirex for the respective fiscal periods covered thereby. Each of such financial
statements has been prepared in accordance with generally accepted accounting
principles consistently applied during the periods covered, except as otherwise
noted therein.
SECTION 4.05 Properties.
(a) Tirex and its subsidiaries have good and marketable title to, or in
the case of leased property have valid leasehold interests in (which leases are
in full force and effect and with respect to which no event of default has
occurred and is continuing), all properties and assets (whether real or
personal, and whether tangible or intangible) reflected on the Balance Sheet or
acquired after the Balance Sheet Date in the ordinary course of business
consistent with past practices and except for such defects in title and
leasehold interests (including defaults with respect thereto) as would not
materially adversely affect (or have a reasonable likelihood of so doing) Tirex'
right to continue to conduct of Tirex' business in the manner currently so
conducted.
(b) There is no violation of any law, regulation or ordinance (including
without limitation, laws, regulations or ordinances relating to zoning,
environmental, city planning or similar matters) relating to the properties and
assets of Tirex and its subsidiaries except such violations as would not, in the
aggregate, have a Material Adverse Effect.
SECTION 4.06 No Undisclosed Liabilities. There are no liabilities of Tirex
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition situation or set
of circumstances which could reasonably result in such a liability, other than:
163
<PAGE>
(a) liabilities disclosed or provided for in the Tirex Balance Sheet
or in the notes thereto;
(b) liabilities incurred in the ordinary course of business
consistent with past practices since the Tirex Balance Sheet Date;
(c) liabilities arising under this Agreement; and
(d) liabilities which would not, in the aggregate, have a Material
Adverse Effect.
SECTION 4.07 Litigation. Except as are disclosed in the 10-KSB, there are
no actions, suits, or proceedings pending against, or to the knowledge of Tirex,
threatened against Tirex before any court or arbitrator or any governmental
body, agency or official. None of such matters disclosed have a reasonable
likelihood of having a Material Adverse Effect.
SECTION 4.08 Taxes. Except as disclosed in the financial statements
referred to in Section 4.04, Tirex has (i) duly filed with the appropriate
federal (US and Canadian), state and local governments or governmental agencies,
all federal, state and local income tax returns and declarations of estimated
tax and all other material tax returns and reports required to be filed and have
paid in full when due all taxes, licenses and fees, including interest and
penalties, shown to be due thereon, and (ii) has established reserves in the
Tirex Balance Sheet that, in the aggregate, are adequate for the payment of
taxes not yet due with respect to Tirex' operations through the Tirex Balance
Sheet Date. All material claims for federal, state and local taxes asserted
against Tirex have either been paid or adequately provided for on the Tirex
Balance Sheet. The federal income tax returns required to be filed by Tirex have
either been examined by the Internal Revenue Service or the period during which
any assessments may be made by the Internal Revenue Service has expired without
waiver or extension and any deficiencies or assessments asserted in writing by
the Internal Revenue Service have either been paid, settled or adequately
provided for in the Balance Sheet. Neither Tirex nor any subsidiary has filed a
consent pursuant to Section 341(f) of the Internal Revenue Code of 1986 (the
"Code"). Tirex has not agreed and has not been required to make any adjustment
under Section 481(a) of the Code by reason of a change of accounting or
otherwise. Tirex has withheld from employees and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over.
SECTION 4.09 Absence of Certain Changes. Except for: (i) transactions,
changes, events, obligations and liabilities contemplated by this Agreement;
(ii) transactions, changes, events, obligations and liabilities disclosed in the
financial statements referred to in Section 4.04; (iii) transactions, changes,
events, obligations and liabilities which individually or in the aggregate, have
not had a Material Adverse Effect, since the Balance Sheet Date:
(a) there have been no changes in the business, condition (financial
or otherwise), operations, manner of conduct of business or operations,
assets or liabilities of Tirex, other than changes in the ordinary course
of business;
164
<PAGE>
(b) no liability or obligation of Tirex has been paid, discharged or
incurred other than in the ordinary course of business;
(c) there has been no damage, destruction, or loss, whether or not
covered by insurance, materially adversely affecting the business or
property of Tirex;
(d) Tirex has not sold, mortgaged, pledged or subjected to any lien
or other encumbrance or otherwise transferred any material assets or
properties used in the conduct of its business; and
(e) Tirex has not entered into any transaction other than in the
ordinary course of business.
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of the Business of Tirex, the Purchaser and the
Company. Except as contemplated by this Agreement, during the period from the
date of this Agreement to the Effective Time, each of the Purchaser, the
Company, Tirex and Tirex' other subsidiaries will each conduct its respective
operations according to its ordinary course of business and consistent with past
practice, and will each use its reasonable efforts to preserve intact its
business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with licensors, landlords,
licensees, suppliers, contractors, distributors, customers and others having
business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, the Purchaser, the Company, Tirex (and each of its other
subsidiaries) will not, without the prior written consent of the other:
(a) amend its Certificate of Incorporation or By-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any shares of stock of any class or any other securities,
except (i) as required by non-employee and Employee Option or compensation
agreements in effect on the date hereof; (ii) in connection with an
offering of up to 28 Units for a maximum aggregate of $700,000 with H.J.
Meyers & Co., Inc. as placement agent (the "Concurrent Offering");
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities or any
securities of its subsidiaries;
165
<PAGE>
(d) except in the ordinary course of business consistent with past
practices or in connection with the Financing contemplated hereby (i)
incur or assume any long-term or short-term debt; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except
wholly-owned subsidiaries of the Company; or (iii) make any loans,
advances or capital contributions to, or investments in, any other person;
(e) except pursuant to written agreements in effect on the date
hereof, acquire, sell, lease, create liens with respect to or dispose of
any material assets outside the ordinary course of business or enter into
any material commitment or transaction outside the ordinary course of
business;
(f) except as may be required by law, take any action to initiate,
terminate or amend any of its employee benefit plans; and
(g) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any representation or
warranty of the Company contained in this Agreement untrue or incorrect in
any material respect as of the date when made or as of a future date.
SECTION 5.02 Access to Information.
(a) Between the date of this Agreement and the Effective Time, each of the
Company, Tirex, and the Purchaser will give the other and its authorized
representatives, and potential sources of financing for the transactions
contemplated hereby and their authorized representatives, access to its
respective facilities, books and records as the other may reasonably request,
will permit the other to make such inspections as it may reasonably require and
will cause its officers and those of its subsidiaries to furnish the other with
such financial and operating data and other information with respect to its
business and properties as the other may from time to time reasonably request.
(b) Each of Purchaser and the Company will hold and will cause its
affiliates, associates and representatives to hold in strict confidence all
documents and information concerning the other furnished in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) in the public domain through no fault
of the disclosing party, or (ii) later lawfully acquired by the disclosing party
(or its affiliates) from other sources) and will not release or disclose such
information to any other person, except in connection with this Agreement to (i)
its representatives and (ii) financing sources, after such financing sources
have agreed to be bound by the terms of confidentiality agreements substantially
equivalent to the provisions of this Section 5.02(b) (it being understood that
such persons shall be informed by Purchaser of the confidential nature of such
information and shall be directed by Purchaser to treat such information
confidentially); provided that each party and its representatives may provide
such documents or information in response to judicial or administrative process
or applicable governmental laws, rules, regulations,
166
<PAGE>
orders or ordinances, but only that portion of the documents or information
which, on the advice of counsel, is legally required to be furnished. If the
transactions contemplated by this Agreement are not consummated, such confidence
shall continue to be maintained in accordance with the terms and conditions
above set forth.
SECTION 5.03 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
SECTION 5.04 Consents. The parties each will use their respective best
efforts to obtain consents of all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, unless the failure to obtain such consents will not, in the
aggregate, have a Material Adverse Effect on any party.
SECTION 5.05 Public Announcements. The parties will consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and shall not issue any such press release or make
any such public statement prior to mutual agreement upon the text hereof, except
as may be required by law.
SECTION 5.06 Notification of Certain Matters. Each of the Company, the
Purchaser and Tirex agree to give prompt notice to each other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure to
occur would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time (including any such occurrence or failure
of which either party is or becomes aware with respect to the other) and (ii)
any material failure on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.06
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 5.07 Assumption of Debt, Issuance of Shares. Tirex covenants
agrees with the Company that it will fully and unconditionally assume the
indebtedness and other obligations represented by the Debentures and that it
will issue the shares of Tirex Common Stock required to be issued to the holders
of the Company's common stock pursuant to the terms of the Certificate of Merger
and the subscription document in the private placement within five business days
of each closing in the private placement.
167
<PAGE>
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF THE MERGER
SECTION 6.01 Conditions to the Obligations of the Purchaser and Tirex. The
obligations of the Purchaser and Tirex are, at the Purchaser's and Tirex'
option, subject to the fulfillment of the conditions hereinafter set forth:
(a) The Company shall have performed and complied with all of the
conditions and agreements required by this Agreement to be performed or
complied with by it prior to the Effective Time in all material respects.
(b) The representations and warranties of the Company contained
herein shall have been true and correct in all material respects as of the
date hereof and shall be true and correct as of the Effective Time, except
for changes contemplated by this Agreement, and the Purchaser shall have
received a certificate of the President of the Company to such effect.
(c) The Company shall have completed at least the minimum amount of
a private placement on a "best efforts, 30 Units or none basis" of 85
Units each comprised of one $10,000 principal amount 10% convertible
debenture each convertible into a Common Share at the rate of $.20 (the
"Debenture") and 10,000 Common Shares pursuant to the terms and conditions
of a Private Placement Memorandum to be dated November , 1997 and any and
all supplements and amendments thereto . The Company shall have assets
comprised of the gross proceeds of the private placement less a placement
agent's commission of 10%, attorney's fees of no more than $5,000 and
attorneys reasonable disbursements. In the event that the closing is
effected after the sale of the minimum amount of the private placement,
but before the completion of the private placement, then the private
placement shall continue and the Units shall thereafter be comprised of a
$10,000 Tirex debenture with terms and conditions identical to the
Debentures and 10,000 shares of Tirex common stock.
(d) There shall have been no Material Adverse Change in the
business, properties or financial condition of the Company from such
condition on the date hereof.
(e) On the Closing Date (i) there shall be no injunction,
restraining order, or order of any nature issued by a court of competent
jurisdiction which directs that any transaction contemplated by this
Agreement shall not be consummated and (ii) there shall be no suit,
action, investigation or other proceeding pending or threatened by any
governmental agency or private party seeking to restrain or prohibit the
consummation of any material transaction contemplated hereby or the
obtaining of any material amount of damages from any party hereto or any
officer or director of any such party, in connection with the Merger.
(f) The issued and outstanding shares of the Company's Common Stock
shall consist of not more than: (i) the number of shares sold in the
private placement (from 300,000 to 850,000) plus (ii) the 3,000,000 shares
issued and outstanding on the date hereof.
168
<PAGE>
(g) Purchaser shall have received an opinion from Frank J. Hariton,
Esq., reasonably satisfactory to Purchaser and its counsel which shall
state, among other things, that all issuances of the Company's Common
Stock occurred no less than six months prior to the effective date of the
Merger and that, upon the filing of a Form D by the Purchaser and/or
Tirex, the merger of the Company and Purchaser will qualify under Rule 506
of Regulation D.
(h) The principal shareholders will have provided the Company with
the Indemnification Agreement required under Section 1.03(d) hereof.
SECTION 6.02 Conditions to the Obligations of the Company. The obligations
of the Company are, at the Company's option, subject to the fulfillment of the
conditions hereinafter set forth.
(a) The Purchaser and Tirex shall have each performed and complied with
all of the conditions and agreements required by this Agreement to be performed
or complied with by it prior to the Effective Time in all material respects.
(b) The representations and warranties of each of the Purchaser and Tirex
contained herein shall have been true and correct in all material respects as of
the date hereof and shall be true and correct as of the Effective Time and the
Company shall have received a certificate of the President of each of the
Purchaser and Tirex to such effect.
(c) There shall have been no Material Adverse Change in the business,
properties or financial condition of the Purchaser or Tirex from such condition
on the date hereof.
(d) The Letter of Intent, dated August 13, 1997, between Tirex and H.J.
Meyers & Co., Inc., relating to a public offering of Tirex' securities, shall
not have been abandoned or materially modified.
(e) On the Closing Date (i) there shall be no injunction, restraining
order, or order of any nature issued by a court of competent jurisdiction which
directs that any transaction contemplated by this Agreement shall not be
consummated and (ii) there shall be no suit, action, investigation or other
proceeding pending or threatened by any governmental agency or private party
seeking to restrain or prohibit the consummation of any material transaction
contemplated hereby or the obtaining of any material amount of damages from any
party hereto or any officer or director of any such party, in connection with
the consummation of the Merger.
(f) The Company shall have received an opinion from Frances Katz Levine,
Esq., reasonably satisfactory to the Company and its counsel.
(g) Tirex and the Company shall have agreed that certain consulting
agreement by and among them and Dr. Eugene Stricker and Mark Schindler, dated as
of June 9, 1997, pursuant to which the Company has rendered services to Tirex
and pursuant to which the Company has accrued all fees which have been due and
payable, shall continue in effect
169
<PAGE>
notwithstanding the merger. The parties acknowledge that the Company's
shareholders prior to the private placement are receiving 3,000,000 shares of
Tirex common stock in the Merger in consideration of all consulting fees
heretofore and hereafter accrued.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Purchaser and the Company;
(b) by the Purchaser or the Company if the Effective Time shall not
have occurred on or before December 31, 1997; provided, however, that the
right to terminate this Agreement under this Section 7.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; or
(c) by the Purchaser or the Company if any United States, Canada or
state or provincial governmental authority or other agency or commission
or United States, Canada, or state or provincial court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, injunction or other order which is in
effect and is permanent and non-appealable and has the effect of
prohibiting consummation of the Merger or the provision of the financing
necessary for such transactions.
Any unilateral termination of this Agreement permitted by this Section
6.01 shall be effective upon the giving of the written notice by the terminating
party in the manner provided herein.
SECTION 7.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.01 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders, other than the
provisions relating to confidentiality and non-disclosure of information.
Nothing contained in this Section 7.02 shall relieve any party from liability
for any breach of this Agreement.
SECTION 7.03 Amendment. This Agreement may be amended by action taken by
the Company and the Purchaser at any time before or after adoption of the
Effective Date, no amendment shall be made which changes the amount or form of
consideration to be paid in the Merger or adversely affects the rights of the
Company's or Purchaser's shareholders hereunder without the approval of such
shareholders. It is acknowledged and agreed that an amendment which extends the
time by which the Effective Time must occur in order to obtain any required
170
<PAGE>
third party or governmental consent or to comply with any judicial or
administrative ruling or order shall not be deemed to adversely affect such
rights. This Agreement may not be amended except by an instrument in writing
signed on behalf of the parties.
SECTION 7.04 Extension; Waiver. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto or (iii) waive compliance with
any of the agreements or conditions contained herein. Any agreements on the part
of any party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Survival. The representations and warranties made herein
shall not survive beyond the Effective Time. The covenants and agreements of the
parties in this Agreement shall survive in accordance with their terms, and when
no term is specified, shall survive indefinitely.
SECTION 8.02 Brokerage Fees and Commissions. Except for placement agent
fees in connection with the private placement described herein, each of the
Purchaser and Tirex hereby represents and warrants to the Company with respect
to the Purchaser and Tirex and the Company hereby represents and warrants to
each of the Purchaser and Tirex with respect to the Company, that no person or
entity is entitled to receive from the Company, Tirex or the Purchaser,
respectively, any investment banking, brokerage or finder's fee or fees for
financial consulting or advisory services in connection with this Agreement or
the transactions contemplated hereby.
SECTION 8.03 Entire Agreement; Assignment. This Agreement (including any
other agreements referred to herein) (a) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and (b) shall not be assigned by
operation of law or otherwise, provided that the Purchaser may assign its rights
and obligations to any subsidiary of the Purchaser or of Tirex, but no such
assignment shall relive the Purchaser of its obligations hereunder if such
assignee does not perform such obligations.
SECTION 8.04 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
171
<PAGE>
SECTION 8.05 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram or telex, or by recognized overnight courier (including, but not
limited to Federal Express, Airborne Express, D.H.L. and UPS) to the respective
parties as follows:
If to the Company: RPM Incorporated
150 East 58th Street - 24th Floor
New York, New York 10022
Attn.: Dr. Eugene Stricker, President
With a copy to: Frank J. Hariton, Esq. at
1350 Avenue of the Americas - 29th Floor
New York, New York 10019
Through October 30, 1997 and thereafter at
Suite 3000
The Empire State Building
350 Fifth Avenue
New York, New York 10118
If to Tirex: The Tirex Corporation
740 St. Maurice Avenue
Montreal, Quebec H3C 1L5
Attn: Terence C. Byrne, President
With a Copy to: Frances Katz Levine, Esq.
621 Clove Road
Staten Island, New York 10310
If to the Purchaser: Tirex Sub, Inc.
c/o The Tirex Corporation
740 St. Maurice Avenue
Montreal, Quebec H3C 1L5
Attn: Terence C. Byrne, President
With a Copy to: Frances Katz Levine, Esq.
621 Clove Road
Staten Island, New York 10310
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
172
<PAGE>
SECTION 8.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws, provided, however, that the consummation and effectiveness of the merger
shall be governed by and construed in accordance with the laws of the State of
Delaware.
SECTION 8.07 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.08 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute one and the same agreement.
SECTION 8.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereto and that
the parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
IN WITNESS WHEREOF, the undersigned has executed this Agreement and Plan
of Merger as of the 20th day of October, 1997.
RPM INCORPORATED
By: /s/ Dr. Eugene Stricker
-----------------------------------
Dr. Eugene Stricker, President
THE TIREX CORPORATION TIREX SUB, INC
By: /s/ Terence C. Byrne By: /s/ Terence C. Byrne
------------------------------- -----------------------------------
Terence C. Byrne, President Terence C. Byrne, President
173
EXHIBIT 4 (r)
174
<PAGE>
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 THE EARLIER OF: (i) THE EFFECTIVE DATE OF THE COMPANY'S
PROPOSED INITIAL PUBLIC OFFERING OF ITS SECURITIES; OR (ii) MARCH 31, 1998.
THE TIREX CORPORATION
10% CONVERTIBLE SUBORDINATED DEBENTURE
No. 1 $250,000
THE TIREX CORPORATION a Delaware corporation (the "Company"), 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 Company, the principal amount
of Two Hundred and Fifty Thousand Dollars ($250,000), 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 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 first of the following to occur:
(i) the conversion of this Debenture pursuant to Section 1 below; (ii) 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;
(iii) any debt or equity financing of the Company in excess of $4,500,000; or
(iv) one year from the date of this Debenture.
This Debenture is issued pursuant to a Securities Purchase Agreement dated
April 9, 1998, between the Company and the Payee (the "Subscription Agreement"),
and is subject to the terms of a Registration Rights Agreement dated April 9,
1998, between the Company and the Payee (the "Registration Rights Agreement")
and conversion of the Debenture in accordance with its terms may have an adverse
affect on a Warrant to purchase Common Stock of the Company dated April 9, 1998
(the "Warrant") copies of each of which are available for inspection at the
Company's offices located at 740 St. Maurice, Suite 201, Montreal, Quebec #3C
lL5. Notwithstanding any provision to the contrary contained herein,
175
<PAGE>
this Debenture is subject to certain terms, conditions, covenants and agreements
contained in each of the Securities Purchase Agreement and Registration Rights
Agreement. Any transferee or transferees of this Debenture, by their acceptance
hereof, assume the obligations of the Subscriber in each of the Securities
Purchase Agreement and Registration Rights Agreement with respect to the
conditions and procedures for transfer of this Debenture. Reference to each of
the Securities Purchase Agreement and Registration Rights Agreement shall in no
way impair the absolute and unconditional obligation of the Company to pay both
principal and interest of this Debenture as provided for herein.
1. CONVERSION, REDEMPTION AND REGISTRATION.
(a) This Debenture is convertible in whole or in part at any time into
that number of shares of the Company's common stock, par value $.01 per share
("Common Stock") as is obtained by dividing the then unpaid principal face value
of the note by an amount equal to 85% of the average closing bid price of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation Small-Cap Market System ("Small Cap") averaged over the five
day period prior to the Company receiving a notice of conversion. In the event
the Company's Common Stock is not then traded on the Small-Cap, the conversion
price will be 85% of the average closing bid price of the Common Stock on the
National Association of Securities Dealers, Inc. ("NASD") Over-the-Counter
Electronic Bulletin Board Service, in such five day period. If the Common Stock
is not listed on any securities exchange at the time a notice of conversion is
issued, the conversion price shall be such price as is determined as the fair
and reasonable price a third party not affiliated with the Company would pay for
the Common Stock as determined by the Board of Directors. At the election of the
Payee, all accrued but unpaid interest hereon may also be converted in Common
Stock in the manner prescribed herein. Such shares of Common Stock are referred
to herein as the "Conversion Shares." In the event the Company's proposed
initial public offering is not completed prior to March 31, 1998, the conversion
price referenced herein shall be reduced from 85% to 75%. All converted shares
of Common Stock shall have customary "piggyback" registration rights and demand
registration rights as described herein. The Company has an obligation to
register all of the Conversion Shares with the Securities and Exchange
Commission (the "SEC") pursuant to the Registration Rights Agreement. This
Debenture may be partially converted and in case of such partial conversion, the
Company, upon surrender hereof, will deliver to the Holder a new Debenture
representing the principal face value which has not been converted.
In the event any portion of this Debenture is converted prior to March 31,
1998, the Holder hereof, who is also a Holder of Warrants, shall lose the right
to exercise each Holder's Warrants as such portion relates pro rata to the
portion of this Debenture converted. By way of example, if this Debenture has a
face value of $25,000, the Holder has Warrants to purchase 100,000 shares of
Common Stock and the Holder converts $5,000 of this Debenture (20% of the
Debenture) prior to March 31, 1998, such Holder and all transferees and assigns
shall lose forever the right to exercise 20,000 Warrants (20% of the Warrants).
(b) This Debenture is convertible into shares of Common Stock at any time;
provided, however, that the convertibility with respect to this Debenture shall
terminate
176
<PAGE>
beginning one day preceding the filing by the Company of a registration
statement registering the Conversion Shares and a new conversion period shall
commence immediately following the effectiveness of such registration statement
with the SEC pursuant to which this Debenture shall again become convertible at
any time; provided, further, however, that in the event a registration statement
is filed and not declared effective within 120 days of the date of filing of
such registration statement with the SEC, a new conversion period shall commence
pursuant to which this Debenture shall again become convertible at any time. The
Holder hereof shall have no conversion rights following payment in full of the
principal and interest owed by the Company 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 l(b) by
surrender of this Debenture for cancellation at the principal executive office
of the Company (or at such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), 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 l(b) are satisfied. The Company will transmit the certificates
representing the Conversion Shares via express courier within five business days
after receipt by the Company of all the documentation required by this Section
l(b).
(c) The Holder of this Debenture shall not, by virtue hereof, be entitled
to any rights of a stockholder in the Company, 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 1 have been met, irrespective of the date of
delivery of such share certificate.
(d) In the sole discretion of the Holder hereof, such Holder may require
that the Company assign the obligations of the Company described in this
Debenture to any successor of the Company if the Company is not the surviving
entity of a merger or consolidation. The Company must give the Holder hereof
fifteen (15) business days notice of the terms of any such consolidation or
merger and the terms thereof.
(e) Unless registered with the SEC, 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
177
<PAGE>
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 SHARES UNDERLYING THESE SECURITIES MAY BE SUBJECT TO
A LOCK UP AGREEMENT
The legend set forth above shall be removed and the Company 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, (i)
the Conversion Shares are registered under the Act, or (b) in connection with a
transfer, such holder provides the Company with an opinion of counsel reasonably
satisfactory to the Company, 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.
(f) 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; provided, however, that any redemption effectuated
after May 31, 1998 shall be made at 125% of the principal face value of this
Debenture plus all accrued but unpaid interest.
(g) If for any reason, the Company fails to register the Conversion
Shares, or to keep the Registration Statement respecting the Conversion Shares
effective, then the holders of the Debentures shall have the following
additional registration rights: (i) 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 until all of the Debentures are converted and
the delivery of a prospectus is no longer required in connection with any resale
of the Conversion Shares, and (ii) 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 Holder of its intention to file a registration statement and the
Holder shall have the right, upon 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
issued or issuable to them as such Holder 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. The foregoing provisions
of this subsection l(g) shall not be deemed to change or modify any provisions
contained in the Registration Rights Agreement and shall be in addition to any
rights granted to the Holder pursuant to the Registration Rights Agreement.
178
<PAGE>
2. COVENANTS OF COMPANY.
The Company 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 Company 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 Company 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 Company
shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
(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 Company, except where the
failure to comply would not have a material adverse effect on the Company;
(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; and
(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
179
<PAGE>
3. Issuance of Certificates. As soon as possible after any full or
partial conversion of this Debenture, but in any event no more than five (5)
business days, the Company, 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 exercise of this Debenture. If, on any exercise
of this Debenture, a fractional share results, the Company will pay the cash
value of that fractional share, calculated on the basis of the conversion price
per share.
4. ADDITIONAL PROVISIONS.
This Debenture is subject to the following additional provisions:
(a) The Company 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 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 Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Company'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 Company 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 Company, 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
Company. 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 Company 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 Company of an opinion of counsel reasonably satisfactory to the Company
to the effect that registration under the Act is
180
<PAGE>
not required in connection with such proposed transfer and that such transfer is
not in violation of any applicable state or foreign securities laws.
5. 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 Company 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 Company by the Holder of the
Debenture;
(iii) The Company 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 assignrnent for the benefit of creditors;
(iv) Commencement of any proceeding or the taking of any other
action against the Company 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 Company 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 Company's representations, warranties or
covenants contained in the Securities Purchase Agreement;
(vi) a breach of the Company's representations, warranties or
covenants contained in the Registration Rights Agreement.
(vii) the sale or other disposition or transfer by the Company or
any subsidiary of substantially all of its assets;
181
<PAGE>
(viii) the merger by the Company or any subsidiary with or into
another corporation, other than for purposes of changing domicile, where
the Company is not the surviving corporation.
(b) The Company 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.
(c) 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.
6. SUBORDINATION OF OTHER INDEBTEDNESS; SECURITY
(a) The Company, 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 Company's reasonable request, execute
and deliver to the Company such documents as may be necessary or appropriate to
evidence or confirm the foregoing subordination.
(b) Notwithstanding the subordination described in Section 6(a) above,
until: (i) the occurrence of an event of default by the Company under any
document evidencing Senior Indebtedness; or (ii) the Company makes any
assignment for the benefit of creditors; or (iii) any bankruptcy proceedings are
instituted by or against the Company; or (iv) any receiver for the Company's
business or assets is appointed; or (v) there is any dissolution or winding up
of the affairs of the Company, whichever of the foregoing occurs earliest, the
Company 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 Company 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 Company,
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,
182
<PAGE>
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 Company 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 Company. The Company 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 Company, its creditors other than the holders of Senior
Indebtedness, and the Holder of this Debenture, the obligation of the Company,
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
Company 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 Company received
upon the exercise of any such remedy.
7. MISCELLANEOUS.
(a) This Debenture has been issued by the Company pursuant to
authorization of the Board of Directors of the Company which provides for an
aggregate of up to $700,000 in face amount of identical Debentures to be issued.
(b) The Company 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 Company
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
183
<PAGE>
transferor. Registration of any new owner shall take place upon presentation of
this Debenture to the Company at its offices at 740 St. Maurice, Suite 201,
Montreal, Canada #3C lL5, together with a duly authenticated assignment. In case
of transfer by operation of law, the transferee agrees to notify the Company 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 Company by
the holder hereof, in person or by attorney, on the surrender hereof, duly
endorsed. Cornmunications 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.
(b) 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.
(c) The Company hereby waives presentment for payment, demand and protest
and notice of dishonor.
(d) 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.
(e) All notices, requests, demands and other communications to the Company
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 Company may designate in writing to the holder hereof:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec #3C lL5
Attention: Terrence C. Byrne, President
Fax No.: (514) 878-9847
(e) 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.
184
<PAGE>
(f) The terms of this Debenture shall be binding on the Company and its
successors and assigns.
IN WIINESS WHEREOF, the Company has caused this Debenture to be signed in
its name by the undersigned.
Dated: April 9, 1998
THE TIREX CORPORATION
By:________________________________
185
EXHIBIT 4 (t)
186
<PAGE>
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE
"SECURITIES ACT"). THIS WARRANT IS NOT TRANSFERRABLE, UNDER ANY CIRCUMSTANCES,
PRIOR TO MARCH 31, 1998.
WARRANT
Dated: ___________, 1997
Warrant to Purchase _____________ Shares
of Common Stock, Par Value $0.001 Per Share
THE TIREX CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that ____________, its/his successors and/or assigns (collectively,
the "Holder"), for value received, is entitled to purchase from the Company at
any time commencing on the earlier of (i) the effectiveness with the Securities
and Exchange Commission (the "SEC") of a registration statement relating to the
public offering of the Company's Common Stock or (ii) May 31, 1998, up to
__________________ shares (the "Shares") of the Company's common stock, par
value $0.001 per share (the "Common Stock"), at a price of $.001 per share (the
"Exercise Price"). The Holder acknowledges by receipt hereof that conversion
prior to March 31, 1998, of Holder's 10% Convertible Subordinated Debenture (the
"Debenture") issued in connection with the Company's private placement of its
securities made pursuant to a certain Confidential Private Offering Memorandum
dated November 5, 1997 (the "Memorandum") will result in a forfeit of the right
to exercise some or all of the Warrants. (See "Exercise Period" on page 2).
Except as otherwise expressly provided herein, the shares of Common Stock issued
upon exercise of this Warrant shall bear the same terms and conditions described
under the caption "Description of Securities" in the Company's confidential
Private Offering Memorandum, dated November 5, 1997 (the "Private Placement
Memorandum"). The Holder shall have registration rights under the Securities Act
of 1933, as amended (the "Act"), for this Warrant and the Common Stock, as more
fully described in Section 6. Each certificate evidencing the Registrable
Securities (as hereinafter defined) shall bear the appropriate restrictive
legend set forth below, except that any such certificate shall not bear such
restrictive legend if (i) it is transferred pursuant to an effective
registration statement under the Act or in compliance with Rule 144 or Rule 144A
promulgated under the Act, or (ii) the Company is provided with an opinion of
counsel satisfactory to the Company to the effect that such legend is not
required in order to establish compliance with the provisions of the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
187
<PAGE>
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
COPIES OF THE WARRANT COVERING REGISTRATION RIGHTS PERTAINING TO THESE
SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE OFFICE OF THE COMPANY AT MONTREAL, QUEBEC.
Notwithstanding the foregoing, the Registrable Securities will bear an
appropriate restrictive legend to the extent required by a certain "lock-up"
agreement between the Holder of this Warrant and H.J. Meyers & Co., Inc.
A. Exercise of Warrants.
1. Upon presentation and surrender of this Warrant (this "Warrant") during
the Exercise Period, with the attached Election to Purchase form duly executed,
at the administrative office of the Company at 740 St. Maurice, Suite 201,
Montreal, Quebec 3C 1L5 together with a check payable to the Company in the
amount of the Exercise Price multiplied by the number of Shares being purchased,
unless exercised in accordance with Section 1(b) below, the Company will cause
its Transfer Agent to deliver to the holder hereof, certificates of Common Stock
which in the aggregate represent the number of Shares being purchased. This
Warrant may be partially exercised and, in case of such partial exercise, the
Company, upon surrender hereof, will deliver to the Holder a new Warrant
representing the number of shares which have not been exercised.
2. Notwithstanding the provisions of Section 1(a) with respect to the
Exercise Price to the contrary, the Holder may elect to exercise this Warrant,
in whole or in part, by receiving Common Stock equal to the value (as herein
determined) of the portion of this Warrant then being exercised, in which event
the Company shall issue to the Holder the number of shares of Common Stock
determined by using the following formula:
X = Y(A-B)/A
where: X = the number of shares of Common Stock to be issued to the
Holder under the provisions of this Section 1(b)
Y = the number of shares of Common Stock that would
otherwise be issued upon such exercise
A = the Current Fair Market Value (as hereinafter defined)
of one share of Common Stock calculated as of the last
trading day immediately preceding such exercise
B = the Exercise Price
188
<PAGE>
As used herein, the "Current Fair Market Value" of the Common Stock as of
a specified date shall mean with respect to each share of Common Stock, (i) the
average of the closing prices of the Common Stock sold on all securities
exchanges on which the Common Stock may at the time be listed, or (ii) if there
have been no sales on any such exchange on such day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or
(iii) if on such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m.,
New York time, or (iv) if on such day the Common Stock is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Association of Securities Dealers, Inc. Over-the-Counter Electronic Bulletin
Board System or any similar successor organization, in each such case either (i)
calculated on the date which the form of election specified in Section 2(b)
herein is deemed to have been sent to the Company or (ii) averaged over a period
of five (5) days consisting of the day as of which the Current Fair Market Value
is being determined and the four (4) consecutive business days prior to such
day. The Holder hereof shall determine in its sole discretion which method of
calculation to use. If on the date for which Current Fair Market Value is to be
determined the Common Stock is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the then Current Fair
Market Value of the Common Stock shall be the highest price per share which the
Company could then obtain from a willing buyer (not a current employee or
director) for Common Stock sold by the Company from authorized but unissued
shares, as determined in good faith by the Board of Directors of the Company,
unless prior to such date the Company has become subject to a merger,
consolidation, reorganization, acquisition or other similar transaction pursuant
to which the Company is not the surviving entity, in which case the Current Fair
Market Value of the Common Stock shall be deemed to be the per share value
received or to be received in such transaction by the holders of Common Stock.
B. Exercise Period.
1. The right to acquire shares of Common Stock of the Company pursuant to
this Warrant shall commence on the earlier of: (i) the effectiveness of the SEC
of a registration statement relating to the public offering of the Company's
Common Stock; or (ii) May 31, 1998 (the "Exercise Period"). After the conclusion
of the five year period following the final Closing Date of the Company's
private placement made pursuant to the Memorandum, the Holder shall have no
right to purchase any shares of Common Stock pursuant to this Warrant (the
"Expiration Date"). To the extent any portion of the Debenture is converted
prior to the earlier of March 31, 1998, the Holder of the Warrants sold as a
portion of the Units purchased shall lose the right to exercise such portion of
the Holder's Warrants as such portion relates pro rata to the portion of the
Debenture exercised. By way of example, if a Holder of one Unit converts $5,000
(20% of the Debenture) of a Debenture prior to March 31, 1998, such Holder shall
forever lose the right to exercise 10,000 Warrants (20% of the Warrants).
189
<PAGE>
2. The rights represented by this Warrant may be exercised, in whole or in
part (with respect to shares of Common Stock, by the Holder subject to the
conditions contained herein an at any time within the period specified in
Section 2(a) by: (i) surrender of this Warrant for cancellation (with the
Election to Purchase form at the end hereof properly executed) at the principal
executive office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) to the extent that the
Holder does not use the election provided by this Section 1(b), payment to the
Company of the Exercise Price for the number of shares of Common Stock specified
in the Election to Purchase form, together with the amount of applicable stock
transfer taxes, if any; and/or (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the Election to Purchase form to
the effect that such person(s) agree(s) to be bound by all of the terms and
conditions of this Warrant, including without limitation the provisions of
Sections 6 and 7. This Warrant shall be deemed to have been exercised, 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, and the person(s) designated in the Election to Purchase form shall
become the holder(s) of record of the shares of Common Stock issuable upon such
exercise at that time and date.
C. Rights and Obligations of Holders of this Warrant; Anti-Dilution.
1. The Holder of this Warrant shall not, by virtue hereof, be entitled to
any rights of a stockholder in the Company, either at law or in equity;
provided, however, that in the event any certificate representing shares of
Common Stock or other securities is issued to the Holder hereof upon exercise of
some or all of this Warrant, such Holder shall, for all purposes, be deemed to
have become the holder of record of such Common Stock on the date on which all
of the applicable provisions of Section 2(b) have been met, irrespective of the
date of delivery of such share certificate.
2. In case 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 Warrant shall thereafter be
entitled, upon exercise, to receive the number and kind of shares which, if this
Warrant had been exercised immediately prior to the happening of such event,
that the Holder would have owned upon such exercise and been entitled to receive
upon such dividend, distribution, subdivision, combination, or reclassification.
Such adjustment shall become effective on the day next following: (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
Exercise Price on the date of such adjustment shall be adjusted by multiplying
such Exercise 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 Warrant may be exercised immediately before such event shall
190
<PAGE>
be adjusted by multiplying such number by a fraction, the numerator of which is
the Exercise Price immediately before such event and the denominator of which is
the Exercise Price immediately after such event; provided, however, that in no
event shall the exercise price be below $.001 per share.
3. 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 exercise
of the Warrant (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 exercise of this Warrant would have been entitled
upon such action if this Warrant had been exercised immediately prior to such
action.
(d) In the sole discretion of the Holder(s) hereof, such Holder(s) may
require that the Company assign the obligations of the Company described in this
Warrant to any successor of the Company if the Company is not the surviving
entity of a merger or consolidation. The Company must give the Holder(s) hereof
fifteen (15) business days notice of the terms of any such consolidation or
merger and the terms thereof.
D. Covenants of the Company.
1. The Company covenants and agrees that all shares of Common Stock
issuable upon exercise of this Warrant will, upon delivery, be duly and validly
authorized and issued, fully-paid and non-assessable with no personal liability
attaching to the Holder thereof.
2. The Company covenants and agrees that it will at all times prior to
expiration of this Warrant 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 convertible securities, options,
warrants and rights, including this Warrant.
E. Issuance of Certificates. As soon as possible after any full or partial
exercise of this Warrant, but in any event no more than five (5) business days,
the Company, at its expense, will cause to be issued in the name of and
delivered to the Holder of this Warrant, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to which that
Holder shall be entitled on such exercise. No fractional shares will be issued
on exercise of this Warrant. If, on any exercise of this Warrant, a fractional
share results, the Company will pay the cash value of that fractional share,
calculated on the basis of the Exercise Price. All such certificates shall bear
a restrictive legend to the effect that the Shares represented by
191
<PAGE>
such certificate have not been registered under the Securities Act of 1933, as
amended, and the Shares may not be sold or transferred in the absence of such
registration or an exemption therefrom, such legend to be substantially in the
form of the bold face language appearing on Page 1 of this Warrant.
F. Registration Rights.
(a) Certain Definitions. As used herein, the term:
(i) "Registrable Securities" shall mean this Warrant and/or the
shares of Common Stock issued or issuable upon exercise of this Warrant,
as the same shall be so designated by the Holder.
(ii) "50% Holder" shall mean the Holder(s) of at least 50 percent of
the total number of shares of Common Stock compromising the Registrable
Securities (whether or not this Warrant has been exercised), and shall
include any Holder or combination of Holders.
(b) "Piggyback" Registration. At any time during the Exercise Period until
the Expiration Date, the Company shall advise the Holder, whether the Holder
holds this Warrant or has exercised this Warrant and holds any of the Common
Stock, by written notice at least twenty days prior to the filing of any
registration statement (other than a registration statement on Form S-8 or its
counterpart), or any Notification on Form 1-A under the Act, covering any
securities of the Company, whether for its own account or for the account of
others, and shall, upon the request of the Holder, include in any registration
statement such information as may be required to permit a public offering of any
or all of the Registrable Securities of the Holder, all at no expense whatsoever
to the Holder (to the extent as permitted by the Act or the rules and
regulations promulgated thereunder), except that each Holder whose Registrable
Securities are included in such registration shall bear the fees of its own
counsel and any underwriting discounts or commissions applicable to the
Securities sold by it.
(c) Demand Registration.
(i) If any 50% Holder shall give notice to the Company at any time during
the Exercise Period and prior to the Expiration Date, to the effect that such
50% Holder desires to register under the Act any Registrable Securities under
such circumstances that a public distribution (within the meaning of the Act) of
any such securities shall be involved, then the Company shall promptly, but no
later than 60 days after receipt of such notice, use its reasonable best efforts
to file a registration statement under the Act, to the end that Registrable
Securities of such 50% Holder may be publicly sold under the Act as promptly as
practicable thereafter, and the Company shall use its best efforts to cause such
registration to become effective as soon as possible; provided, however, that
such 50% Holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in writing; and
provided further that the Company shall then have available current
192
<PAGE>
financial statements (unless the unavailability of current financial statements
results from the Company's fault or neglect). The 50% Holder may, at its option,
cause Registrable Securities to be included in such registration under this
Section 6(c) on one occasion during the Exercise Period.
(ii) Within ten days after receiving any such notice pursuant to this
Section 6(c), the Company shall give notice to each other Holder (whether such
Holder holds a Warrant or has exercised the Warrant and holds any of the Common
Stock), advising that the Company is proceeding with a registration statement
and offering to include therein Registrable Securities held by such other
Holders, provided that they shall furnish the Company with such appropriate
information in connection therewith as the Company shall reasonably request in
writing.
(iii) All costs and expenses (including without limitation. legal,
accounting, printing, mailing and filing fees) of the registration effected
under this Section 6(c) shall be borne by the Company, except that the Holder(s)
whose Registrable Securities are included in such registration shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to the securities sold by them.
(iv) The Company shall cause the registration statement filed pursuant to
this Section 6(c) to remain current under the Act (including the taking of such
steps are as necessary to obtain the removal of any stop order) for a period of
at least six months (and for up to an additional three months if requested by
the Holder(s)) from the effective date thereof, or until all the Registrable
Securities included in such registration have been sold, whichever is earlier.
(d) Further Rights. The registration rights provided by this Section 6 may
be exercised by the Holder either prior or subsequent to its exercise of this
Warrant. A 50% Holder may, at its option, request registration pursuant to
Section 6(b) and/or pursuant to Section 6(c), and its request for registration
under one such Section shall not affect its right to request registration under
the other. The registration rights provided by this Section 6 shall supersede
and be prior in right to any registration rights granted by the Company to other
holders of its outstanding securities.
(e) Notwithstanding the foregoing, the Company shall include the
Registrable Securities in the registration statement it intends to file under
the Act pertaining to the shares underlying the Debentures. If such registration
statement is not effective upon the filing by the Company of a registration
statement pertaining to a public offering of the Company's securities, then the
Company shall include such Registrable Securities in any registration statement
pertaining to a public offering of the Company's securities. In each such case,
the Company shall use its best efforts to obtain effectiveness of such
registration statement and to maintain such effectiveness for at least one year.
193
<PAGE>
G. Indemnification.
1. Indemnification by the Company. As used in this Section 7, the term
"Liabilities" shall mean any and all losses, claims, damages and liabilities,
and actions and proceedings in respect thereof, including without limitation all
reasonable costs of defense and investigation and all attorneys' fees. Whenever
pursuant to Section 6 a registration statement relating to any Registrable
Securities is filed under the Act, or amended or supplemented, the Company shall
indemnify and hold harmless each Holder of Registrable Securities included in
such registration statement, amendment or supplement (each, a "Distributing
Holder"), and each person (if any) who controls (within the meaning of the Act)
the Distributing Holder, and each underwriter (within the meaning of the Act) of
such Registrable Securities, and each person (if any) who controls (within the
meaning of the Act) any such underwriter, from and against all Liabilities,
joint or several, to which the Distributing Holder or any such controlling
person or underwriter may become subject, under the Act or otherwise, insofar as
such Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement, or any preliminary prospectus or final prospectus constituting a part
thereof, or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company shall not be liable in any such
case to the extent that any such Liabilities arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary prospectus, final prospectus,
or amendment or supplement thereto, in reliance upon and in conformity with
written information furnished by such Distributing Holder or by any other
Distributing Holder for use in the preparation thereof. The foregoing indemnity
shall be in addition to any other liability which the Company may otherwise
have.
2. Indemnification by Holder. The Distributing Holder(s) shall indemnify
and hold harmless the Company, and each of its directors, each nominee (if any)
named in any preliminary prospectus or final prospectus constituting a part of
such registration statement, each of its officers who have signed such
registration statement and such amendments or supplements thereto, and each
person (if any) who controls the Company (within the meaning of the Act) against
all Liabilities, joint or several, to which the Company or any such director,
nominee, officer or controlling person may become subject, under the Act or
otherwise, insofar as such Liabilities arise out of or are based upon any untrue
or alleged untrue statement of any material fact contained in such registration
statement, preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent that such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon and in conformity with written
information furnished by such Distributing Holder(s) for use in the preparation
thereof. Each Distributing Holder shall be liable for no more than the amount
such Distribution Holder realizes
194
<PAGE>
upon sale of the Registrable Securities. The foregoing indemnity shall be in
addition to any other liability which the Distributing Holder(s) may otherwise
have.
3. Procedure. Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7. In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
4. Limitation. Notwithstanding the foregoing, if the Registrable
Securities are to be distributed by means of an underwritten public offering, to
the extent that the provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with such underwriting are
in conflict with the provisions of this Section 7, the provisions of such
underwriting agreement shall be controlling, provided that the Holder is a party
to such underwriting agreement.
H. Successors and Assigns; Transfer.
1. This Warrant shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
2. This Warrant may be transferred at any time after March 31, 1998 by:
(i) surrender of this Warrant for cancellation (with the Transfer form at the
end hereof properly executed) at the office or agency of the Company referred to
in Section 1; and (ii) delivery of an opinion of counsel stating that the
proposed transfer may be made without registration or qualification under
applicable Federal or state securities laws. This Warrant shall be deemed to
have been transferred, in whole or in part to the extent specified, immediately
prior to the close of business on the date the provisions of this Section 8 are
satisfied, and the transferee(s) designated in the Transfer form shall become
the holder(s) of record at that time and date. The Company shall issue, in the
name(s) of the designated transferee(s) (including the Holder if this Warrant
has been transferred in part) a new Warrant or Warrants of like tenor and
representing, in the aggregate, rights to purchase the same number of shares of
Common Stock as are then purchasable under this Warrant. Such new Warrant or
Warrants shall be delivered to the record holder(s) thereof within a reasonable
time, not exceeding three (3) business days, after the rights represented by
this Warrant shall have been so transferred. As used herein (unless the context
195
<PAGE>
otherwise requires), the term "Holder" shall include each such transferee, and
the term "Warrant" shall include each such transferred Warrant.
I. Disposition of Warrants or Shares. The Holder of this Warrant, each
transferee hereof and any holder and transferee of any Shares, by his or its
acceptance thereof, agrees that no public distribution of Warrants or Common
Stock will be made in violation of the provisions of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (collectively,
the "Act").
J. Notices. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered mail, return receipt requested, postage prepaid, or by U.S. express
mail service or national overnight courier service. Any such notice shall be
deemed to have been given (a) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or national overnight courier
service, or (b) five (5) business days following the mailing thereof, if mailed
by certified or registered mail, postage pre-paid, return receipt requested, and
all such notices shall be sent to the following addresses (or to such other
address or addresses as a part may have advised the other in the manner provided
in this Section 10):
If to the Company:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec 3C 1L5
If to the Holder:
________________________
________________________
________________________
________________________
K. Governing Law. This Warrant and all rights and obligations hereunder
shall be deemed to be made under and governed by the laws of the State of New
York applicable to agreements made and to be performed entirely within such
State, without reference to such State's laws regarding the conflict of laws.
L. Amendment or Waiver. Any provision of this Warrant may be amended,
waived or modified upon the written consent of the Company and any 50% Holder
(defined as the Holder(s) of at least 50 percent of the total number of Common
Stock comprising the Registrable Securities, whether or not this Warrant has
been executed, and shall include any Holder or combination of Holders);
provided, however, that such amendment, waiver or modification
196
<PAGE>
applies by its terms to each Holder; and provided further, that a Holder may
waive any of its rights or the Company's obligations to such Holder without
obtaining the consent of any other Holder.
M. Headings. The headings of various sections of this Warrant have been
inserted for reference only and shall not be a part of this Warrant.
IN WITNESS WHEREOF, The Tirex Corporation has caused this Warrant to be
duly executed, by its duly authorized officers under its corporate seal and to
be dated as of the date set forth below.
THE TIREX CORPORATION
Dated: __________, 1997 By:
Name:
Title: President
(Corporate Seal)
Attest:
Name:
Title: Secretary
197
<PAGE>
ELECTION TO PURCHASE
To be Executed by the Holder
in Order to Exercise the Warrant
The undersigned Holder of the foregoing Warrant hereby irrevocably elects
to exercise the purchase rights represented by such Warrant, and to purchase
thereunder, ______ shares of Common Stock, $.001 par value ("Common Stock"), and
(i) herewith makes payment of an aggregate of $____________ therefor and/or (ii)
pursuant to Section 1(b) of such Warrant hereby tenders the right to exercise
such Warrant to the extent of ________ shares of Common Stock of the Company.
The undersigned requests that the certificates for the shares of such Common
Stock be issued in the name(s) of, and delivered to, the person(s) whose name(s)
and address(es) are set forth below:
(Please type or print name and address)
(Social Security or tax identification number)
and delivered to;
(Please type or print name and address)
and, if such number of shares of Common Stock shall not be all the Common
evidenced by this Warrant, that a new Warrant of like tenor for the balance of
the shares of Common Stock subject to the Warrant be registered in the name of,
and delivered to, the Holder at the address stated below.
In full payment of the purchase price with respect to the portion of the
Warrant exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $________ by check or money order payable in United States currency
to the order of The Tirex Corporation, or its successor.
Dated: _________________
(Address)
(Social Security or tax identification number)
Signatures guaranteed by:
198
<PAGE>
TRANSFER
To be Executed by the Holder
in Order to Transfer the Warrant
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ___________________________________________ the right to purchase shares of
the Common Stock, $.001 par value per share ("Common Stock"), of The Tirex
Corporation (the "Company") represented by the foregoing Warrant to the extent
of ____ shares of Common Stock and appoints ________________________ attorney to
transfer such rights on the books of the Company, with full power of
substitution in the premises.
Dated: _____________________
Name:
Address
Signatures guaranteed by:
_______________________________
Taxpayer Identification Number:
_______________________________
199
EXHIBIT 4 (u)
200
<PAGE>
Warrant for the purchase of shares of Common Stock
2,000,000 shares
FOR VALUE RECEIVED, The Tirex Corporation (the "Company"), hereby certifies that
Security Capital Trading, Inc. or a permitted assignee thereof, is entitled to
purchase from the Company 2,000,000 fully paid and nonassessable shares of the
common stock, $.001 par value, of the Company at any time or from time to time
commencing April 1, 1998 and prior to 5:00 P.M., New York city time, on March
31, 2001, for an aggregate purchase price of $766,666.40, payable as follows:
$.25 per share for the first 666,666 shares to be purchased hereunder, $.40 per
share for the next 666,666 shares to be purchased hereunder and $.50 per share
for the remaining 666,667 shares to be purchased hereunder. (Hereinafter, (i)
said common stock, together with any other equity securities which may be issued
by the Company with respect thereto or in substitution therefor, is referred to
as the "Common Stock," (ii) the shares of the Common Stock purchasable hereunder
or under any other Warrant (as hereinafter defined) are referred to as the
"Warrant Shares," (iii) each holder of the Warrant Shares is referred to as a
"Warrant Shareholder" and all holders of the Warrant Shares are collectively
referred to as the "Warrant Shareholders," (iv) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the "Aggregate
Warrant Price, " (v) each of the above-mentioned prices payable hereunder for
the tranche of Warrant Shares (or portion thereof) to which such price
respectively relates is referred to as the "Per Share Warrant Price," (vi) this
Warrant, all identical warrants issued on the date hereof and all warrants
hereafter issued in exchange or substitution for this Warrant or such other
warrants are referred to as the Warrants" and (vi) the holder of this Warrant is
referred to as the "Holder" and the holder of this Warrant and all other
Warrants are referred to as the "Holders"). The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. Exercise of Warrant.
a) Exercise for Cash
This Warrant may be exercised, in whole at any time or in part from time
to time, commencing April 1, 1998, and prior to 5:00 P.M., New York City
time, on March 31, 2001, by the Holder by the surrender of this Warrant
(with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 9(a) hereof, together with proper payment
of the Aggregate Warrant Price, or the proportionate part thereof if this
Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company. If
this Warrant is exercised in part, this Warrant must be exercised for a
number of whole shares of the Common Stock. and the Holder is entitled lo
receive a new Warrant Covering the Warrant Shares which have nor been
exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon such surrender of
this Warrant the Company will (a) issue a certificate or certificates in
the name of the Holder for the largest number of whole shares of the
Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the Common Stock to
which the Holder shall be entitled, pay to the Holder cash in an amount
equal to the fair market value of such fractional share (determined in
such reasonable manner as the Board of Directors of the Company shall
determine), and (b) deliver the other securities and properties receivable
upon the exercise of this Warrant, or the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
201
<PAGE>
b) Cashless Exercise
In lieu of exercising this Warrant in the manner set forth in Subsection
1(a) above, the Warrant may be exercised by surrender of the Warrant
without payment of any other consideration, commission or remuneration, by
execution of the cashless exercise subscription form (at the end hereof,
duly executed). The number of shares to be issued in exchange for the
Warrant will be computed by subtracting the Per Share Warrant Price from
the closing bid price 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 Warrant, and dividing by the closing bid
price as of the same date.
2. Reservation of Warrant Shares.
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times have authorized and in reserve, and will keep
available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock and other securities and
properties as from time to time shall be receivable upon the exercise of
this Warrant, free and clear of all restrictions on sale or transfer
(except for applicable state or federal securities law restrictions) and
free and clear of all pre-emptive rights.
3. Protection Against Dilution.
a) If, at any time or from time to time after the date of this Warrant,
the Company shall issue or distribute (for no consideration) to the
holders of shares of Common Stock evidences of its indebtedness, any
other securities of the Company or any cash, property or other
assets (excluding a subdivision, combination or reclassification, or
dividend or distribution payable in shares of Common Stock, referred
to in Subsection 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if
the full amount thereof, together with the value of other dividends
and distributions made substantially concurrently therewith or
pursuant to a plan which includes payment thereof, is equivalent to
not more than 5% of the Company's net worth) (any such nonexcluded
event being herein called a "Special Dividend"), the Per Share
Warrant Price shall be adjusted by multiplying the Per Share Warrant
Price then in effect by a fraction, the numerator of which shall be
the then current market price of the Common Stock (defined as the
average for the thirty consecutive business day immediately prior to
the record date of the daily closing price of the Common Stock as
reported by the principal exchange or market on which the Common
Stock is listed) less the fair market Common Stock is listed) less
the fair market value (as determined by the Company's Board of
Directors) of the evidences of indebtedness,
202
<PAGE>
securities or property, or other assets issued or distributed in
such Special Dividend applicable to one share of Common Stock and
the denominator of which shall be such then current market price per
share of Common Stock. An adjustment made pursuant to this
Subsection 3(a) shall become effective immediately after the record
date of any such Special Dividend.
b) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by
reclassification of its Common Stock any shares of capital stock of
the Company, the Holder or Holders of this Warrant shall thereafter
be entitled, upon exercise of this Warrant, to receive the number
and kind of shares which, if this Warrant had been exercised
immediately prior to the happening of such event, the Holder or
Holders would have owned upon such exercise, and would have been
entitled to receive upon consummation of such dividend,
distribution, subdivision, combination or reclassification. An
adjustment made pursuant to this Subsection 3(b) shall become
effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination
or reclassification. Whenever the number of shares of Common Stock
purchasable upon exercise of this Warrant is adjusted pursuant to
this Subsection 3(b), each Per Share Warrant Price shall be adjusted
simultaneously therewith by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable at each Per Share Warrant Price
upon exercise of this Warrant immediately prior to such adjustment,
and the denominator of which shall be the number of Warrant Shares
purchasable at each Per Share Warrant Price upon exercise of this
Warrant immediately after such adjustment, so that the Aggregate
Warrant Price shall remain the same. If, as a result of an
adjustment made pursuant to this Subsection 3(b), the Holder of any
Warrant thereafter surrendered for exercise shall become entitled to
receive shares of two or more classes of capital stock or shares of
Common Stock and other capital
203
<PAGE>
stock of the Company, the Board of Directors (whose determination
shall be conclusive and shall be described in a written notice to
the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price
between or among shares of such classes or capital stock or shares
of Common Stock and other capital stock.
c) Except as provided in Subsection 3(e), in case the Company shall
hereafter issue or sell any shares of Common Stock for a
consideration per share less than the Per Share Warrant Price on the
date of such issuance or sale, the Per Share Warrant Price shall be
adjusted as of the date of such issuance or sale so that the same
shall equal the consideration per share received by the Company upon
such issuance or sale; provided, however, that no adjustment of the
Per Share Warrant Price shall be required (i) unless the market
price of the Common Stock (as defined in Section 3(a) hereof) on the
date of such issuance or sale shall be equal to or greater than 250%
of the applicable Per Share Warrant Price; or (ii) if such issuance
or sale shall be effected (x) in connection with the exercise of
warrants, options or conversion rights outstanding on April 1,1998;
(y) pursuant to the terms of employment or consulting agreements to
which the Company is a party and which were in effect on the date of
issuance of this Warrant; or (z) pursuant to an offer in effect on
March 31, 1998 (the "506 Offering") to sell securities of the
Company in a private placement pursuant to Rule 506 of Regulation D
promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").
d) Except as provided in Subsection 3(a) and 3(e), in case the Company
shall hereafter issue or sell any rights, options, warrants or
securities convertible into Common Stock entitling the holders
thereof to purchase Common Stock or to convert such securities into
Common Stock at a price per share (determined by dividing (i) the
total amount, if any, received or receivable by the Company in
consideration of the issuance or sale of such rights, options,
warrants or convertible securities plus the total consideration, if
any, payable to the Company upon exercise or conversion thereof (the
"Total Consideration") by (ii) the number of additional shares of
204
<PAGE>
Common Stock issuable upon exercise or conversion of such
securities) less than the then current Per Share Warrant Price in
effect on the date of such issuance or sale, the Per Share Warrant
Price shall be adjusted as of the date of such issuance or sale so
that the same shall equal the price determined by dividing (i) the
sum of (a) the number of shares of Common Stock outstanding on the
date of such issuance or sale multiplied by the Per Share Warrant
Price plus (b) the Total Consideration by (ii) the number of shares
of Common Stock outstanding on the date of such issuance or sale
plus (iii) the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities; provided,
however, that no adjustment of the Per Share Warrant Price shall be
required (i) unless the market price of the Common Stock (as defined
in Section 3(a) hereof) on the date of such issuance or sale shall
be equal to or greater than 250% of the applicable Per Share Warrant
Price; or (ii) if such issuance or sale shall be effected (x)
pursuant to the terms of employment or consulting agreements to
which the Company is a party and which were in effect on the date of
issuance of this Warrant; or (y) pursuant to the 506 Offering.
e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another entity
of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities
with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company),
the Holder of this Warrant shall have the right thereafter to
convert such Warrant into the kind and amount of securities, cash or
other property which he would have owned or have been entitled to
receive immediately after such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance had
this Warrant been converted immediately prior to the effective date
of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application
of the provisions set forth in this Section 3 with
205
<PAGE>
respect to the rights and interests thereafter of the Holder of this
Warrant to the end that then provisions set forth in this Section 3
shall thereafter correspondingly be made applicable as nearly as may
reasonably be, in relation to any shares of stock or other
securities or be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of
this Warrant. The above provisions of this Subsection 3(e) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, statutory exchanges, sales or conveyances.
The issuer of any shares of stock or other securities or property
thereafter deliverable on the conversion of this Warrant shall be
responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of
said provisions so proposed to be made, shall be mailed to the
Holders of the Warrants not less than 10 days prior co such event. A
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
f) No adjustment in the Per Share Warrant price shall be required
unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any
adjustments which by reason of this Subsection 3(f) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; provided further, however, that adjustments
shall be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(f)) nor later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock issuable
upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent. Anything in this Section 3 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Per Share Warrant Price, in addition to chose
required by this Section 3, as it in its discretion shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible
or exchangeable for stock hereafter
206
<PAGE>
made by the Company to its shareholders shall not be taxable.
g) Whenever the Per Share Warrant Price is adjusted as provided in this
Section and upon any modification of the rights of a Holder of
Warrants in accordance with this Section 3, the Company shall
promptly obtain, at its expense, a certificate of a firm of
independent public accountants of recognized standing selected by
the Board of Directors (who may be the regular auditors of the
Company) setting forth the Per Share Warrant Price and the number of
Warrant Shares after such adjustment or the effect of such
modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and
cause copies of such certificate to be mailed to the Holders of the
Warrants.
h) If the Board of Directors of the Company shall declare any dividend
or other distribution with respect to the Common Stock, other than a
cash distribution out of earned surplus, the Company shall mail
notice thereof to the Holders of the Warrants not less than 10 days
prior to the record date fixed for determining shareholders entitled
to participate in such dividend or other distribution.
4. Fully Paid Stock. Taxes.
The Company agrees that the shares of the Common Stock represented by each
and every certificate for Warrant Shares delivered on the exercise of this
Warrant shall, at the time of such delivery, be validly issued and
outstanding, fully paid and nonassessable, and not subject to pre-emptive
rights, and the Company will take all such actions as may be necessary to
assure that the par value or stated value, if any, per share of the Common
Stock is at all times equal to or less than the then Per Share Warrant
Price. The Company further covenants and agrees that it will pay, when due
and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant
Share or certificate therefor.
5. Registration Under Securities Act of 1933.
a) The Company agrees that if, at any time and from time to time during
the period commencing on the date of execution of this Warrant and
ending on March 31, 2001, the Company shall undertake to prepare and
file a registration statement or a post-effective amendment to a
registration statement (any such registration statement being
hereinafter called a "Subsequent Registration Statement") under the
Act, other than a registration statement on Form S-8 or any other
form which
207
<PAGE>
does not include substantially the same information as would be
required in a form for the general registration of securities) in
connection with the proposed offer of any of its securities by it or
any of its shareholders, the Company will (i) promptly notify the
Holder and each of the Holders, if any, of other Warrants and/or any
Warrant Shareholders that such Subsequent Registration Statement
will be filed and that the Warrant Shares which are then held,
and/or which may be acquired upon the exercise of the Warrants, by
the Holder and such Holders, will at the Holder's and such Holders'
and/or such Warrant Shareholders' request, be included in such
Subsequent Registration Statement, (ii) include in the securities
covered by such Subsequent Registration Statement all Warrant Shares
which it has been so requested to include, all at the Company's sole
cost and expense, (iii) use its best efforts to cause such
Subsequent Registration Statement to become effective as soon as
practicable and (iv) take all other action necessary under any
Federal or state law or regulation of any governmental authority to
permit all Warrant Shares which it has been so requested to include
in such Subsequent Registration Statement or to be sold or otherwise
disposed of, and will maintain such compliance with each such
Federal and state law and regulation of any governmental authority
for the period necessary for the Holder and such Holders to effect
the proposed sale or other disposition. Provided, however, that the
Holders shall be obligated to agree in writing, if so requested by
the underwriter or representative of the underwriters of the public
offering to be made pursuant to such Subsequent Registration
Statement, not to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of such Warrant Shares for a period of not more
than one year from the effective date of such Subsequent
Registration Statement.
b) Whenever the Company is required pursuant to the provisions of this
Section 5 to include Warrant Shares in a registration statement or a
post-effective amendment to a registration statement, the Company
shall (i) furnish each Holder and/or Warrant Shareholder and each
underwriter of such Warrant Shares with such copies of the
prospectus, including the preliminary prospectus, conforming to the
Act, (and such other documents as each such Holder, Warrant
Shareholder or each such
208
<PAGE>
underwriter may reasonably request) in order to facilitate the sale
or distribution of the Warrant Shares, (ii) use its best efforts to
register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or jurisdictions as the
Holders, Warrant Shareholders and each underwriter of Warrant Shares
being sold by such Holders and/or Warrant Shareholders shall
reasonably request and (iii) take such other actions as may be
reasonably necessary or advisable to enable such Holders, Warrant
Shareholders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such
Holders and Warrant Shareholders shall have reasonably requested
that the Warrant Shares be sold.
c) The Company shall pay all expenses incurred in connection with any
registration or other action pursuant to the provisions of this
Section 5, other than underwriting discounts, non-accountable
expenses, if any and applicable transfer taxes relating to the
Warrant Shares.
d) The Company will indemnify the Holders and Warrant Shareholders who
have included their respective securities in each Subsequent
Registration Statement substantially to the same extent as the
indemnification provided to the underwriters of the offering to be
made pursuant the underwriting agreement to be executed upon
effectiveness of such Subsequent Registration statement, and such
Holders and/or Warrant Shareholders will indemnify the Company (and
the underwriters, if applicable) with respect to information
furnished by them in writing to the Company for inclusion therein
substantially to the same extent as the indemnification to be
provided by the underwriters to the Company pursuant to such
underwriting agreement.
6. Transferability.
The Company may treat the registered Holder of this Warrant as he or it
appears on the Company's books at any time as the Holder for all purposes.
The Company shall permit any Holder of a Warrant or his duly authorized
attorney, upon written request during ordinary business hours, to inspect
and copy or make extracts from its books showing the registered holders of
Warrants. All warrants issued upon the transfer or assignment of this
Warrant will be dated the same date as this Warrant, and all rights of the
Holders thereof shall be identical to those of the Holder.
209
<PAGE>
7. Loss etc. of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to rye Company, if lost, stolen or destroyed, and upon
surrender and cancellation of dais Warrants if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor
and denomination.
8. Warrant Holders Not Shareholders.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters whatsoever,
or any other rights or liabilities as a shareholder, prior to the exercise
hereof.
9. Communication.
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and shall
be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
a) the Company at 740 St. Maurice, Suite 201, Montreal, Quebec H3C 1L5
or such other address as the Company has designated in writing to
the Holder; or
b) the Holder at 520 Madison Avenue, New York, New York 10022, or such
other address as the Holder has designated in writing to the
Company.
10. Headings.
The headings of this Warrant have been inserted as a matter of convenience
and shall nor affect the construction hereof.
11. Applicable Law.
This Warrant shall be governed by and construed in accordance with the law
of the State of New York without giving effect to the principles of
conflicts of law thereof.
IN WlTNESS WHEREOF, The Tirex Corporation has caused this Warrant to be signed
by its Chairman and its corporate seal to be hereunto affixed by its Secretary
as of, and with effect from this 1st day of April, 1998.
ATTEST:
Secretary
[Corporate Seal]
THE TIREX CORPORATION
By:
210
<PAGE>
Name: Title:
SUBSCRIPTION
The undersigned, , pursuant to the provisions of the foregoing Warrant, hereby
agrees to subscribe for and purchase shares of the Common Stock of The Tirex
Corporation covered by said Warrant, and makes payment therefor in full at the
price per share provided by said Warrant.
Dated: ______________ Signature:_________________________
Address:___________________________
___________________________________
___________________________________
ASSIGNMENT
FOR VALUE RECEIVED hereby sells, assigns and transfers unto the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint , attorney, to transfer said Warrant on the books of The Tirex
Corporation
Dated: ______________ Signature:_________________________
Address:___________________________
___________________________________
___________________________________
211
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED unto the right to purchase hereby assigns and transfers ~ l
shares of the Common Stock of The Tirex Corporation by the foregoing Warrant,
and a proportionate part of said Warrant and the rights evidenced hereby, and
does irrevocably constitute and appoint attorney, to transfer that part of said
Warrant on the books of The Tirex Corporation
Dated: ______________ Signature:_________________________
Address:___________________________
___________________________________
___________________________________
CASHLESS EXERCISE SUBSCRIPTION
The undersigned pursuant to the provisions of the foregoing Warrant, hereby
agrees to subscribe for shares of the Common Stock of The Tirex Corporation, and
makes payment therefor in full in accordance with the formula set forth in
paragraph l(b) of the Warrant, by surrender and delivery of this Warrant.
Dated: ______________ Signature:_________________________
Address:___________________________
___________________________________
___________________________________
212
EXHIBIT 4(x)
213
<PAGE>
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of April 9,
1998, is entered into by and between _________________________ ("Purchaser") and
The Tirex Corporation (the "Company"). This is the Agreement referred to as the
"Purchase Agreement" in the Registration Rights Agreement (as defined in Section
6(b) hereof). The price of $250,000 (the "Purchase Price").
The Parties hereto agree as follows:
1. 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) 10 Units, each consisting of: (i) a 10%
Convertible Subordinated Debenture in the principal amount of $25,000 United
States Dollars (each a "Debenture"); and (ii) 100,000 Warrants to purchase a
like number of shares of its Common Stock, par value (the "Warrants"). The
Debenture is convertible in accordance with the terms and conditions of the
Debenture, the form of which is annexed hereto as Exhibit D, 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). Prior to March 31, 1998, the Conversion Shares shall be
purchased at a purchase price equal to 85% of the average closing bid price of
the Common Stock as reported by the National Association of Securities Dealers
Automated Quotation Small-Cap Market System ("NASDAQ") averaged over the five
day period prior to the Company receiving a notice of conversion; provided,
however, that in the event the Common Stock is not then traded on NASDAQ, the
conversion price will equal 85% of the average closing bid price of the Common
Stock as reported by the National Association of Securities Dealers Automated
Quotation Small-Cap Market System ("NASDAQ") averaged over the five day period
prior to the Company receiving a notice of conversion; provided, however, that
in the event the Common Stock is not then traded on NASDAQ, the conversion price
will equal 85% of the average closing bid price of the Common Stock on the
National Association of Securities Dealers, Inc. ("NASD") Over-the-Counter
Electronic Bulletin Board System during such five day period the (the
"Conversion Price"). On or subsequent to March 31, 1998, the conversion price
shall be reduced from 85% to 75%. The Company will file a registration statement
under the Act covering the shares of Common Stock issuable upon conversion of
the Debentures as promptly as practicable after the expiration of the Offering
Period and will use its best efforts to cause such registration statement to be
declared effective by the SEC within 120 days after the later of the termination
or the final Closing Date of the Offering, as described in the Company's
Confidential Private Offering Memorandum dated November 5, 1997 and all
supplements thereto (the "Memorandum") and will use its best efforts to cause
such registration statement to be declared effective by the SEC within 120 days
after the later of the termination or the final Closing Date of the Offering. To
the extent any portion of the Debenture is converted prior of the earlier of
March 31, 1998 the Purchaser of the Warrants sold as a portion of the Units
purchased shall lose his right to exercise such portion of the Purchaser's
Warrants as such portion relates pro rata to the portion of the Debenture
exercised. By way of example, if a Purchaser of one Unit converts 5,000 (20% of
the Debenture) of a Debenture prior to March 31, 1998.
18. Non-Delivery of the Shares. If, within three business days of the date
after receipt by the Company of the Original Documentation, the Company shall
fail to (i) issue the Conversion Shares of Warrant Shares, and (ii) deliver to
the Purchaser the Conversion Shares or Warrant 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 or Warrant Shares); and
214
<PAGE>
(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
written.
Purchaser:
_____________________________
Name:
The Tirex Corporation
_____________________________
Name:
Title:
215
EXHIBIT 4 (bb)
216
<PAGE>
----------
THE TIREX CORPORATION
----------
Amendment to 10%
Convertible Subordinated Debenture,
Securities Purchase Agreement, and
Registration Rights Agreement
This Amendment is made as of September 8, 1998 between ___________________
(the "Debentureholders") and The Tirex Corporation ("Tirex")
Whereas, on April 9, 1998, the Debentureholders purchased from Tirex a
unit (the "Unit") of Tirex's securities, consisting of one 10% Convertible
Subordinated Debenture (the "Debenture") in the principal amount of US $250,000,
redeemable at 125% of face value plus interest one year from the date of
issuance (the "Maturity Date"), and warrants to purchase an aggregate of one
million (1,000,000) shares of the common stock of Tirex at a per share price of
$.001 (the "Warrants");
Whereas, Tirex was, at the time of the Debentureholder's purchase of the
Unit, and currently remains, a thinly capitalized development stage Company;
Whereas, the purchase and sale of the securities comprising the Unit were
effected pursuant to the terms of a securities purchase agreement (the
"Securities Purchase Agreement") and a registration rights agreement (the
"Registration Rights Agreement") between Tirex and the Debentureholders, dated
April 9, 1998;
Whereas, Paragraph (b) of Article 2 of the Registration Rights Agreement
provides for liquidated damages (the "Liquidated Damages") to be paid by Tirex
for each thirty-day period subsequent to September 8, 1998 during which the
registration statement filed by Tirex on May 21, 1998 (the "Registration
Statement"), registering the common stock underlying the Debenture and Warrants,
has not been declared effective, unless the delay in achieving effectiveness is
caused by the Securities and Exchange Commission;
Whereas, because of unforeseen circumstances, and notwithstanding the
continuing best efforts of Tirex to have the Registration Statement declared
effective as expeditiously as possible, as of the date hereof, the Registration
Statement has not yet been declared effective and the Company is not able to
state at this time, when the said Registration Statement will be declared
effective;
217
<PAGE>
Whereas, the Debentureholders believe that it would not be in their best
interests, as investors in Tirex, to require Tirex to: (i) carry the Debentures
on its financial statements as a short-term liability due and payable within the
current fiscal year, thereby diminishing Tirex's ability to obtain bank or other
short-term debt financing; or (ii) pay the Liquidated Damages, because such
obligation would constitute a significant financial burden which, at this stage
of the development of Tirex's business, could cause substantial and possibly
irreparable adverse financial consequences which could seriously delay, and
possibly destroy, Tirex's ability to commence its TCS-1 Plant manufacturing and
TCS-1 Plant Operating businesses, on commercial bases;
Whereas, subsequent to April 9, 1998, the parties amended the Debenture
and the Securities Purchase Agreement to provide that the Debenture would not be
convertible during the period commencing on the date preceding the filing by
Tirex of the Registration Statement and terminating on the earlier of: (i) 120
days from the filing of the Registration Statement with the Securities and
Exchange Commission; or (ii) the effective date of the said Registration
Statement;
Whereas, the parties believe it is in their mutual best interests: (i) to
extend the Maturity Date of the Debenture to December 31, 1999; (ii) to have the
Debenture (including all interest accrued thereon through the date of
conversion) be immediately convertible; and (iii) in consideration for the
accommodations hereby made by the Debentureholders, pending the effective date
of the Registration Statement, to reduce the conversion ratio of the Debenture,
on a monthly basis, at a rate of one percent (1%) of the average closing bid
price of Tirex's common stock for each month between September 11, 1998 and
December 11, 1998, and one and one-half percent (1.5%) per month for each month
between December 12, 1998 and April 11, 1999;
Whereas, Tirex has also agreed, upon effectiveness of the Registration
Statement, to provide the Debentureholders and/or their broker, with such
quantity of prospectuses as are reasonably necessary to effect the resale of
shares of Tirex common stock underlying the Debentures and Warrants.
Now, therefore, in consideration of the premises and of the mutual
promises hereinafter set forth, the parties agree as follows:
A. AMENDMENT OF DEBENTURE
1. Maturity Date. The Maturity Date of the Debenture is hereby amended such that
all unpaid principal and all accrued and unpaid interest thereon shall be due
and payable on December 31, 1999.
218
<PAGE>
2. Amendment of Article 1. Conversion, Redemption and Registration
Paragraphs (a), (b) and (g) of Article 1 of the Debenture are hereby
amended so as to read as follows:
1. CONVERSION, REDEMPTION AND REGISTRATION.
(a) This Debenture is convertible in whole or in part at any time into
that number of shares of the Company's common stock, par value $.001 per share
("Common Stock") as is obtained by dividing the then unpaid principal face value
of the Debenture by an amount equal to a percentage of seventy-five percent
(75%) (the "Conversion Ratio") of the closing bid price of the Common Stock on a
securities exchange or on the National Association of Securities Dealers, Inc.
("NASD") Over-the-Counter Electronic Bulletin Board System (the "Market Price"),
on the trading date immediately preceding the date upon which notice of
conversion is properly provided to the Company by the holder (the "Conversion
Date"), subject to reduction as set forth below.
Until such time as the Registration Statement on Form SB-2 (Registration
No. 333-53255), registering the shares issuable upon the conversion of this
Debenture (the "Registration Statement"), has been declared effective, the
Conversion Ratio shall be reduced, on a monthly basis, at a rate of one percent
(1%) of the Market Price on the date preceding the Conversion Date, for each
month between September 11, 1998 and December 10, 1998, and at a rate of one and
one-half percent (1.5%) per month for each month between December 11, 1998 and
July 10, 1999, as follows:
CONVERSION DATE: CONVERSION RATIO
---------------- ----------------
April 9, 1998 - September 10, 1998 75%
September 11, 1998 - October 10, 1998 74%
October 11, 1998 - November 10, 1998 73%
November 11, 1998 - December 10, 1998 72%
December 11, 1998 - January 10, 1999 70.5%
January 11, 1999 - February 10, 1999 69%
February 11, 1999 - March 10, 1999 67.5%
March 11, 1999 - April 10, 1999 66%
April 11, 1999 - May 10, 1999 64.5%
219
<PAGE>
May 11, 1999 - June 10, 1999 63%
June 11, 1999 - July 10, 1999 61.5%
If the Common Stock is not listed on any securities exchange at the time a
notice of conversion is issued, the conversion price shall be such price as is
determined as the fair and reasonable price a third party not affiliated with
the Company would pay for the Common Stock as determined by the Board of
Directors. At the election of the Payee, all accrued but unpaid interest hereon
may also be converted into Common Stock in the manner prescribed herein. Such
shares of Common Stock are referred to herein as the "Conversion Shares." This
Debenture may be partially converted and in case of such partial conversion, the
Company, 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.
The Holder hereof shall have no conversion rights following payment in full of
the principal and interest owed by the Company 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, and from time to time, by delivery of: (i) this
Debenture for cancellation; and (ii) written notice to the Company of the amount
of the Debenture to be converted. Such delivery shall be made at the principal
executive office of the Company (or at such other office or agency of the
Company as it may designate), and may be made by fax with telephone confirmation
of receipt of such fax by the Company's corporate counsel. Any delivery made by
fax herewith shall be followed by delivery of the originals of such documents,
by mail. 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 delivery by fax (with telephone confirmation of receipt) shall be
made. Upon receipt of the foregoing, the Company shall immediately authorize its
transfer agent, Continental Stock Transfer & Trust Company, Inc. to (i) issue
the Conversion Shares; and (ii) deliver the certificate representing such
Conversion Shares to the Holder as the Holder shall direct.
(g) The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the SEC as soon as practicable and to keep
such registration statement effective at all times until the delivery of a
prospectus is no longer required in connection with the sale of the Conversion
Shares. Moreover, if at any time the Registration Statement is not effective,
the Company intends to file an unrelated registration statement, other than a
registration statement on Form S-8, 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 Holder of its intention
to file a registration statement and the Holder shall have the right, upon
written instructions, received by the Company within ten days of the intended
filing date of the registration statement,
220
<PAGE>
to have included in such registration statement the number of Conversion Shares
issued or issuable to them as such Holder 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.
B. AMENDMENT OF SECURITIES PURCHASE AGREEMENT
1. Amendment of Article 1. Purchase and Sale of Securities
Article 1 of the Securities Purchase Agreement is hereby amended to as to
read as follows:
1. 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) 10 Units, each
consisting of: (i) a 10% Convertible Subordinated Debenture in the
principal amount of $25,000 United States Dollars (each a "Debenture");
and (ii) 100,000 Warrants to purchase a like number of shares of its
Common Stock, par value $.001 per share (the "Common Stock") at an
exercise price of $.001 per share (the "Warrants"). The Debenture is
convertible, at any time, in accordance with the terms and conditions of
the Debenture, as amended the date hereof.
The Company has filed a registration statement under the Act
covering the Conversion Shares. The Company will use its best efforts to
cause such registration statement to be declared effective by the SEC as
promptly as practicable. If a Debenture is not converted, it may be
redeemed by the holder any time after maturity at 125% of the principal
amount of the Debenture plus all interest accrued thereon.
C. AMENDMENT OF REGISTRATION RIGHTS AGREEMENT
1. Elimination of Article 2(b)
Paragraph (b) of Article 2 of the Registration Rights Agreement, is hereby
canceled, terminated, void and of no further force or effect to the end that
Tirex shall have no obligations or liabilities under the said Paragraph 2(b),
and the Debentureholders do hereby remise, release, discharge, indemnify and
hold harmless Tirex, and each shareholder, officer, director, affiliate,
associate, agent, and employee of Tirex of and from manner of actions and cause
of action, suits, debts, dues, accounts, bonds, wages, benefits, covenants,
contracts, agreements, judgments, claims and demands whatsoever in law or in
equity, and including without limitation all such actions, claims and demands,
etc. arising out of, being based upon, or being in any way connected with or
related to the said Paragraph 2(b).
221
<PAGE>
D. FURTHER AMENDMENTS
To the extent necessary to give effect to the amendments, contained herein
(the "Amendments"), to the Debenture, Securities Purchase Agreement, and
Registration Rights Agreement, all remaining provisions of such agreements,
which may be inconsistent with the Amendments, are hereby deemed amended so as
to be consistent with the intents and purposes of, and are included among, the
Amendments.
E. NO OTHER AMENDMENTS
Except as expressly provided in this Amendment, all of the terms and
conditions of the Debenture, Securities Purchase Agreement, and Registration
Rights Agreement remain in full force and effect.
F. TIMELY DELIVERY OF PROSPECTUS
The Company hereby agrees that upon effectiveness of its registration
statement on Form SB-2 registering the resale of the shares underlying the
Debentures and Warrants, it will promptly provide the Debentureholders and/or
their broker with a reasonably sufficient quantity of Prospectus to effect such
resales.
G. 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.
222
<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 _________________________________
____________________________________
____________________________________
223
EXHIBIT 10 (ii)
224
<PAGE>
MEMORANDUM OF AGREEMENT MADE AND ENTERED INTO THIS ELEVENTH DAY OF DECEMBER ONE
THOUSAND NINE HUNDRED AND NINETY-EIGHT.
B E T W E E N: IM(2) MERCHANDISING AND MANUFACTURING INC., a body politic and
corporate, duly incorporated and having its office at 60
Morgan Road, Baie d'Urfe, Quebec H9X 3A4, herein acting
through and represented by DAVID SINCLAIR, its PRESIDENT,
hereunto duly authorized as he so declares,
Hereinafter called the "COMPANY"
OF THE FIRST PART
A N D: THE TIREX CORPORATION CANADA INC., a body politic and
corporate, duly incorporated and having its office at 740 St.
Maurice St., Montreal, Quebec H3C 1L5. herein acting through
and represented by TERENCE C. BYRNE, its PRESIDENT, hereunto
duly authorized as he so declares,
Hereinafter called the "MANUFACTURER"
OF THE SECOND PART
WHEREAS the Company is a corporation whose principals have a certain expertise
in the manufacture of "crumb" rubber welcome mats and related products (the
"Goods");
WHEREAS the Manufacturer is presently a tire processing company and is desirous
of establishing a manufacturing facility with respect to the Goods;
WHEREAS the Company has the sales and marketing expertise to sell the Goods in
North America and elsewhere; and
WHEREAS the Company has entered into a contract for the sale of the Goods to The
Akro Corporation of Canton, Ohio, U.S.A., ("Akro");
WHEREAS the Company has acquired from Akro the exclusive license to use the
molds and tooling described in Exhibit B to the Akro contract (the "Proprietary
Designs");
225
<PAGE>
WHEREAS the parties are desirous of entering into an agreement whereby the
Manufacturer shall manufacture the Goods for sale to the Company on the terms
and conditions hereinafter set forth.
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:
ARTICLE 1 PREAMBLE
1.1 The above preamble hereto shall be deemed to form part of this Agreement
as if incorporated in the body hereof.
ARTICLE 2 DEFINITIONS
2.1 "Akro Contract" means the contract entered into between the Company and
Akro on the 26th day of November 1998, a copy of which is annexed hereto
as Appendix I.
2.2 The term "Manufacturer", as used herein shall, unless the context of
this Agreement necessarily requires otherwise, include not only The
Tirex Corporation Canada Inc., but also The Tirex Corporation, a
Delaware corporation with offices at 740 St. Maurice St., Montreal,
Quebec, H3C 1L5, and all other corporations, partnerships and such other
entities now or in the future control by, under common control with, or
in control of The Tirex Corporation, jointly and severally.
ARTICLE 3 EXCLUSIVE DEALINGS
3.1 The Manufacturer shall manufacture the Goods exclusively for the Company
using the tooling and molds provided to the Manufacturer by the Company
from time to time in accordance with the samples which the Manufacturer
has heretofore delivered to the Company and which the Company
acknowledges as having been accepted and approved and, in accordance
with such other samples as may be approved by the Company from time to
time in the future.
3.2 The Company shall purchase exclusively from the Manufacturer such
quantities of the Goods as shall satisfy all of the Company's
requirements for resale during the term of this Agreement both with
respect to the Akro Contract as well as all other customers of the
Company. The following sales goals are estimates for planning purposes
only and reflect the quantities which the Company anticipates that it
will be obliged to deliver to Akro in accordance with the terms of the
Akro Contract and reflecting the prices which the Company shall be
charging to Akro. Such sales goals do not however reflect the Company's
requirements for sales to parties other than Akro and which, for greater
certainty, are hereby declared to be subject to all of the provisions of
this Agreement unless the context hereof clearly indicates the contrary.
226
<PAGE>
Calendar Year Amount - U.S. Dollars
------------- ---------------------
l999 $1,525,000
2000 3,000,000
2001 5,000,000
2002 7,500,000
2003 7,500,000
The Manufacturer acknowledges that it has taken cognizance of the
provisions of paragraph 5 of the Akro Contract which not only sets forth
the sales goals of such contract, but also the consequences of the
failure to meet a sales goal thereunder. The Manufacturer acknowledges
that if Akro fails to meet a sales goal as set forth in paragraph 5 of
the Akro Contract, and is consequently given an extension of six (6)
months to cure a shortfall, that the sales goals set forth above may be
modified accordingly. It is expressly understood that the failure of the
Manufacturer to meet a sales goal shall not constitute a default by the
Manufacturer under this Agreement.
3.3 The Company's obligations to purchase all of such requirements
exclusively from the Manufacturer shall be subject to the provisions of
Section 5.6 hereof.
3.4 The Manufacturer shall sell exclusively to the Company all of the Goods
manufactured by the Manufacturer during the term of this Agreement.
3.5 The Company shall have the right to determine the quantity of the Goods
which the Manufacturer is obliged to manufacture in virtue of this
Agreement provided that in the event that such quantity exceeds by more
than twenty-five percent (25%) the minimums specified above, the Company
shall give not less than ninety (90) days notice of such additional
requirements. The Manufacturer's obligations to supply such additional
requirements, and all other obligations of the Manufacturer hereunder
relating to delivery schedules and quantities shall be subject to the
fulfilment by the Company in a timely manner of its obligations under
this Section 3.5 and Sections 4.1.1 and 5.5 below.
ARTICLE 4 OBLIGATIONS OF THE COMPANY
4.1 It shall be the obligation of the Company to do all of the following:
4.1.1 to supply, without charge to the Manufacturer, all tooling and
molds which may be required by the Manufacturer in order to
manufacture the Goods, it being understood that such tooling and
molds shall remain the property of the Company. The obligation
of the Company to supply such tooling and molds shall be
fulfilled in a timely manner so as not to impede the ability of
the Manufacturer to fulfil its obligations under Article 3
within the required time frame;
227
<PAGE>
4.1.2 to actively promote the sale and marketing of the Goods;
4.1.3 to make all decisions in its reasonable discretion conceding
credit to customers of the Goods and to collect all proceeds of
sale;
ARTICLE 5 LICENSE
5.1 The Company hereby grants to the Manufacturer an exclusive license
throughout the term of this Agreement to use, develop and improve any
and all molding equipment based upon the Proprietary Designs but subject
to the rights of Akro with respect thereto.
5.2 The Manufacturer shall pay to the Company a license fee of SEVENTY
THOUSAND CANADIAN DOLLARS ($70,000.00 Canadian), as follows:
5.2.1 The sum of THIRTY THOUSAND DOLLARS ($30,000.00) upon the
execution of this Agreement; and
5.2.2 A further sum of FORTY THOUSAND DOLLARS ($40,000.00) which shall
be paid by the Manufacturer on behalf of the Company directly to
the Company's employee Sean Khodadad, at the rate of Ten
Thousand Dollars ($10,000.00) per month in advance, commencing
with the date of the signature of this Agreement, it being
understood that the said Sean Khodadad shall assist the
Manufacturer in setting up its manufacturing facility and that
all of the expenses of the said Sean Khodadad during such period
shall be paid by the Manufacturer as well, on a reasonable
basis.
5.3 It shall be the obligation of the Manufacturer to manufacture the Goods
in a timely manner in accordance with the standards necessary and
desirable for the purposes of this Agreement and in such quantities as
shall be required to meet the demand of the Company's customers in the
Territory (unless such quantities exceed the manufacturing capacity of
the Manufacturer). The Goods shall be manufactured in accordance with
the samples annexed hereto as Appendix II;
5.4 The Manufacturer acknowledges that its manufacturing capacity is, or
shortly shall be sufficient to meet the Company's delivery obligations
under the Akro Contract and more particularly the delivery schedule set
forth in Exhibit D thereof. Furthermore, the Manufacturer undertakes
that it will be in a position to supply ten thousand (10,000) mats per
week on or before February 15th, 1999, and twenty thousand (20,000) mats
per week by March 15th, 1999. Failure by the Manufacturer to comply with
such undertaking shall entitle the Company to demand a penalty of Twenty
Thousand Dollars ($20,000.00) for each week of delay up to a maximum of
four (4) weeks. Should such delay exceed four (4) weeks, the Company
shall have the option to terminate this Agreement by simple notice to
the Manufacturer.
228
<PAGE>
5.5 The Manufacturer shall have the right to cause its manufacturing
obligations to be performed, in part, by third parties, with the consent
of the Company, which shall not be unreasonably withheld, and subject to
the proviso that the Manufacturer and such third party shall be jointly
and severally liable for the fulfilment of all obligations hereunder
relating to the manufacture of the Goods to the extent that the
manufacture of such Goods is carried out by such third party, and with
the future proviso that the Company shall receive a written undertaking
from the Manufacturer and such third party confirming the foregoing at
the time that such consent is requested. The obligations of the Company
to provide tooling and molds to the Manufacturer shall apply as well to
any such third party.
5.6 In the event that the Manufacturer is unable to supply any additional
needs of the Company then the Company within the time frame of this
Agreement and\or within the time frame of the Akro Contract, the Company
shall be free to purchase Goods elsewhere to the extent of the
shortfall.
5.7 It shall be the responsibility of the Manufacturer to pay the cost of
purchasing and\or leasing all of the machinery or equipment required for
the manufacture of the Goods other than tooling and molds referred to
above, it being understood that such machinery and\or equipment shall be
and remain the property of the Manufacturer or the lessor of same.
ARTICLE 6 TERM OF AGREEMENT
6.1 The term of this Agreement shall commence as at January 1st, 1999, and
shall continue for a period of FIVE (5) YEARS, unless terminated earlier
in accordance with the provisions hereof. The Company shall have the
option to extend the term of this Agreement for a further period of
three (3) years by giving notice of such extension to the Manufacturer
not later than December 31st, 2002, and a further option to extend this
Agreement for a subsequent term of three (3) years by giving notice to
the Manufacturer not later than December 31st, 2005.
ARTICLE 7 PRICE AND PAYMENT
7.1 The price payable by the Company for the Goods shall consist of the
aggregate of:
7.1.1 the manufacturing costs ("Manufacturing Costs") of the Goods, as
indicated in Appendix I hereof. Said Manufacturing Costs have
been agreed by the parties and include the overhead of the
Manufacturer which is comprised only of the items listed in
Appendix II hereof; plus
7.1.2 the cost of shipping the Goods to the warehouse of the Company's
customer including, if applicable, duties, brokerage fees and
charges of like nature ("Shipping Costs"); plus
229
<PAGE>
7.1.3 forty-five percent (45%) of the profits as hereinafter defined.
The term "profits" shall mean the resale price charged by the
Company to its customers as set forth in the Company's invoices
(excluding sales taxes, value added taxes, and other items of
like nature which are charged to such customers and remitted by
the Company to the taxing authorities); minus the Manufacturing
Costs and Shipping Costs of the Goods in question.
Such price shall be paid by the Company to the Manufacturer in
accordance with the provisions of Section 7.3 below. For purposes of
this Agreement the term "profits" shall mean the total resale price
charged by the Company to Akro under the terms of the Akro Contract and
as set forth in the Company's invoices to Akro minus the Manufacturing
Costs, which Manufacturing Costs shall be calculated as follows:
7.1.2.1 The costs listed on Appendix I shall remain in force for
a period of twelve (12) months from the date of
commencement of this Agreement. Thereafter, in the event
that the Manufacturer is desirous of increasing the
amounts specified in Appendix I, it may only do so upon
at least one hundred and eighty (180) days notice to the
Company. Any such increase in cost must be based upon an
actual increase in the out-of- pocket costs to the
Manufacturer of producing the Goods, including actual
increases in the out-of-pocket costs to the Manufacturer
of only those items of overhead list on Appendix IV
hereof and no others, and any new costs so determined
shall again remain in force for a period of at least
twelve (12) months. The Manufacturer reserves the right
to negotiate with the Company in good faith to increase
its prices for other legitimate reasons, it being
understood however that no such increase shall be
effected unless it can be passed on to the customers of
the Company, with a reasonable markup, so that the
Company participates in the profits derived from such
increase.
7.2 In the event of a dispute concerning the justification of a price
increase the matter shall be submitted to arbitration by a single
arbitrator who is a partner in a major international accounting firm
which has an office in Montreal and to be selected by agreement of the
parties, and failing such agreement by a Judge of the Superior Court for
the District of Montreal.
7.3 The Company shall provide to the Manufacturer a copy of each purchase
order which the Company receives from its customers ("Customer Purchase
Order"), and upon which each purchase order from the Company to the
Manufacturer
230
<PAGE>
("IM(2) Purchase Order") is based. The Manufacturer shall invoice the
Company for the price of the Goods calculated in the manner set forth
above in Section 7.1. In calculating the Profits portion of such
purchase price foreign currency received by the Company shall be valued
in Canadian dollars based upon the actual conversion of such dollars
made by the Company at its bank in Montreal at the time that the Company
receives payment of such foreign currency, or if no such conversion is
made by the Company, at the value which the Company would have received
if such funds had been converted to Canadian dollars on the date that
the Company received payment. The terms of payment of the IM(2) Purchase
Order shall be one percent (1%),(ten [10] days net), forty-five (45)
days from delivery to customers warehouse.
7.4 Losses resulting from bad debts shall be absorbed by the Company and
shall not be taken into account in the calculation of profits.
ARTICLE 8 DELIVERY
8.1 All Goods shall be delivered by the Manufacturer in accordance with
whatever delivery schedule has been mutually agreed upon by the parties
in writing unless caused by default of the Company to meet its
obligations under Section 3.5 hereof, if the Manufacturer fails to
deliver the Goods in accordance with the delivery schedule the Company
shall be entitled to:
8.1.1 partially cancel the applicable order as to the affected Goods
and require Manufacturer to deliver all available Goods; or
8.1.2 cancel the applicable order for default; or
8.1.3 maintain the applicable order, accept late delivery and recover
amounts paid by the Company in connection with the failed
transaction as a direct consequence of such failure.
ARTICLE 9 ORDERS
9.1 Subject to the terms and conditions hereof, Manufacturer shall accept
any order for Goods from the Company or other party which, by mutual
agreement of the parties hereto, is entitled to order Goods hereunder.
Any terms and conditions in any such orders that are inconsistent with
or in addition to the terms and conditions hereof shall not be binding
upon Manufacturer unless Manufacturer expressly accepts them in writing.
Manufacturer is not authorized to ship any Goods unless and until an
order has been issued therefor. Subject to the terms and conditions of
Section 7.1.2.1 above, any preparation or work performed by Manufacturer
prior to receipt of an order shall be at Manufacturer's expense.
ARTICLE 10 PACKING, MARKING AND CUSTOM INVOICES
231
<PAGE>
10.1 The packaging for the Goods shall conspicuously state that the Goods
have been designed by the Company and they shall bear such trademarks as
are designated by the Company in a manner, style, size and colour
determined and specified by the Company in writing. Any and all other
notations or markings of any kind shall be subject to the prior written
approval of the Company bearing in mind the provisions of the Akro
Contract. Subject to the foregoing, the Manufacturer shall not be
identified in any respect on the Goods, or on any packaging materials
associated therewith. All shipments shall be suitably packed, marked and
shipped in accordance with all requirements stated herein, all
applicable laws, regulations, codes and other governmental requirements
and all requirements of the applicable carrier. A separate delivery
sheet on each local shipment is required, regardless of whether
deliveries of two or more shipments are made at the same time. Packing
slips must accompany each shipment and Manufacturer shall provide
duplicate invoices for each shipment. Subject to the terms and
conditions of Section 7.1.2.1 Manufacturer shall bear the cost of all
boxing, packing and crating. Each shipping container shall be marked,
and each packing slip and invoice shall be written in the English
language, all in accordance with the Company's written instructions.
Prior to any exportation, one copy of the required customs invoice shall
be enclosed in a waterproof envelope or wrapper clearly marked "customs
invoice" and securely attached to the outside of the shipping container
except as specifically authorized by the Company in writing,
Manufacturer shall not make any use of any trade names, trademarks or
any other proprietary information materials or rights of the Company.
ARTICLE 11 INSPECTION
11.1 The Company shall be allowed (but not obligated) to inspect the Goods
and reject any portion thereof that fails to conform to this Agreement.
As reasonably requested by the Company, the Company shall also be
entitled (but not obligated) to visit Manufacturer's premises during
ordinary business hours to conduct inspections of the Goods and observe
Manufacturer's testing of the Goods. The parties acknowledge and agree
that any inspection of the Goods by the Company is not likely to result
in any determination as to whether the Goods conform to the requirements
of this Agreement (i.e. that they are consistent with the samples
provided to the Company). The Company shall have all remedies provided
by applicable law in connection with any nonconforming Goods.
ARTICLE 12 WARRANTY
12.1 Manufacturer warrants that the Goods as delivered shall conform to all
samples supplied by Manufacturer, will not degrade in any material
respect, and will be merchantable and fit for their intended purposes
and comply with all applicable laws, regulations and standards. The
warranties shall remain in effect as provided in Exhibit F of the Akro
Contract. There are no other warranties of any kind not specified or
referenced herein or in separate written agreement of the parties.
232
<PAGE>
12.2 In the event any of the Goods fail at any time during the applicable
warranty period to meet the foregoing requirements, the Company may, at
its option:
12.2.1 require Manufacturer at its own expense to make such adjustments
or replacements as may be necessary to meet the reasonable
requirements of the Company's customer;
12.2.2 elect to accept or retain any such Goods, subject to appropriate
adjustment to the purchase price of the goods;
12.2.3 pursue any other remedy provided by applicable law.
In any event, Manufacturer shall promptly reimburse the Company for any
and all direct loss, damage and expenses incurred as a result of the
delivery and\or use of such nonconforming Goods.
ARTICLE 13 TRADE MARKS AND DESIGNS
13.1 All trade marks and designs used by the Company in the description of
the Goods shall remain the property of the Company or its distributors,
other than the mark "Rutex" which is and shall remain the property of
the Manufacturer.
ARTICLE 14 CONFIDENTIALITY
14.1 Each of the parties hereto agree to keep all of the terms of the present
Agreement confidential unless it is exempted from so doing in writing by
the other party except to the extent required by the U.S. Securities
laws, Manufacturer shall not advertise or publicize the fact that the
Company is using Manufacturer's services, or has contracted for the
purchase of the Goods from Manufacturer without first obtaining the
Company's consent, which shall not be unreasonably withheld. Any
know-how, information or materials which either party has heretofore
disclosed or hereafter discloses to the other shall at all times be
deemed the confidential and proprietary information of the party
disclosing such matter and shall be kept confidential by the other
party, and shall not be used or disclosed by the other party for any
purpose other than the performance of such other party's obligation
pursuant to this Agreement. Confidential and proprietary information
shall not be deemed to include know-how, information or materials which
are generally available to the public at the time of disclosure.
ARTICLE 15 TOOLING
15.1 At all times full and complete ownership rights relative to the tooling
referenced or described in Exhibit "B" (the "Tooling"), shall be in
accordance with the provisions of the Akro Contract. No ownership rights
are conferred upon Manufacturer by virtue of this Agreement or the
arrangements referred to herein. Manufacturer shall not encumber the
Company's property in any way or subject
233
<PAGE>
the same to any claim, levy, attachment, lien or other proceeding or
process affecting, limiting or challenging in any way the Company's
ownership rights except in the event of non-payment of the Company's
obligations towards the Manufacturer.
15.2 Manufacturer agrees that it shall not use the Tooling for any purpose
other than those directly relating to the manufacture and supply of the
Goods for the Company, without the prior written consent of the Company.
15.3 Subject to the terms and conditions of Section 15.1 above, upon
termination of this Agreement, including the expiration of any
applicable notice period, Manufacturer shall allow the Company or its
authorized contractor full access to Manufacturer's facilities for
purpose of disassembling and removing the Tooling.
ARTICLE 16 TERMINATION
16.1 Either party may terminate this Agreement at any time for cause provided
that the terminating party notifies the other party of the cause and
gives such party sixty (60) days in which to effect a cure. If such cure
is not reasonably acceptable to the terminating party, or if such cure
is not effected within the aforementioned sixty (60) day period, then
the termination shall be effective immediately following such sixty (60)
day period. Termination for cause shall include but not be limited to
the following causes:
16.1.1 any material breach of this Agreement by the non-terminating
party; or
16.1.2 the filing of a bankruptcy petition by or against the non-
terminating party, the appointment or application for a
receiver, examiner or custodian with respect to the non-
terminating party's assets and liabilities, or the making of an
assignment for the benefit of creditors or other agreement
relating to the liquidation of all or substantially all of the
non- terminating party's assets; or
16.1.3 the making of any material misrepresentation by the non-
terminating party to the other party; or
16.1.4 the persistent and unjustified failure of the Manufacturer to
deliver Goods in accordance with any agreed upon delivery
schedule;
16.1.5 the parties failing to agree on price, after good faith
negotiations, of all styles within the product line comprising
the Goods;
234
<PAGE>
16.2 In addition, the Company, subject to the provisions of Section 3.5, may
terminate any order or any part of any order in the event that:
16.2.1 the Goods comprised therein are defective or otherwise do not
conform to this Agreement; or
16.2.2 Manufacturer fails to deliver any Goods in accordance with any
agreed upon delivery schedule.
Further, the Company may terminate its distribution of any style in the
product line on thirty (30) days prior notice to Manufacturer if the
Company reasonably determines that its profits margin or sales
applicable to such styles in the product line are not adequate. Any such
termination of a style by the Company shall not give rise to any
remedies for the Manufacturer or otherwise affect any rights of the
parties under this Agreement.
ARTICLE 17 PRODUCT WARNINGS
17.1 Manufacturer agrees to supply the Company with written MSDS date and
applicable product warnings applicable to the Goods, including, but not
limited to use instructions, guidelines and restrictions.
ARTICLE 18 TECHNICAL ADVICE
18.1 Technical advice furnished by either party in connection with the
obligations of the other party shall be based upon information believed
to be reliable, but neither party shall assume any obligation or
liability for such advice or the results obtained by the other party in
reliance thereon.
ARTICLE 19 INDEMNIFICATION
19.1 Manufacturer hereby agrees to defend, indemnify and hold harmless the
Company, its successors and assigns, from and against any and all
losses, liabilities, claims, actions, judgments, damages and expenses,
including, without limitation, reasonable attorneys' fees arising out of
or in connection with:
19.1.1 the manufacture or use of the Goods, including, but not limited
to any defective condition of the Goods;
19.1.2 any breach of this Agreement by Manufacturer; or
19.1.3 any act or omission by Manufacturer, its employees, agents or
contractors.
19.2 The Company hereby agrees to defend, indemnify and hold harmless
Manufacturer, its successors and assigns from and against any and all
losses,
235
<PAGE>
liabilities, claims, actions, judgments, damages and expenses,
including, without limitation, reasonable attorneys' fees arising out of
or in connection with:
19.2.1 the Company's failure to meet its obligations towards its
customers in connection with any breach of this Agreement by the
Company; or
19.2.2 any act or omission by the Company, its employees, agents or
contractors; or
19.2.3 claims of design or patent infringement on molds or tooling.
ARTICLE 20 REMEDIES
20.1 In the event of any failure of performance hereunder, the non-defaulting
party shall have all rights and remedies contained herein, together with
any and all rights and remedies provided at law and/or in equity.
ARTICLE 21 NOTICE
21.1 Except as otherwise expressly set forth in this Agreement, all notices
required to be given or delivered hereunder shall be in writing and
shall be deemed to have been given when delivered personally, or by
documented courier delivery service, or sent by facsimile with
confirmation of receipt by the addressee. Notices shall be sent to the
addresses listed below, unless and to the extent that other addresses
are given by the parties in conformance herewith:
If to Manufacturer:
The Tirex Corporation Canada Inc.
740 St. Maurice Street
Suite 201
Montreal, Quebec H3C 1L5
Attn: Mr. Terry Byrne
Fax: (514) 878-9847
If to The Company:
IM(2) Merchandising & Manufacturing Inc.
60 Morgan Road
BAIE D'URFE QC H9X 3A4
Attn: Mr. David Sinclair
Fax: (514) 426-1507
ARTICLE 22 LANGUAGE
22.1 The parties agree that this Agreement may be translated into other
languages for ease of administration, but that as between the parties
hereto the English version
236
<PAGE>
of this Agreement shall for all intents and purposes be controlling. Les
parties conviennent et acceptent que le present contrat soit redige dans
la langue anglaise et acceptent qu'il soit traduit en d'autres langues
pour des fins d'administration. Toutefois, entre les parties, la version
anglaise du present contrat doit dans tous les cas avoir preseance.
ARTICLE 23 INSURANCE
23.1 At all times during the term of this agreement, Manufacturer shall
maintain in full force and effect, at Manufacturer's sole cost and
expense, comprehensive public liability insurance coverage and products
liability insurance coverage against claims for personal injury, death
or property damage in limits of not less than $3,000,000.00 per
occurrence for bodily injury and not less than $1,000,000.00 per
occurrence for property damage, or such other minimum limits as the
Company shall reasonably request in writing. All insurance shall be
obtained from companies licensed to do business in the Territory
reasonably acceptable to the Company. All insurance policies shall
require sixty (60) days prior notice to the Company of cancellation or
other material change in coverage. All insurance policies shall name the
Company as an additional insured and Manufacturer shall provide to the
Company a certificate of insurance coverage issued by an applicable
insurance carriers upon request.
ARTICLE 24 RELATIONSHIP OF PARTIES
24.1 The parties acknowledge and agree that they are independently
contracting parties and that no joint venture, partnership or
incorporated association is established hereby. Except as otherwise
expressly stated herein, any costs, liabilities and/or obligations
incurred by a party in connection with the manufacture, sale and
purchase of the Goods shall be borne solely by such party. Neither party
is the agent of the other party and neither party shall take any action
on behalf of the other party in any agency capacity.
ARTICLE 25 COUNTERPARTS
25.1 This Agreement may be executed in one or more counterparts, any one of
which need not contain the signature of more than one party, but all
counterparts taken together shall constitute one and the same Agreement.
ARTICLE 26 SEVERABILITY WAIVER
26.1 Whenever possible each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law. If
any provision of this Agreement is held to be prohibited or invalid
under applicable law by a court of competent jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. No delay by either party in
237
<PAGE>
exercising any right or remedy under this Agreement shall operate as a
waiver thereof nor will any single or partial exercise of any right or
remedy preclude any other or further exercise thereof or the exercise of
any other right or remedy. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
26.2
26.3
26.4
26.5
26.6
26.7
26.8
ARTICLE 27 SURVIVAL
27.1 The provisions of Section hereof shall survive any termination of this
Agreement.
ARTICLE 28 GOVERNING LAW
28.1 This Agreement shall be governed by and construed under the internal
laws of the Province of Quebec without giving effect to principles of
conflict of laws thereof.
ARTICLE 29 ENTIRE AGREEMENT
29.1 This Agreement shall constitute the entire agreement of the parties and
supersedes all prior agreements, oral or written, relating to the sale
and purchase of the Goods on or after the effective date hereof. The
parties agree to be bound by the terms and conditions hereof and all
specifications and documents referenced herein or attached hereto.
Except as expressly provided herein, this Agreement may be modified only
in writing signed by both parties. Any attempted acknowledgment of an
order containing terms and conditions inconsistent with or in addition
to the terms and conditions hereof shall not be binding upon either
party. No waiver of any of the terms or conditions hereby shall be
effective unless made in writing signed by both parties.
238
<PAGE>
IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED AND DELIVERED THIS AGREEMENT
AS OF THE DATE FIRST ABOVE WRITTEN.
IM(2) MERCHANDISING &
MANUFACTURING INC.
By/s/ David Sinclair
---------------------------------
Title President
THE TIREX CORPORATION CANADA INC.
By/s/ Terence C. Byrne
---------------------------------
Title President
239
EXHIBIT 10 (jj)
240
<PAGE>
Security Capital Trading, Inc.
520 Madison Avenue
New York, New York 10022
April 1, 1998
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
Attention: Mr. Terence C. Byrne, President
Gentlemen:
We are writing to confirm the terms of the agreement regarding our
rendition of corporate advisory and consulting services to The Tirex Corporation
(the "Company").
During the one year term commencing on the date first above written, we shall
provide the Company with such corporate advisory and consulting services as the
Company may from time to time reasonably request, pursuant to the terms and
subject to the conditions set form below.
1. It is anticipated that, at venous points in tune, the Company will
request that we perform a specific financial advisory seance or
services. In each such case, a separate agreement will be negotiated
which will set forth the services which the Company desires us to
render, which agreement will establish the fees payable to us for
such services. The teams assembled by us will include such members
of our corporate finance and research staff as may be required given
the nature of the particular transaction.
2. In consideration of our commitment to perform such services, and in
lieu of our annual normal retainer, the Company will issue to us or
our designees, one or more three year warrants (the "Warrants")
entitling the holder(s) thereof to purchase an aggregate of
2,000,000 shares of the Company's $.001 par value common stock (the
"Warrant Shares") at the following exercise prices: $.25 per share
for the first 666,666 shares, $.40 per share for the next 666,666
shares and $.50 per share for the remaining 666,667 shares. Such
Warrants, which shall be in the form annexed hereto as Exhibit A,
shall further provide, among other things, that the holder(s)
thereof shall be entitled to exercise such Warrants during the three
year period commencing on the date of issuance hereof, provided,
however that, if the Company shall file a registration statement
(the "Registration Statement") for an underwritten public offering
of its securities (the "Public
241
<PAGE>
Offering"), and the underwriter or representative of the
underwriters of the Public Offering (the "Underwriter") shall so
require, the holders of the Warrants, and any shares of Common Stock
theretofore issued or thereafter to be issued upon exercise thereof
(the "Warrant Shares") shall lock-up, for a period of not more than
one year from the effective date of the Registration Statement, all
Warrant Shares which shall not have been sold prior to the date of
initial filing of the Registration Statement in normal brokers or
market maker's transactions in the public trading market for the
Common Stock.
3. The Company hereby covenants and agrees that (a) the Warrants will
be, when delivered in accordance with the terms hereof, validly
issued, fully paid and non-assessable; (b) we or our designees, upon
delivery of the Warrants, will acquire good and marketable title to
the Warrants free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of
any kind whatsoever, except for any federal or state securities law
restrictions; (c) the Warrant Shares will be, when paid for and
delivered in accordance with the terms of the Warrants, validly
issued, fully paid and non-assessable; (d) we or our designees, upon
delivery of the Warrant Shares, will acquire good and marketable
tide to the Warrant Shares free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever, except for any federal
or state securities law restrictions; and (e) the Company, at its
sole cost and expense, will (i) register the Warrant Shares for sale
by us or our designees, as the selling securityholder(s) thereof,
under the Securities Act of 1933, as amended (the "Act"), pursuant
to the next Registration Statement which shall be filed by the
Company with the Securities and Exchange Commission subsequent to
the date of this letter agreement; (ii) will prepare and timely file
such post-effective amendments to such Registration Statement as
shall be necessary to maintain the registration of the Warrant
Shares under the Act until all of the Warrant Shares have been sold
by the holder(s) thereof, or until the Warrants shall expire,
whichever last occurs, and (iii) qualify the Warrant Shares for sale
by the holder(s) thereof under the Blue Sky laws of such states as
we shall reasonably request.
4. The Company will reimburse us for all out-of -pocket expenses which
we shall incur in carrying out the terms of this Agreement.
5. Nothing in this Agreement shall be considered to create the
relationship of employer and employee between the Company and us. We
shall be
242
<PAGE>
deemed at all tunes to be an independent contractor, without the
power or authority to bind the Company in any manner.
6. The Company agrees to indemnify and hold us and our affiliates,
control persons, directors, officers, employees and agents (each an
"Indemnified Person") harmless from and against all losses, claims,
damages, liabilities, costs or expenses, including those resulting
from any threatened or pending investigation, action, proceeding or
dispute whether or not we are, or any such other Indemnified Person
is, a party to such investigation, action, proceeding or dispute,
answer out of our entering into or performing services under this
Agreement, or arising out of any matter referred to in this
Agreement. This indemnity shall also include our and/or any such
other Indemnified Person's reasonable attorneys' and accountants'
fees and out-of-pocket expenses incurred in, and the cost of our
personnel whose time is spent in connection with, such
investigations, actions, proceedings or disputes which fees,
expenses and costs shall be periodically reimbursed to us and or to
any such other Indemnified Person by the Company as they are
incurred; provided however, that the indemnity herein set forth
shall not apply where a court of competent jurisdiction has made a
final determination that we acted in a grossly negligent manner or
engaged in willful misconduct in the performance of our services
hereunder which gave rise to the loss, claim, damage, liability,
cost or expense sought to be recovered hereunder (but pending any
such final determination the indemnification and reimbursement
provisions hereinabove set forth shall apply and the Company shall
perform its obligations hereunder to reimburse us and/or each such
other Indemnified Person periodically for its, his or their fees,
expenses and costs as they are incurred; such sums to be placed in
escrow pending final determination). The Company also agrees that
neither we nor any Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to
the Company for or in connection with any act or omission to act by
us as a result of our engagement under this Agreement except for any
such liability for losses, claims, damages, liabilities or expenses
incurred by the Company that is found in a final determination by a
court of competent jurisdiction to have resulted from ours gross
negligence or willful misconduct. If for any reason, the foregoing
indemnification is unavailable to us or any such other Indemnified
Person or insufficient to hold us and such of Indemnified Person
harmless, then the Company shall contribute to the amount paid or
payable by us or any such other Indemnified Person as a result of
such loss, claim, damage, or liability in such proportion as is
appropriate to reflect not only the relative benefits received by
the Company and its shareholders on the one hand and us or any such
other Indemnified Person on the other hand, but also the relative
fault of the Company and us or any such other Indemnified Person, as
well as any relevant equitable considerations; provided that in no
event will the aggregate contribution by us and any such other
Indemnified Person hereunder exceed the amount
243
<PAGE>
of fees actually received by us pursuant to this Agreement. The
reimbursement, indemnity and contribution obligations of the Company
hereinabove set form (a) shall be in addition to any liability which
the Company may otherwise have; (b) shall be binding upon the
Company and its successors and/or assigns; and (c) shall inure to
the benefit of any successors, assigns, heirs and personal
representatives, as the case may be, of us and any other Indemnified
Person.
7. This agreement sets form the entire understanding of the parties win
respect to the subject matter hereof, supersedes all existing
agreements between us concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
8. Any waiver by either the Company or us of a breach of any provision
of this Agreement shall not operate or as or be construed to be a
waiver of any other breach of such provision or of any breach of any
other provision of this Agreement. This Agreement shall be binding
upon and inure to the benefit of each of the Company, us and our
respective successors and assigns.
9. The covenants, agreement, representations, and warranties contained
in or made pursuant to this Agreement shall survive the termination
of our engagement hereunder, irrespective of any investigation made
by or on behalf of the Company or us.
10. While there is no commitment on our part, or on the part of the
Company to continue this relationship beyond the end of the Term, it
is the mutual expectation of the parties that the relationship will
continue, and that the parties will negotiate a mutually
satisfactory annual retainer to cover periods subsequent to the end
of the Term.
11. The Company agrees not to make any public announcement of this
Agreement (except as required by law) without our written consent.
12. In the event that the Company fails to perform any of the
obligations required an its part pursuant to this Agreement, we
shall be enticed to receive, as part of any award of damages, the
reasonable fees and disbursements which we shall have paid, or which
we shall owe, to our counsel in connection with our successful
prosecution of such proceedings.
If the foregoing accurately reflects your understanding of the Agreement
between
244
<PAGE>
the Company and us, please so indicate by signing the enclosed copy of this
letter at the line provided, and return same to us.
Very truly yours,
Security Capital Trading, Inc
By: ___________________________
Ronald Heinemen, President
The foregoing agreement is acknowledged and accepted this 1st day of April,
1998.
The Tirex Corporation
By: /s/ Terence C. Byrne
-------------------------------
Terence C. Byrne, President
245
EXHIBIT 10 (kk)
246
<PAGE>
IDEA-SME Project No: H30600762
3143619 Canada Inc.
(Operating under the name Tirex Canada)
740 St-Maurice
Suite 201
Montreal, Quebec
H3C 1L5
Attention: Mr. Terence C. Byrne, President
Subject: Contribution for the preparation of market development
studies and for market development activities in the
United States of America
Dear Sir:
The Government of Canada, as represented by the Federal Office of Regional
Development - Quebec ("the Minister") hereby offers to make a repayable
contribution under the Quebec SME Development Assistance Program (IDEA-SME) to
3143619 Canada Inc. (operating under the name Tirex Canada) for the
implementation of the project described in Appendix A, under the following
conditions.
1. THE AGREEMENT
1.1 The present letter of offer, including appendices A, B and C, constitutes
an agreement legally binding on the parties once it has been fully
accepted by the client ("the agreement").
2. THE PROJECT
2.1 The client shall carry out the project at:
Montreal, Quebec and in the United States of America
2.2 The client shall
.1 commence the project on or before August 31, 1997;
.2 complete the project on or before August 31, 1998.
247
<PAGE>
3. THE CONTRIBUTION
3.1 Subject to the other provisions of this agreement, the Minister agrees to
pay to the client a maximum contribution of $95,000, based on 50% of the
approved eligible costs.
3.2 The Minister shall not contribute to any cost incurred by the client prior
to June 26, 1997.
4. TERMS AND CONDITIONS OF PAYMENT
4.1 On submission of a documented claim by the client, the Minister shall pay
the contribution as follows:
.1 no more than once per quarter, the Minister shall pay financial
assistance corresponding to the eligible costs incurred and invoiced
to the client;
.2 payments made pursuant to paragraph 4.1.1 shall not exceed 90% of
the authorized contribution.
.3 once the project is completed to the Minister's satisfaction and all
costs claimed have been paid, the Minister shall pay the balance of
the contribution owing.
4.2 All payments to the client are subject to:
.1 the submission of such invoices and other vouchers that the Minister
may require;
.2 the submission of any report or information that the Minister may
reasonably require from the client.
4.3 The client shall have six months from the project completion date to
submit its last claim for payment to the Minister, after which the
minister is under no obligation to make payment in respect of the amount
being claimed if he deems the delay to be unjustified.
4.4 The Applicant repay the actual amount of the contribution disbursed by the
Minister according to the following schedule:
June 30, 2000 1/15 of the amount actually disbursed by the Minister.
June 30, 2001 2/15 of the amount actually disbursed by the Minister.
June 30, 2002 3/15 of the amount actually disbursed by the Minister.
248
<PAGE>
June 30, 2003 4/15 of the amount actually disbursed by the Minister.
June 30, 2004 5/15 of the amount actually disbursed by the Minister.
5. OTHER GOVERNMENT ASSISTANCE
5.1 The Applicant states that he has neither requested nor received any other
financial assistance for the purposes of the project.
5.2 The client agrees to disclose without delay, and in all cases no later
than the moment that such assistance is received, any other assistance
provided for the purposes of the project; and the client hereby
acknowledges that the minister may reduce the amount of the contribution
under this agreement by an amount equal to or less than the additional
assistance anticipated or received.
6. GENERAL CONDITIONS
6.1 Any notice shall be sent to the following address:
.1 to the Minister
Federal Office of Regional Development-Quebec
3800-800 Stock Exchange Tower
P.O. Box 247
Montreal, Quebec
H4Z 1E8
Attention: Director
Montreal Island
.2 to the client, at the address in the letter of offer.
6.2 The parties agree that any disclosure of this financial assistance shall
be made in accordance with the provisions of section 6 of Appendix B.
6.3 In the event of incompatibility or conflict of interpretation between the
letter of offer and Appendix A, on the one hand, and Appendix B, on the
other, the latter shall prevail.
6.4 This offer shall become null and void if it is not returned duly signed
and accepted without conditions by the client within 90 days of being sent
by the minister.
For further information, please contact Mr. Michael Ash at 283-3621, or
the undersigned at 283-2500
Yours truly,
Germain Pare
Director
Montreal Island
Enclosures
249
<PAGE>
Appendix A Project Description
Appendix B General Conditions
Appendix C Fact Sheet for Press Release
The offer and related conditions are hereby accepted this
_______________________ Day of _______________________, 1997
3143619 Canada Inc. ( operating under the name Tirex Canada)
____________________________________________________________
(signature)
____________________________________________________________
(Title)
____________________________________________________________
(signature)
____________________________________________________________
(Title)
250
<PAGE>
ANNEX "A" PROJECT
NUMBER: H30600762
PROJECT DESCRIPTION
OBJECTIVE OF THE PROJECT
3143619 Canada Inc. (Operating under the name Tirex Canada and hereinafter
referred to as "the Applicant") agrees to undertake market development work for
the sale of tire recycling equipment referred to by the Applicant as the TCS-1,
in the United States of America. The total cost of the activities, to be carried
out over the space of one year, is estimated at $190,000. The activities to be
undertaken as well as approximations of their cost follow. Certain activities
may occur outside the United States of America such as the major international
trade shows and conferences in Kuala Lampur, Liverpool, Nurnberg and Shanghai
but are accepted as eligible by virtue of the importance of the shows to the
overall marketing activities of TIREX on a worldwide basis, including the United
States of America.
Consulting contract (details below) $ 70,000
Market research assistant 25,000
Advertizing and publicity 6,000
Computer hardware/software for market data analysis 12,000
Electronic marketing including web site 8,000
Legal costs 5,000
Visits to prospective clients (anticipating 16
visits at an average cost of $1000 per visit) 16,000
Trade show costs both as exhibitors and as attendees
(see details below) 48,000
--------
TOTAL ELIGIBLE COST $190,000
========
Travel to and from clients
Expectation of 16 trips at an average cost of $1000 per trip including airfare,
ground transportation hotels, meals and other necessary costs.
16 x $1,000 = $16,000.
Trade Show Activities
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Show Airfare Hotels Meals Space Erection Ship + Promo Other Total
Rental Dismant Insce Material
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $1800 $ 800 $600 -- -- $400 $ 3,600
- -------------------------------------------------------------------------------------------------------
2 $2400 $ 800 $1200 -- -- -- $800 $ 5,200
- -------------------------------------------------------------------------------------------------------
3 $3900 $1200 $420 -- -- -- $300 $ 5,820
- -------------------------------------------------------------------------------------------------------
4 $5000 $1600 $640 $4000 $1200 $1200 $200 $13,840
- -------------------------------------------------------------------------------------------------------
5 $5700 $1800 $640 $2000 $1400 $ 750 $250 $12,540
- -------------------------------------------------------------------------------------------------------
6 $1700 $1200 $450 -- -- -- $500 $ 3,850
- -------------------------------------------------------------------------------------------------------
7 $1200 $ 900 $800 -- -- -- $200 $ 3,100
- -------------------------------------------------------------------------------------------------------
TOTAL $21,700 $8,300 $4,750 $6,000 $2,600 $1,950 $2,650 $47,950
- -------------------------------------------------------------------------------------------------------
TOTAL ROUNDED $48,000
</TABLE>
251
<PAGE>
Description of Trade Shows
Show 1 International Rubber Forum
in conjunction with the
102nd meeting of the
International Rubber
Study Group 2 days (June 98) UK or Indonesia (TBD)
Show 2 International Rubber
Conference 4 days (June 97) Nurnberg, Germany
Show 3 Annual Public
Recycling Officials 3 days (August 97) Pittsburg, PA
Show 4 International Rubber
Conference Rubberdex 4 days (Oct 97) Kuala Lampur, Malaysia
Show 5 Chinaplas 5 days (Oct 97) Shanghai, PRC
Show 6 "Beyond the Life
Cycle" Rubber
Division Expo 4 days (Oct 97) Cleveland, OH
Show 7 Annual Minnesota
Recycling &
Waste Assoc. 3 days (Nov 97) Minnesota
COMPLEMENTARY NOTES
1. The undertaking of the project should, in general terms, respect the
objectives, the project description, methodology and timing as indicated
in the various documents submitted to the Federal Office of Regional
Development - Quebec in support of the request for financial assistance.
Costs estimated for individual cost categories are estimates and are not
intended as limitations per category. Subject to note 3 below, the
Applicant may, within reason, substitute costs in one category for
another, as warranted by evolving commercial circumstances. The Applicant
should obtain authorization from the Department for significant variations
from the overall plan and such authorization should not unreasonably be
withheld. The Applicant may substitute a trade show not previously listed
for another listed above where circumstances warrant but the Applicant
should obtain authorization from the Department for such substitutions in
advance.
2. Eligible costs specifically exclude:
a) costs related to the hiring of a consultant with whom the Applicant
is related as defined in the Income Tax Act;
b) any taxes paid for which the Applicant is eligible for a refund or
an input tax credit (e.g. GST/TVQ);
c) any costs related to hospitality, entertainment and other costs of a
similar nature.
3. The Department reserves the right to reduce costs claimed relative to
hotels and subsistence where such amounts significantly exceed amounts
specified by Treasury Board in the Travel Directive for federal public
servants in travel status. Such amounts can be obtained from the
Department.
252
<PAGE>
APPENDIX B
GENERAL CONDITIONS
1. Interpretation
Unless the context dictates otherwise, the following terms have the meaning
stipulated, for the purposes of this agreement:
1.1 "Eligible costs": all the costs necessary to carry out the project. They
may include:
- fees for professional and technical services;
- the cost of labour assigned to the project;
- equipment rental fees;
- the cost of a demonstration project or of a development project for a
process, product or service, and the dissemination of the results;
- the cost of producing and disseminating promotional material;
- the cost of organizing an exhibition, conference, seminar or symposium;
- the cost of organizing a contest or of awarding grants;
- operating fees paid to an association of SME's or a support organization
for SME's;
- travel expenses;
- in exceptional cases, the cost of fixed assets deemed necessary to execute
an eligible catalyst project, with the exception of the cost of land,
motor vehicles not exclusively used on the project site and the portion of
the cost of any asset that exceeds the fair market value of the asset.
1.2 "Authorized costs": eligible costs listed in Appendix A that are deemed
reasonable and necessary to carry out the project, subject to the sharing
ratios, restrictions and terms of this agreement.
1.3 "Approved costs": costs claimed by the client that are, in the minister's
opinion, authorized costs.
1.4 "Government of Canada": Her Majesty the Queen in right of Canada.
2. Duration of the Agreement
2.1 The effective date of the agreement is the date on which the minister
receives a duly signed copy of the agreement.
2.2 The agreement shall terminate 12 months after the date on which the
project is completed; in the case of a repayable contribution, the
contract shall terminate on the date of the last repayment of the
contribution.
3. Representations and Undertakings by the Client
3.1 The client knows of no existing, imminent or probable legal proceedings,
or no reason, fact or event that could seriously compromise the project's
chances of success.
253
<PAGE>
3.2 The client states that the project description in Appendix A faithfully
reflects its intentions, and that the information contained therein are
true, and that all relevant information has been disclosed.
3.3 Until the project is completed, the client undertakes to:
.1 do everything necessary to carry out the project successfully and
within the agreed upon schedule and costs, in workmanlike fashion
and employing qualified personnel;
.2 immediately disclose to the minister any fact or event that might,
immediately or in the long term, jeopardize the project's chances of
success;
.3 comply with all laws, regulations, orders, and legal, quasi-legal
and administrative decisions applicable to the client and to the
project.
3.4 For the duration of this agreement, the client undertakes to do everything
necessary to maintain its corporate existence and legal competence and
inform the minister of any failure to do so.
3.5 For the duration of this agreement, the client undertakes not to amend the
project with respect to its cost, scope, completion date, location or any
other aspect, without the minister's prior written consent.
4. Reports and Information
4.1 The minister may require the client to produce promptly, free of charge
and without delay any information that the client has or may have
concerning the project.
4.2 The client shall at all times ensure that the minister or his
representative has access to its ledgers, information, documentation and
receipts in respect of the project's costs and financing, as well as any
other document that the minister may reasonably require for the purposes
of this agreement.
4.3 The minister, through his own auditors or recognized chartered
accountants, may conduct the audits provided for in the agreement, at the
minister's expense and according to a reasonable time schedule.
4.4 For 24 months after the project completion date, the client shall, at its
own expense
.1 keep and hold available for examination and audit by the minister
ledgers, accounts and cost records of the project; and
.2 promptly supply upon request such data in respect of the project and
its results as the minister may require to establish the level of
financial assistance or for statistical purposes.
4.5 The minister agrees, subject to the Access to Information Act of Canada,
to preserve the confidentiality of any data, reports and other information
provided in confidence by the client pursuant to this agreement, and not
to disclose them to any third party without the client's prior written
consent.
4.6 In the case of a contribution for a study, should the client decide not to
follow through with the consultant's recommendations, the client shall,
upon request, cede to the minister all the information obtained or
developed in consequence of the services provided by the consultant.
5. Default and Recourse
5.1 The following constitute events of default:
254
<PAGE>
.1 a) the client becomes bankrupt or requests protection under the
Bankruptcy and Insolvency Act;
b) the client goes into receivership;
c) an order is made in accordance with the Companies' Creditors
Arrangement Act (c 36);
.2 an order is made or resolution passed for the winding up of the
client, or the client is dissolved;
.3 the client ceases activities related to the project;
.4 in the opinion of the minister, there has been a significant
increase in the degree of risk relating to the execution of the
project;
.5 the client has made a false declaration or a false representation to
the minister, directly or through its representatives;
.6 a term, condition or undertaking provided in the agreement has not
been fulfilled;
.7 the client is not entitled to the contribution.
5.2 In the event of default, pursuant to clauses 5.1.1 and 5.1.2, all monies
paid to the client under this offer of contribution shall become
immediately due and payable.
5.3 If there is default, or if, in the minister's opinion, default is likely
to occur pursuant to clauses 5.1.3 to 5.1.7, the minister may exercise any
or all of the following remedies:
.1 adjust the amount of the contribution and notify the client
accordingly;
.2 suspend any payment of the contribution, either for amounts due or
future payments;
.3 terminate the agreement and immediately end any financial obligation
under the agreement;
.4 require the immediate total or partial repayment of any financial
assistance received.
5.4 The fact that the minister refrains from exercising a right conferred on
him by this agreement shall not be construed as a waiver of that right.
6. Announcements and Ceremonies
6.1 The client hereby agrees to a public announcement by the minister in the
form of a press release containing the information outlined in Appendix C
of this agreement.
6.2 The minister shall inform the client promptly in writing of the date on
which the public announcement is to be made and the client shall maintain
the confidentiality of this agreement until that date.
6.3 The client shall notify the minister in writing, at least 14 days in
advance, of any official ceremony organized with regard to the project.
6.4 The client hereby consents to the participation of the minister or his
representatives in any official ceremony.
7. Notice
7.1 Any notice, information or document required to be sent under this
agreement shall be effectively given if delivered by hand or sent by telex
or facsimile. Any notice shall be deemed to have been received on
delivery; any notice sent by telex or facsimile shall be deemed to have
been received
255
<PAGE>
one working day after being sent; any notice sent by mail shall be deemed
to have been received eight working days after being mailed.
7.2 Each of the parties may amend the address given in this agreement by
informing the other party of its new address and any such changes shall
come into force 15 days after receipt of the notice.
8. General
8.1 No member of the House of Commons or Senator shall be admitted to any
share or part of this agreement or to any benefit to arise therefrom.
8.2 The client confirms that no former public office holder in the Government
of Canada benefits directly or indirectly from this agreement, or, that if
such is the case, the said former public officer holder complies with the
provisions of the Conflict of Interest and Post-Employment Code.
8.3 This agreement and its benefits shall not be assigned without the prior
written consent of the minister.
8.4 The parties acknowledge that nothing in this agreement shall be construed
as creating a partnership or joint venture or agency relationship between
the minister and the client.
8.5 The parties hereto agree that this agreement be drafted in English only.
Les parties a la presente entente acceptent qu'elle soit redigee en
anglais seulement.
8.6 This agreement is made to the advantage and the benefit of the parties
hereto, their respective successors and assigns, and is binding upon them.
8.7 This agreement is subject to and shall be construed in accordance with the
laws of the province of Quebec.
8.8 Recourse provided under this agreement is cumulative and shall not exclude
any other recourse provided by law.
8.9 Any payment due under this agreement is subject to there being an
appropriation for the fiscal year in which the payment is to be made.
256
<PAGE>
APPENDIX C
================================================================================
PROJECT FACT SHEET
FOR THE MINISTER AND PRESS RELEASE
- --------------------------------------------------------------------------------
IDEA-SME Project no H30600762
- --------------------------------------------------------------------------------
Client's name and address Resource persons:
3143619 Canada Inc, (Tirex Canada) Name Mr. Terence C. Byrne
740 St-Maurice Title President
Suite 201 Telephone 878-0727
Montreal, Quebec Fax 878-9847
H3C 1L5
- --------------------------------------------------------------------------------
Project location Federal riding
USA plus essential trade shows in other St-Henri-Westmount
regions.
- --------------------------------------------------------------------------------
Project description: Market development activities in the United States of
America for the sale of tire recycling equipment.
- --------------------------------------------------------------------------------
Total cost of project $190,000
- --------------------------------------------------------------------------------
Authorized assistance (type of financial assistance and amount)
Repayable contribution
50% X $190,000 = $95,000 MAXIMUM
- --------------------------------------------------------------------------------
Effect on jobs (specify whether any will be created or preserved) Impossible to
predict at this time.
- --------------------------------------------------------------------------------
Estimated project start date Estimated project completion date
August 31, 1997 August 31, 1998
- --------------------------------------------------------------------------------
Date offer made Date offer accepted
================================================================================
257
EXHIBIT 10 (ll)
258
<PAGE>
IDEA-SME Project No: H30601158
3143619 Canada Inc.
(Tirex Canada)
740 St-Maurice
Suite 201
Montreal (Qc)
H3C 1L5
Attention: Mr. Vijay Kachru
Subject: Contribution under IDEA-SME for International market development
activities
Dear Sir:
The Government of Canada, as represented by Canada Economic Development
for Quebec Regions ("the Minister") hereby offers to make a repayable
contribution under the Quebec SME Development Assistance Program (IDEA-SME) to
3143619 Canada Inc. (Tirex Canada). for the implementation of the project
described in Appendix A, under the following conditions.
1. THE AGREEMENT
1.1 The present letter of offer, including appendices A, B and C, constitutes
an agreement legally binding on the parties once it has been fully
accepted by the client ("the agreement").
2. THE PROJECT
2.1 The client shall carry out the project at: Montreal, Quebec and in the
United States of America.
2.2 The client shall
.1 commence the project on or before April 30, 1998;
.2 complete the project on or before March 31, 1999.
3. THE CONTRIBUTION
3.1 Subject to the other provisions of this agreement, the Minister agrees to
pay to the client a maximum contribution of $98,000, based on 50% of the
approved eligible costs.
3.2 The Minister shall not contribute to any cost incurred by the client prior
to February 25, 1998.
259
<PAGE>
4. TERMS AND CONDITIONS OF PAYMENT
4.1 On submission of a documented claim by the client, the Minister shall pay
the contribution as follows:
.1 no more than once per quarter, the Minister shall pay financial
assistance corresponding to the eligible costs incurred and invoiced
to the client;
.2 payments made pursuant to paragraph 4.1.1 shall not exceed 90% of
the authorized contribution.
.3 once the project is completed to the Minister's satisfaction and all
costs claimed have been paid, the Minister shall pay the balance of
the contribution owing.
4.2 All payments to the client are subject to:
.1 the submission of such invoices and other vouchers that the Minister
may require;
.2 the submission of any report or information that the Minister may
reasonably require from the client.
4.3 The client shall have six months from the project completion date to
submit its last claim for payment to the Minister, after which the
minister is under no obligation to make payment in respect of the amount
being claimed if he deems the delay to be unjustified.
4.4 The Applicant repay the actual amount of the contribution disbursed by the
Minister according to the following schedule:
June 30, 2001 1/15 of the amount actually disbursed by the Minister.
June 30, 2002 2/15 of the amount actually disbursed by the Minister.
June 30, 2003 3/15 of the amount actually disbursed by the Minister.
June 30, 2004 4/15 of the amount actually disbursed by the Minister.
June 30, 2005 5/15 of the amount actually disbursed by the Minister.
5. OTHER GOVERNMENT ASSISTANCE
5.1 The Applicant states that he has neither requested nor received any other
financial assistance for the purposes of the project.
5.2 The client agrees to disclose without delay, and in all cases no later
than the moment that such assistance is received, any other assistance
provided for the purposes of the project; and the client hereby
acknowledges that the minister may reduce the amount of the contribution
under this agreement by an amount equal to or less than the additional
assistance anticipated or received.
260
<PAGE>
6. GENERAL CONDITIONS
6.1 Any notice shall be sent to the following address:
.1 to the Minister
Canada Economic Development for Quebec Regions
3800-800 Stock Exchange Tower
P.O. Box 247
Montreal, Quebec
H4Z 1E8
Attention: Director
Montreal Island
.2 to the client, at the address in the letter of offer.
6.2 The parties agree that any disclosure of this financial assistance shall
be made in accordance with the provisions of section 6 of Appendix B.
6.3 In the event of incompatibility or conflict of interpretation between the
letter of offer and Appendix A, on the one hand, and Appendix B, on the
other, the latter shall prevail.
6.4 This offer shall become null and void if it is not returned duly signed
and accepted without conditions by the client within 90 days of being sent
by the minister.
For further information, please contact Mr. Michael Ash at 283-3621, or
the undersigned at 283-8153
Yours truly,
Suzanne Ouimet
Director
Montreal Island
Enclosures
Appendix A Project Description
Appendix B General Conditions
Appendix C Fact Sheet for Press Release
The offer and related conditions are hereby accepted this
261
<PAGE>
________________________ Day of ___________________________, 1998
3143619 Canada Inc.
(Tirex Canada)
_________________________________________________________________
(signature)
_________________________________________________________________
(Title)
_________________________________________________________________
(signature)
_________________________________________________________________
(Title)
262
<PAGE>
PROJECT NUMBER: H30601158 ANNEX "A"
3143619 Canada Inc.
(Tirex Canada)
PROJECT DESCRIPTION
OBJECTIVE OF THE PROJECT
3143619 Canada Inc. (Operating under the name Tirex Canada and hereinafter
referred to as "the Applicant") agrees to undertake market development work for
the sale of tire recycling equipment referred to by the Applicant as the TCS-1,
in the United States of America. The total cost of the activities, to be carried
out over the space of one year, is estimated at $196,000. Certain activities may
occur outside Canada and the United States of America, and such activities may,
at the discretion of the Department, be deemed eligible in the event that it can
be shown that the undertaking of such activities is important to the overall
market development activities in the United States of America. The activities,
as per the proposal submitted with this application, will, in general terms,
comprise the activities enumerated below. Note that the Applicant is expected to
undertake those activities which are consistent with the terms of the proposal
and that the amounts listed for the various activities represent only estimates
of the cost of such activities and are not to be interpreted as limitations by
category. The Applicant may, within reason, substitute costs in one category for
costs in another to the extent that the overall intent and methodology of the
proposal is respected. The Applicant agrees to consult with the Department prior
to undertaking any significant commitments for US market development activities
which significantly deviate from those listed below, and to obtain Department
authorization for such activities should it be the intention of the Applicant to
produce claims under this Agreement for such activities. The Department reserves
the right to accept costs for market development activities not specifically
noted below if the Department is convinced that such activities are consistent
with the overall objectives of the project and acceptance of such costs shall
constitute an automatic adjustment of the Statement of Work. More specifically,
the activities will include:
ESTIMATE OF COST OF MARKET DEVELOPMENT ACTIVITIES
Consulting contract (Robert Eller Associates
and MD Technologies Inc.) $107,000
Validation of results with processors and preliminary
marketing, travel expenses and documentation 25,000
Visits to prospective clients - consulting validation
stage (see details below) 17,000
Preparation of samples 10,000
Product literature 15,000
Visits to prospective clients - market
development stage (see details below) 22,000
--------
TOTAL ELIGIBLE COST $196,000
========
263
<PAGE>
Travel to and from clients - average 2 nights - consulting validation stage
- --------------------------------------------------------------------------------
Location Airfare Hotels Meals Local costs Total per Total
- --------------------------------------------------------------------------------
Chicago $900 $350 $150 $50 $1,450 $2,900
- --------------------------------------------------------------------------------
Pittsburgh $900 $240 $150 $50 $1,340 $2,680
- --------------------------------------------------------------------------------
Dallas $1,200 $230 $150 $50 $1,630 $3,260
- --------------------------------------------------------------------------------
New York $600 $400 $150 $50 $1,200 $2,400
- --------------------------------------------------------------------------------
California $900 $350 $150 $50 $1,450 $2,900
- --------------------------------------------------------------------------------
Ohio $800 $250 $150 $50 $1,250 $2,500
- --------------------------------------------------------------------------------
TOTAL 16,640
- --------------------------------------------------------------------------------
ROUNDED $17,000
=======
Travel to and from clients - average 2 nights - market development stage
- --------------------------------------------------------------------------------
Location Airfare Hotels Meals Local costs Total per Total
- --------------------------------------------------------------------------------
Chicago $900 $350 $150 $50 $1,450 $2,900
- --------------------------------------------------------------------------------
Pittsburgh $900 $240 $150 $50 $1,340 $2,680
- --------------------------------------------------------------------------------
Dallas $1,200 $230 $150 $50 $1,630 $3,260
- --------------------------------------------------------------------------------
New York $600 $400 $150 $50 $1,200 $2,400
- --------------------------------------------------------------------------------
California $900 $350 $150 $50 $1,450 $2,900
- --------------------------------------------------------------------------------
Ohio (first trip) $800 $250 $150 $50 $1,250 $2,500
- --------------------------------------------------------------------------------
Ohio (second trip) $800 $250 $150 $50 $1,250 $2,500
- --------------------------------------------------------------------------------
New Jersey $600 $250 $150 $50 $1,050 $2,100
- --------------------------------------------------------------------------------
TOTAL $21,240
- --------------------------------------------------------------------------------
ROUNDED $22,000
=======
COMPLEMENTARY NOTES
264
<PAGE>
1. The undertaking of the project should, in general terms, respect the
objectives, the project description, methodology and timing as indicated
in the various documents submitted to the Federal Office of Regional
Development - Quebec in support of the request for financial assistance.
Costs estimated for individual cost categories are estimates and are not
intended as limitations per category. Subject to note 3 below, the
Applicant may, within reason, substitute costs in one category for
another, as warranted by evolving commercial circumstances. The Applicant
should obtain authorization from the Department for significant variations
from the overall plan and such authorization should not unreasonably be
withheld.
2. Eligible costs specifically exclude:
a) costs related to the hiring of a consultant with whom the Applicant
is related as defined in the Income Tax Act;
b) any taxes paid for which the Applicant is eligible for a refund or
an input tax credit (e.g. GST/TVQ);
c) any costs related to hospitality, entertainment and other costs of a
similar nature.
3. The Department reserves the right to reduce costs claimed relative to
hotels and subsistence where such amounts significantly exceed amounts
specified by Treasury Board in the Travel Directive for federal public
servants in travel status. These amounts are subject to revision on the
first of April and the first of October of each year. Hotel rates and
daily subsistence rates are available upon request. For information
purposes only, as of the date of this Letter of Offer, the maximum daily
rates for federal employees per person for meals is approximately US$50,
and the maximum rates for federal employees benefitting from hotel
corporate rates for selected cities, before local taxes, in US dollars,
are as follows:
New York US$142 Dallas US$ 71 Washington US$113
Seattle US$ 79 San Francisco US$ 96 Detroit US$ 80
Chicago US$100 Atlanta US$ 81 Philadelphia US$ 89
Miami US$ 73 Boston US$100 Baltimore US$ 78
Las Vegas US$ 70 Los Angeles US$100 Cleveland US$ 78
The provision of this information is intended as a guideline to the
Applicant and should not be interpreted as an automatic allowance. The
Applicant agrees that claims will be made on the basis of actual amounts
incurred for hotel and meal expenses, and that claims for such expenses
will include a detailed listing of such amounts. Amounts attempted to be
claimed as an automatic "Per Diem" will be disallowed.
265
<PAGE>
APPENDIX B
GENERAL CONDITIONS
1. Interpretation
Unless the context dictates otherwise, the following terms have the meaning
stipulated, for the purposes of this agreement:
1.1 "Eligible costs": all the costs necessary to carry out the project. They
may include:
- fees for professional and technical services;
- the cost of labour assigned to the project;
- equipment rental fees;
- the cost of a demonstration project or of a development project for a
process, product or service, and the dissemination of the results;
- the cost of producing and disseminating promotional material;
- the cost of organizing an exhibition, conference, seminar or symposium;
- the cost of organizing a contest or of awarding grants;
- operating fees paid to an association of SME's or a support organization
for SME's;
- travel expenses;
- in exceptional cases, the cost of fixed assets deemed necessary to execute
an eligible catalyst project, with the exception of the cost of land,
motor vehicles not exclusively used on the project site and the portion of
the cost of any asset that exceeds the fair market value of the asset.
1.2 "Authorized costs": eligible costs listed in Appendix A that are deemed
reasonable and necessary to carry out the project, subject to the sharing
ratios, restrictions and terms of this agreement.
1.3 "Approved costs": costs claimed by the client that are, in the minister's
opinion, authorized costs.
1.4 "Government of Canada": Her Majesty the Queen in right of Canada.
2. Duration of the Agreement
2.1 The effective date of the agreement is the date on which the minister
receives a duly signed copy of the agreement.
2.2 The agreement shall terminate 12 months after the date on which the
project is completed; in the case of a repayable contribution, the
contract shall terminate on the date of the last repayment of the
contribution.
3. Representations and Undertakings by the Client
266
<PAGE>
3.1 The client knows of no existing, imminent or probable legal proceedings,
or no reason, fact or event that could seriously compromise the project's
chances of success.
3.2 The client states that the project description in Appendix A faithfully
reflects its intentions, and that the information contained therein are
true, and that all relevant information has been disclosed.
3.3 Until the project is completed, the client undertakes to:
.1 do everything necessary to carry out the project successfully and
within the agreed upon schedule and costs, in workmanlike fashion
and employing qualified personnel;
.2 immediately disclose to the minister any fact or event that might,
immediately or in the long term, jeopardize the project's chances of
success;
.3 comply with all laws, regulations, orders, and legal, quasi-legal
and administrative decisions applicable to the client and to the
project.
3.4 For the duration of this agreement, the client undertakes to do everything
necessary to maintain its corporate existence and legal competence and
inform the minister of any failure to do so.
3.5 For the duration of this agreement, the client undertakes not to amend the
project with respect to its cost, scope, completion date, location or any
other aspect, without the minister's prior written consent.
4. Reports and Information
4.1 The minister may require the client to produce promptly, free of charge
and without delay any information that the client has or may have
concerning the project.
4.2 The client shall at all times ensure that the minister or his
representative has access to its ledgers, information, documentation and
receipts in respect of the project's costs and financing, as well as any
other document that the minister may reasonably require for the purposes
of this agreement.
4.3 The minister, through his own auditors or recognized chartered
accountants, may conduct the audits provided for in the agreement, at the
minister's expense and according to a reasonable time schedule.
4.4 For 24 months after the project completion date, the client shall, at its
own expense
.1 keep and hold available for examination and audit by the minister
ledgers, accounts and cost records of the project; and
.2 promptly supply upon request such data in respect of the project and
its results as the minister may require to establish the level of
financial assistance or for statistical purposes.
4.5 The minister agrees, subject to the Access to Information Act of Canada,
to preserve the confidentiality of any data, reports and other information
provided in confidence by the client pursuant to this agreement, and not
to disclose them to any third party without the client's prior written
consent.
4.6 In the case of a contribution for a study, should the client decide not to
follow through with the consultant's recommendations, the client shall,
upon request, cede to the minister all the information obtained or
developed in consequence of the services provided by the consultant.
267
<PAGE>
5. Default and Recourse
5.1 The following constitute events of default:
.1 a) the client becomes bankrupt or requests protection under the
Bankruptcy and Insolvency Act;
b) the client goes into receivership;
c) an order is made in accordance with the Companies' Creditors
Arrangement Act (c 36);
.2 an order is made or resolution passed for the winding up of the
client, or the client is dissolved;
.3 the client ceases activities related to the project;
.4 in the opinion of the minister, there has been a significant
increase in the degree of risk relating to the execution of the
project;
.5 the client has made a false declaration or a false representation to
the minister, directly or through its representatives;
.6 a term, condition or undertaking provided in the agreement has not
been fulfilled;
.7 the client is not entitled to the contribution.
5.2 In the event of default, pursuant to clauses 5.1.1 and 5.1.2, all monies
paid to the client under this offer of contribution shall become
immediately due and payable.
5.3 If there is default, or if, in the minister's opinion, default is likely
to occur pursuant to clauses 5.1.3 to 5.1.7, the minister may exercise any
or all of the following remedies:
.1 adjust the amount of the contribution and notify the client
accordingly;
.2 suspend any payment of the contribution, either for amounts due or
future payments;
.3 terminate the agreement and immediately end any financial obligation
under the agreement;
.4 require the immediate total or partial repayment of any financial
assistance received.
5.4 The fact that the minister refrains from exercising a right conferred on
him by this agreement shall not be construed as a waiver of that right.
6. Announcements and Ceremonies
6.1 The client hereby agrees to a public announcement by the minister in the
form of a press release containing the information outlined in Appendix C
of this agreement.
6.2 The minister shall inform the client promptly in writing of the date on
which the public announcement is to be made and the client shall maintain
the confidentiality of this agreement until that date.
6.3 The client shall notify the minister in writing, at least 14 days in
advance, of any official ceremony organized with regard to the project.
6.4 The client hereby consents to the participation of the minister or his
representatives in any official ceremony.
268
<PAGE>
7. Notice
7.1 Any notice, information or document required to be sent under this
agreement shall be effectively given if delivered by hand or sent by telex
or facsimile. Any notice shall be deemed to have been received on
delivery; any notice sent by telex or facsimile shall be deemed to have
been received one working day after being sent; any notice sent by mail
shall be deemed to have been received eight working days after being
mailed.
7.2 Each of the parties may amend the address given in this agreement by
informing the other party of its new address and any such changes shall
come into force 15 days after receipt of the notice.
8. General
8.1 No member of the House of Commons or Senator shall be admitted to any
share or part of this agreement or to any benefit to arise therefrom.
8.2 The client confirms that no former public office holder in the Government
of Canada benefits directly or indirectly from this agreement, or, that if
such is the case, the said former public officer holder complies with the
provisions of the Conflict of Interest and Post-Employment Code.
8.3 This agreement and its benefits shall not be assigned without the prior
written consent of the minister.
8.4 The parties acknowledge that nothing in this agreement shall be construed
as creating a partnership or joint venture or agency relationship between
the minister and the client.
8.5 The parties hereto agree that this agreement be drafted in English only.
Les parties a la presente entente acceptent qu'elle soit redigee en
anglais seulement.
8.6 This agreement is made to the advantage and the benefit of the parties
hereto, their respective successors and assigns, and is binding upon them.
8.7 This agreement is subject to and shall be construed in accordance with the
laws of the province of Quebec.
8.8 Recourse provided under this agreement is cumulative and shall not exclude
any other recourse provided by law.
8.9 Any payment due under this agreement is subject to there being an
appropriation for the fiscal year in which the payment is to be made.
269
<PAGE>
APPENDIX C
================================================================================
PROJECT FACT SHEET
FOR THE MINISTER AND PRESS RELEASE
- --------------------------------------------------------------------------------
IDEA-SME Project no H30601158
- --------------------------------------------------------------------------------
Client's name and address Resource persons:
3143619 Canada Inc. (Tirex Canada) Name Mr. Terence C. Byrne
740 St-Maurice Title President
Suite 201 Telephone 878-0727
Montreal, Quebec Fax 878-9847
H3C 1L5
- --------------------------------------------------------------------------------
Project location Federal riding
Montreal and USA. St-Henri-Westmount
- --------------------------------------------------------------------------------
Project description: Market development activities in the United States of
America for the sale of tire recycling equipment.
- --------------------------------------------------------------------------------
Total cost of project $196,000
- --------------------------------------------------------------------------------
Authorized assistance (type of financial assistance and amount)
Repayable contribution
50% X $196,000 = $98,000 MAXIMUM
- --------------------------------------------------------------------------------
Effect on jobs (specify whether any will be created or preserved)
Mainly consulting work, job creation numbers not possible to estimate with any
reliability at this time.
- --------------------------------------------------------------------------------
Estimated project start date Estimated project completion date
April 30, 1998 March 31, 1999
- --------------------------------------------------------------------------------
Date offer made Date offer accepted
================================================================================
270
EXHIBIT 10 (mm)
271
<PAGE>
IDEA-SME Project No: H30600635
3143619 Canada Inc.
(Operating under the name Tirex Canada)
3767 Thimens Boulevard
Suite 207
St. Laurent, Quebec
H4R 1W4
Attention: Mr. Terence C. Byrne, President
Subject: Contribution for the preparation of market development studies
for India
Dear Sir:
The Government of Canada, as represented by the Federal Office of Regional
Development -Quebec ("the Minister") hereby offers to make a repayable
contribution under the Quebec SME Development Assistance Program (IDEA-SME) to
3143619 Canada Inc. (operating under the name Tirex Canada) for the
implementation of the project described in Appendix A, under the following
conditions.
1. THE AGREEMENT
1.1 The present letter of offer, including appendices A, B and C, constitutes
an agreement legally binding on the parties once it has been fully
accepted by the client ("the agreement").
2. THE PROJECT
2.1 The client shall carry out the project at:
St. Laurent, Quebec and in India
2.2 The client shall
.1 commence the project on or before April 30, 1997;
.2 complete the project on or before July 31, 1997.
272
<PAGE>
3. THE CONTRIBUTION
3.1 Subject to the other provisions of this agreement, the Minister agrees to
pay to the client a maximum contribution of $20,000, based on 50% of the
approved eligible costs.
3.2 The Minister shall not contribute to any cost incurred by the client prior
to March 21, 1997.
4. TERMS AND CONDITIONS OF PAYMENT
4.1 On submission of a documented claim by the client, the Minister shall pay
the contribution as follows:
.1 no more than once per quarter, the Minister shall pay financial
assistance corresponding to the eligible costs incurred and invoiced
to the client;
.2 payments made pursuant to paragraph 4.1.1 shall not exceed 90% of
the authorized contribution.
.3 once the project is completed to the Minister's satisfaction and all
costs claimed have been paid, the Minister shall pay the balance of
the contribution owing.
4.2 All payments to the client are subject to:
.1 the submission of such invoices and other vouchers that the Minister
may require;
.2 the submission of any report or information that the Minister may
reasonably require from the client.
4.3 The client shall have six months from the project completion date to
submit its last claim for payment to the Minister, after which the
minister is under no obligation to make payment in respect of the amount
being claimed if he deems the delay to be unjustified.
4.4 The Applicant will repay the contribution to the Minister in amounts equal
to 1% of the annual gross sales in India (before GST and TVQ or their
equivalent in India realized by the Applicant or by any other company
associated with the Applicant within the meaning described in the Income
Tax Act, occuring after June 1, 1997. The first instalment shall become
due and payable on June 30, 1998. Each subsequent instalment will become
due and payable at twelve month intervals thereafter, until such times as
the Applicant will have completely repaid the contribution, or until, and
including the payment which might become due on June 30, 2002, whichever
is sooner.
5. OTHER GOVERNMENT ASSISTANCE
5.1 The Applicant states that he has neither requested nor received any other
financial assistance for the purposes of the project.
5.2 The client agrees to disclose without delay, and in all cases no later
than the moment that such assistance is received, any other assistance
provided for the purposes of the project; and the
client hereby acknowledges that the minister may reduce the amount of the
contribution under this agreement by an amount equal to or less than the
additional assistance anticipated or received.
273
<PAGE>
6. GENERAL CONDITIONS
6.1 Any notice shall be sent to the following address:
.1 to the Minister
Federal Office of Regional Development-Quebec
3800-800 Stock Exchange Tower
P.O. Box 247
Montreal, Quebec
H4Z 1E8
Attention: Director
Montreal Island
.2 to the client, at the address in the letter of offer.
6.2 The parties agree that any disclosure of this financial assistance shall
be made in accordance with the provisions of section 6 of Appendix B.
6.3 In the event of incompatibility or conflict of interpretation between the
letter of offer and Appendix A, on the one hand, and Appendix B, on the
other, the latter shall prevail.
6.4 This offer shall become null and void if it is not returned duly signed
and accepted without conditions by the client within 90 days of being sent
by the minister.
For further information, please contact Mr. Michael Ash at 283-3621, or
the undersigned at 283-2500
Yours truly,
Germain Pare
Director
Montreal Island
Enclosures
Appendix A Project Description
Appendix B General Conditions
Appendix C Fact Sheet for Press Release
The offer and related conditions are hereby accepted this
__________________________ Day of ____________________, 1997
3143619 Canada Inc. ( operating under the name Tirex Canada)
274
<PAGE>
____________________________________________________________
(signature)
____________________________________________________________
(Title)
____________________________________________________________
(signature)
____________________________________________________________
(Title)
275
<PAGE>
ANNEX "A"
PROJECT NUMBER: H30600635
PROJECT DESCRIPTION
OBJECTIVE OF THE PROJECT
3143619 Canada Inc. (Operating under the name Tirex Canada and hereinafter
referred to as "the Applicant") agrees to commission consulting studies, the
purpose of which will be to develop a strategic marketing plan for the sale of a
new tire disintegration system, referred to by the Applicant as the TCS-1, in
India. The total cost of the study, as per the proposal submitted by Sinermad
Comercio e Invest, Lda., is Cdn.$40,000. The study is to be completed prior to
July 31, 1997 and is to be carried out in accordance with the consultant's
proposal, as submitted by the Applicant as supporting documention under IDEA
file # H30600635.
TOTAL ELIGIBLE COST $40,000
=======
N.B. The costs incurred to engage a consultant with whom the Applicant is not
dealing at arm's length, as defined by the Income Tax Act are not
eligible. Authorized costs exclude any taxes and duties for which the
Applicant would be eligible to receive a refund or an input tax credit
against other taxes payable, such as (without limitation) GST and TVQ.
276
<PAGE>
APPENDIX B
GENERAL CONDITIONS
1. Interpretation
Unless the context dictates otherwise, the following terms have the meaning
stipulated, for the purposes of this agreement:
1.1 "Eligible costs": all the costs necessary to carry out the project. They
may include:
- fees for professional and technical services;
- the cost of labour assigned to the project;
- equipment rental fees;
- the cost of a demonstration project or of a development project for a
process, product or service, and the dissemination of the results;
- the cost of producing and disseminating promotional material;
- the cost of organizing an exhibition, conference, seminar or symposium;
- the cost of organizing a contest or of awarding grants;
- operating fees paid to an association of SME's or a support organization
for SME's;
- travel expenses;
- in exceptional cases, the cost of fixed assets deemed necessary to execute
an eligible catalyst project, with the exception of the cost of land,
motor vehicles not exclusively used on the project site and the portion of
the cost of any asset that exceeds the fair market value of the asset.
1.2 "Authorized costs": eligible costs listed in Appendix A that are deemed
reasonable and necessary to carry out the project, subject to the sharing
ratios, restrictions and terms of this agreement.
1.3 "Approved costs": costs claimed by the client that are, in the minister's
opinion, authorized costs.
1.4 "Government of Canada": Her Majesty the Queen in right of Canada.
2. Duration of the Agreement
2.1 The effective date of the agreement is the date on which the minister
receives a duly signed copy of the agreement.
2.2 The agreement shall terminate 12 months after the date on which the
project is completed; in the case of a repayable contribution, the
contract shall terminate on the date of the last repayment of the
contribution.
3. Representations and Undertakings by the Client
3.1 The client knows of no existing, imminent or probable legal proceedings,
or no reason, fact or event that could seriously compromise the project's
chances of success.
277
<PAGE>
3.2 The client states that the project description in Appendix A faithfully
reflects its intentions, and that the information contained therein are
true, and that all relevant information has been disclosed.
3.3 Until the project is completed, the client undertakes to:
.1 do everything necessary to carry out the project successfully and
within the agreed upon schedule and costs, in workmanlike fashion
and employing qualified personnel;
.2 immediately disclose to the minister any fact or event that might,
immediately or in the long term, jeopardize the project's chances of
success;
.3 comply with all laws, regulations, orders, and legal, quasi-legal
and administrative decisions applicable to the client and to the
project.
3.4 For the duration of this agreement, the client undertakes to do everything
necessary to maintain its corporate existence and legal competence and
inform the minister of any failure to do so.
3.5 For the duration of this agreement, the client undertakes not to amend the
project with respect to its cost, scope, completion date, location or any
other aspect, without the minister's prior written consent.
4. Reports and Information
4.1 The minister may require the client to produce promptly, free of charge
and without delay any information that the client has or may have
concerning the project.
4.2 The client shall at all times ensure that the minister or his
representative has access to its ledgers, information, documentation and
receipts in respect of the project's costs and financing, as well as any
other document that the minister may reasonably require for the purposes
of this agreement.
4.3 The minister, through his own auditors or recognized chartered
accountants, may conduct the audits provided for in the agreement, at the
minister's expense and according to a reasonable time schedule.
4.4 For 24 months after the project completion date, the client shall, at its
own expense
.1 keep and hold available for examination and audit by the minister
ledgers, accounts and cost records of the project; and
.2 promptly supply upon request such data in respect of the project and
its results as the minister may require to establish the level of
financial assistance or for statistical purposes.
4.5 The minister agrees, subject to the Access to Information Act of Canada,
to preserve the confidentiality of any data, reports and other information
provided in confidence by the client pursuant to this agreement, and not
to disclose them to any third party without the client's prior written
consent.
4.6 In the case of a contribution for a study, should the client decide not to
follow through with the consultant's recommendations, the client shall,
upon request, cede to the minister all the information obtained or
developed in consequence of the services provided by the consultant.
5. Default and Recourse
5.1 The following constitute events of default:
278
<PAGE>
.1 a) the client becomes bankrupt or requests protection under the
Bankruptcy and Insolvency Act;
b) the client goes into receivership;
c) an order is made in accordance with the Companies' Creditors
Arrangement Act (c 36);
.2 an order is made or resolution passed for the winding up of the
client, or the client is dissolved;
.3 the client ceases activities related to the project;
.4 in the opinion of the minister, there has been a significant
increase in the degree of risk relating to the execution of the
project;
.5 the client has made a false declaration or a false representation to
the minister, directly or through its representatives;
.6 a term, condition or undertaking provided in the agreement has not
been fulfilled;
.7 the client is not entitled to the contribution.
5.2 In the event of default, pursuant to clauses 5.1.1 and 5.1.2, all monies
paid to the client under this offer of contribution shall become
immediately due and payable.
5.3 If there is default, or if, in the minister's opinion, default is likely
to occur pursuant to clauses 5.1.3 to 5.1.7, the minister may exercise any
or all of the following remedies:
.1 adjust the amount of the contribution and notify the client
accordingly;
.2 suspend any payment of the contribution, either for amounts due or
future payments;
.3 terminate the agreement and immediately end any financial obligation
under the agreement;
.4 require the immediate total or partial repayment of any financial
assistance received.
5.4 The fact that the minister refrains from exercising a right conferred on
him by this agreement shall not be construed as a waiver of that right.
6. Announcements and Ceremonies
6.1 The client hereby agrees to a public announcement by the minister in the
form of a press release containing the information outlined in Appendix C
of this agreement.
6.2 The minister shall inform the client promptly in writing of the date on
which the public announcement is to be made and the client shall maintain
the confidentiality of this agreement until that date.
6.3 The client shall notify the minister in writing, at least 14 days in
advance, of any official ceremony organized with regard to the project.
6.4 The client hereby consents to the participation of the minister or his
representatives in any official ceremony.
7. Notice
7.1 Any notice, information or document required to be sent under this
agreement shall be effectively given if delivered by hand or sent by telex
or facsimile. Any notice shall be deemed to have been
279
<PAGE>
received on delivery; any notice sent by telex or facsimile shall be
deemed to have been received one working day after being sent; any notice
sent by mail shall be deemed to have been received eight working days
after being mailed.
7.2 Each of the parties may amend the address given in this agreement by
informing the other party of its new address and any such changes shall
come into force 15 days after receipt of the notice.
8. General
8.1 No member of the House of Commons or Senator shall be admitted to any
share or part of this agreement or to any benefit to arise therefrom.
8.2 The client confirms that no former public office holder in the Government
of Canada benefits directly or indirectly from this agreement, or, that if
such is the case, the said former public officer holder complies with the
provisions of the Conflict of Interest and Post-Employment Code.
8.3 This agreement and its benefits shall not be assigned without the prior
written consent of the minister.
8.4 The parties acknowledge that nothing in this agreement shall be construed
as creating a partnership or joint venture or agency relationship between
the minister and the client.
8.5 The parties hereto agree that this agreement be drafted in English only.
Les parties a la presente entente acceptent qu'elle soit redigee en
anglais seulement.
8.6 This agreement is made to the advantage and the benefit of the parties
hereto, their respective successors and assigns, and is binding upon them.
.7 This agreement is subject to and shall be construed in accordance
with the laws of the province of Quebec.
8.8 Recourse provided under this agreement is cumulative and shall not exclude
any other recourse provided by law.
8.9 Any payment due under this agreement is subject to there being an
appropriation for the fiscal year in which the payment is to be made.
280
<PAGE>
APPENDIX C
================================================================================
PROJECT FACT SHEET
FOR THE MINISTER AND PRESS RELEASE
- --------------------------------------------------------------------------------
IDEA-SME Project no H30600635
- --------------------------------------------------------------------------------
Client's name and address Resource persons:
3143619 Canada Inc, (Tirex Canada) Name Mr. Terence C. Byrne
3767 Thimens Boulevard Title President
Suite 207 Telephone 335-0111
St-Laurent, Quebec Fax 334-1477
H4R 1W4
- --------------------------------------------------------------------------------
Project location Federal riding
Spain and Portugal St-Laurent (note)
- --------------------------------------------------------------------------------
Project description: Strategic marketing plan for the sale of a new
tire disintegration system in India.
- --------------------------------------------------------------------------------
Total cost of project $40,000
- --------------------------------------------------------------------------------
Authorized assistance (type of financial assistance and amount)
Repayable contribution
50% X $40,000 = $20,000 MAXIMUM
- --------------------------------------------------------------------------------
Effect on jobs (specify whether any will be created or preserved) Impossible to
predict at this time.
- --------------------------------------------------------------------------------
Estimated project start date Estimated project completion date
April 30, 1997 July 31, 1997
- --------------------------------------------------------------------------------
Date offer made Date offer accepted
================================================================================
While the company is still technically located in St-Laurent (St-Laurent
riding), it is expected that the company will soon be locating into the
territory of Southwest Montreal in the federal riding of St-Henri-Westmount.
281
EXHIBIT 10 (nn)
282
<PAGE>
THE TIREX CORPORATION
----------
PASSENGER CAR
EQUIPMENT LEASE AND PURCHASE AGREEMENT
----------
Passenger Car Equipment Lease and Purchase Agreement, made this 19th day
of August 1998, among
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
(the "Manufacturer")
1. DEFINITIONS
1.1 "Acceptance Date" shall mean the first day following the completion of
the Test Period.
1.2 Delivery Date shall mean March 30, 1999 or such other date as the
parties hereto shall mutually agree.
1.3 "Leased Equipment shall mean Items 010 and 011 of the Proprietary
Equipment, as set forth on Schedule 1.8 hereto.
1.4 "Manufacturer" shall mean The Tirex Corporation and Tirex-Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
1.5 "Nonproprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCS-1 System specified in Schedule 1.5 hereto.
1.6 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.7 "Projected Maintenance Agreement" shall mean the agreement for the
maintenance of the TCS- 1 System, which the Manufacturer and the Operator will
prepare on mutually agreeable terms.
1.8 "Proprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCS-1 System specified in Schedule 1.8 hereto.
1.9 "Purchased Equipment shall mean Items 001 through 009 of the
Proprietary Equipment, as specified on Schedule 1.8 hereto, and the
Nonproprietary Equipment, as specified on Schedule 1.5 hereto.
283
<PAGE>
1.10 "Site" shall mean the premises of Blackstar LLC in Woodburne, Indiana
or such other site as the Operator shall specify.
1.11 "TCS-1 System" shall mean the Manufacturer's proprietary cryogenic
passenger car tire disintegration system, consisting of: (i) the patented
"Leased Equipment" and the (ii) "Purchased Equipment" which includes but is not
limited to a front-end tire preparation system and a freezing chamber which the
Manufacturer believes are proprietary to it and for which the Manufacturer
intends to apply for patents. This System will accept whole passenger car tires
with an inside diameter not exceeding seventeen (17) inches and will process the
tire in such a manner as to allow the System to separate the steel and fiber
from the rubber which will be reduced to a size no larger than 5 mesh. The TCS-1
System shall meet or exceed all applicable U.S. permitting and operating rules
and regulations including but not limited to those promulgated by OSHA and EPA.
1.12 "Test Period" shall mean a three day period which shall commence
within ten days after completion of the installation of the TCS-1 System, during
which Test Period, the TCS-1 System shall be operated continually for up to 24
hours per day.
2. RECITALS
Whereas:
2.1 The Manufacturer has invented, designed, developed, built, and
patented part of, and is the sole and exclusive owner, directly or indirectly,
through one or more subsidiaries, of all right title and interest in, the TCS-1
System.
2.2 The Operator is a corporation organized for the principal purpose of
commercially exploiting, directly or indirectly, through one or more
subsidiaries, the TCS-1 System by: (i) purchasing the Nonproprietary Equipment
and Items 001 - 009 of the Proprietary Equipment (referred to herein,
collectively, as the "Purchased Equipment"); (ii) leasing Items 010 and 011 of
the Proprietary Equipment (referred to herein, collectively, as the "Leased
Equipment"); and (iii) operating the TCS-1 System.
3. AGREEMENT FOR PURCHASE AND SALE OF THE PURCHASED EQUIPMENT
3.1 Purchase and Sale
The Operator agrees to purchase, and the Manufacturer agrees to sell, the
Purchased Equipment, as defined in Section 1.7, above, in accordance with the
terms and conditions of this Agreement. The Operator may at its election take
title to the Purchased Equipment in a wholly owned subsidiary corporation to be
formed by it for such purpose. Such election by the Operator shall nowise
modify, diminish, or otherwise effect the Operator's liability hereunder to the
Manufacturer. The purchase and payment for the Purchased Equipment by the
Operator, and the sale, assignment, transfer, and delivery thereof by the
Manufacturer, shall take place subject to the fulfillment of the conditions
herein after provided.
3.2 Purchase Price
The purchase price for the Purchased Equipment (the "Purchase Price"),
installed and set in operation pursuant to Section 7 hereto, shall be the sum of
two million, two hundred fifty thousand United States dollars (US $2,250,000),
FOB Montreal.
3.3 Payment Terms
284
<PAGE>
In the absence of arrangements for lease or letter of credit financing,
satisfactory to the Manufacturer, the Purchase Price for the Purchased Equipment
shall be paid as follows:
(a) 15% (US $337,500) upon execution of this Agreement;
(b) 15% (US $337,500) upon acceptance by the Operator of equipment
drawings, layout drawings, and other written
specifications, such acceptance to be based upon
local permitting and applicable operating
requirements and shall not be unreasonably
withheld
(c) 30% (US $675,000) two months after Manufacturer's giving notice of
commencement of manufacture.
(d) 10% (US $225,000) two months prior to the anticipated Delivery
Date.
(e) 15% (US $337,500) on the Delivery Date; and
(f) 15%(US $337,500) on the Acceptance Date.
3.4 Taxes
Manufacturer and Operator acknowledge that there are a variety of country,
state and/or local taxes that may be assessed on the Purchased Equipment, the
Leased Equipment, and the purchase, sale, and operation thereof. The
Manufacturer shall be responsible for the prompt payment of all taxes,
assessments, levies, export taxes, or other governmental or regulatory payments
that may be assessed by the government of Canada or any political sub-division
therein. The Operator shall be responsible for the prompt payment of all taxes,
assessments, levies, import taxes, or other governmental or regulatory payments
that shall be assessed by the government of the United States of America or any
political sub-division therein.
4. AGREEMENT FOR OPERATING LEASE
4.1 Agreement to Lease Equipment
The Manufacturer, as lessor, and the Operator, as lessee, hereby enter
into an operating lease (the "Lease") for the Leased Equipment, consisting of
Items 010 and 011 specified on Schedule 1.8 hereto, subject to the following
terms and conditions:
4.2 Term of the Lease
4.2.1 The term of the Lease shall be sixty (60) months commencing on the
Acceptance date.
4.2.2 At the expiration of the full original term hereof, if this Lease
has remained in effect and the Operator has duly performed all its obligations
thereunder during the entire such term, then the Operator shall have the option
to either:
(a) Obtain a new lease agreement in the form then being generally
offered by the Operator to the trade under which the Operator shall
replace the Leased Equipment or the entire TCS-1 System, as the case
may be, with new equipment, free of any installation charge payable
by the Operator;
285
<PAGE>
(b) Continue to use the same equipment installed hereunder and thereby
extend the term of this Lease at a reduced rental rate of US $6,250
per month for a period of one year with further successive automatic
one-year extensions subject only to the Operator's right to
terminate this Lease at the end of any extension year upon prior
written notice of not less than 90 days; or
(c) Request that the Manufacturer exercise its right of first refusal to
repurchase the Purchased Equipment pursuant to Section 13.2 of this
Agreement, in which event the Manufacturer shall have sixty (60)
days following the Manufacturer's receipt of such notice to either:
(i) notify the Operator of its intent to repurchase the Purchased
Equipment and, within ninety (90) days of such notice, effectuate
such repurchase and thereupon enter upon the premises where the said
TCS-1 System is located and remove the entire TCS-1 System from the
Operator's premises at the Manufacturer's expense, or (ii) notify
the Operator that it does not intend to repurchase the Purchased
Equipment and, as soon as practicable thereafter, enter upon the
premises where the TCS-1 System is located, take possession of the
Leased Equipment without previous demand or notice and without legal
process, retrieve the Leased Equipment from the TCS-1 System and
remove the Leased Equipment from the Operator's premises at the
Manufacturer's expense.
4.3 Rent Payments
4.3.1 The Operator shall pay to the Manufacturer monthly rental payments
(the "Rent Payments") for the Leased Equipment at the rate of twelve thousand,
five hundred United States dollars (US $12,500) per month, payable in advance,
as follows:
(a) 30 days prior to the Delivery Date: (i) the first month's rent and;
(ii) as a security deposit, the last two months rent.
(b) One calendar month following the Delivery Date: the Rent Payment for
the period (the "Partial-Month Period") which commences one calendar
month following the Delivery Date and ends on the last day of the
calendar month in which such Partial-Month Period falls, will be
payable in cash on the first day of such Partial-Month Period, on a
pro rata basis.
(c) Normal monthly Rent Payments of US $12,500 will commence and be
payable on the first day of the first full calendar month following
the Partial-Month Period.
286
<PAGE>
EXAMPLE: If the Delivery Date is September 15, 1998:
================================================================================
Referenced Terms Period Covered Date Payment Due Amount of Payment
- --------------------------------------------------------------------------------
"First Month" September 15, 1998 August 17, 1998 US $12,500
through
October 14, 1998
- --------------------------------------------------------------------------------
"Security Last two monthly August 17, 1998 US $25,000
Deposit" rent payments
payable under lease
- --------------------------------------------------------------------------------
"Partial Month October 15, 1998 October 15, 1998 US $ 6,250
Period through
October 31, 1998
- --------------------------------------------------------------------------------
"First Regular November 1, 1998 November 1, 1998 US $12,500
Monthly Rental through
Payment" November 30, 1998
================================================================================
4.3.2 In the event of that payment of any Rent Payment is made by the
Operator more than five days after the date when such payment shall have been
due, the Operator shall pay a late charge of one percent (1%) of the entire
amount of such Rent Payment for every month in which such delinquency occurs or
continues.
5. TITLE TO EQUIPMENT
5.1 Title to Purchased Equipment
5.1.1 Title to the Purchased Equipment shall pass to the Operator upon
payment in full of the balance of the Purchase Price, due on the Acceptance
Date.
5.1.2 No rights to any plans or designs respecting the TCS-1 System shall
pass to the Operator and the Operator shall not copy, reproduce, design, or
build, or cause, assist, or suffer to be copied, reproduced, designed, or built
by any other person, firm, or corporation any equipment in any way similar to,
or based upon, the design or structure of the TCS-1 System.
5.2 Title to Leased Equipment
5.2.1 The Leased Equipment shall at all times remain the sole and
exclusive property of the Manufacturer (which reserves the right to assign or
encumber the Leased Equipment subject to the rights of the Operator under the
Operating Lease contained in Section 4 of this Agreement) and the Operator shall
have no right, title, or interest to the Leased Equipment but only the right to
use such Equipment under this Lease. The Leased Equipment shall not be
transferred or sublet by the Operator to any other person, firm or corporation,
the Operator shall not permit any other person, firm, or corporation to use the
Leased Equipment, and the said operating lease contained herein may not be
assigned by the Operator without the prior written consent of the Manufacturer.
In the event that the Manufacturer shall assign or encumber the Leased
Equipment, it shall give the Operator prompt written notice of such assignment
or encumbrance.
5.2.2 The Leased Equipment shall remain personal property of the
Manufacturer and shall not be deemed otherwise by reason of becoming attached to
the premises.
5.2.3 The Manufacturer shall have the right at any time or from time to
time to modify the Leased Equipment in a manner which will not lessen the
utility of the Leased Equipment;
5.2.4 The Operator shall not enter into, remove, tamper with, or breach
the security of, the Leased Equipment. The Operator shall not copy, reproduce,
design, or build, or cause, assist, or suffer to be copied, reproduced,
designed, or built by any other person, firm, or corporation any equipment in
any
287
<PAGE>
way similar to, or based upon, the design or structure of the Leased Equipment,
or of any part thereof. The Operator shall not permit any Leased Equipment to be
abused, not permit the removal of any plate or markings put on the Leased
Equipment by the Manufacturer, nor attach anything to or remove anything from
the Leased Equipment.
5.2.5 The Operator will not allow any repairs to the TCS-1 or replacement
of parts to be done by any person or persons except technicians authorized by
the Manufacturer and/or as trained by the Manufacturer pursuant to Section 8.2.3
of this Agreement.
5.2.6 The Operator agrees that, in consideration of the Manufacturer
entering into this Lease, it will not move the TCS-1 System from the Site
without the prior written consent of the Manufacturer.
6. SITE PREPARATION
6.1 Site Plan Specifications
6.1.1 Within 45 days of the execution of this Agreement, the Manufacturer
will furnish to the Operator "Site Plan Specifications" respecting the
electrical, ventilation, water supply, equipment drawings, layout drawings, and
disposal, and any other specifications required at the site for the installation
and operation of the TCS-1 System. Delivery of the foregoing specifications will
be made by the Manufacturer to the Operator at the Manufacturer's plant in
Montreal.
6.1.2 Within 15 days of the delivery of the Site Plans Specifications in
accordance with Subparagraph 6.1.1, above, the Operator will notify the
Manufacturer of any failure of such Specifications to comply with all applicable
regulations and requirements. Unless such notice of failure to comply is
received by the Manufacturer, the said Site Plans Specifications will be deemed
to have been accepted by the Manufacturer.
6.2 Preparation of Site
Prior to the Delivery and installation of the TCS-1 System, the Operator
shall make, at its own expense, all alterations to and changes in its premises
and equipment required to bring the site into complete conformance with the
above referenced Site Plan Specifications, with respect to which the Operator
shall obtain all necessary permissions and inspections, and which shall include
but not be limited to making any required structural changes and the
installation of:
(a) electrical equipment and power lines up to the electrical inputs or
control boxes attached to the TCS-1 System, as designated on the
Site Plan Specifications;
(b) water supply sources and equipment up to the water inflow points
designated on the Site Plan Specifications;
(c) water drainage and disposal sites and equipment from the water
outflow points designated on the Site Plan Specifications;
(d) air ventilation sources and equipment as designated on the Site Plan
Specifications
(e) a "front-end loader" capable of moving and depositing the tires onto
the trommel screen specified in Schedule 1.5 hereto.
6.3 Notice to Inspect
288
<PAGE>
6.3.1 The Operator shall, not later than one month prior to the
anticipated Delivery Date, give written notice to the Manufacturer (the "Notice
to Inspect") that preparation of the site for the installation and operation of
the TCS-1 has been completed in accordance with the Site Plan Specifications and
request that the Manufacturer inspect the site in order to confirm its
conformance with the Site Plan Specifications.
6.4 Manufacturer's Right to Inspect Site
6.4.1 The Manufacturer shall have the right, at any time within two weeks
of its receipt of the Notice to Inspect, to inspect the site and notify the
Operator in writing (the "Notice of Approval") that the Site is in conformance
with the Site Plan Specifications.
6.4.2 In the event that, after inspecting the Site, the Manufacturer
determines that the Site is not in conformance with the Site Plan
Specifications, then the Manufacturer shall have the right to require that the
Operator make any and all changes or additions required to bring the Site into
such conformance, at the sole expense of the Operator prior to the Delivery Date
and to postpone the Delivery Date until all such changes or additions are
completed. In such event, the Operator shall, upon completion of the required
changes or additions, give written notice to the Manufacturer ("Notice to
Re-inspect") that such changes or additions have been made in accordance with
the Manufacturer's instructions and that the Site is in complete conformance
with the Site Plan Specifications. The Manufacturer shall have the right, within
two weeks of its receipt of such Notice to re-inspect the Site. Such procedures
may be repeated, and the Manufacturer shall have no obligation to deliver the
TCS-1 System, until the Manufacturer confirms upon inspection that the Site is
in conformance with the Site Plan Specifications or the Manufacturer fails to
inspect the Site within a reasonable time in light of the Manufacturer's
commitments to other customers.
7. DELIVERY AND INSTALLATION
7.1 Delivery
7.1.1 Unless the Delivery Date is rescheduled in accordance with the
provisions of paragraph 6.4.2 above, the Manufacturer shall deliver the TCS-1
System to the site not later than 30 days after the Manufacturer determines that
the Site is in conformance with the Site Plan Specifications and that all legal
requirements have been met, in accordance with Section 6.4, above.
7.1.2 Delivery shall be made F.O.B. Montreal, Canada. The equipment
comprising the TCS-1 System shall be placed in suitably protected containers the
nature of which shall be determined by mutual agreement of the parties. The
TCS-1 System shall be delivered to the Site via a commercial transporter and
routing acceptable to the Manufacturer and the Operator. The Operator shall pay
all costs of transportation and delivery of the TCS-1 System from the
Manufacturer's plant in Montreal to the Site.
7.1.3 In the event that delivery of the TCS-1 System, or any part thereof,
for a period not exceeding thirty (30) days, shall be prevented by causes beyond
the control of the Manufacturer, including but not limited to acts of God, labor
troubles, failure of essential means of transportation, or changes in policy
with respect to exports or otherwise by the government of the jurisdiction in
which the Operator is located, the Delivery Date shall be postponed for an
additional period equal to the period of delay.
In the event, however, that such nondelivery continues after such extended
period, the Operator and the Manufacturer shall each have the right to cancel
this agreement by written notice, and in such case there shall be no obligation
or liability on the part of either party with respect to such undelivered
equipment.
289
<PAGE>
7.2 Installation
7.2.1 The Manufacturer shall, at its own expense, install the TCS-1 System
at the Site.
7.2.2 Upon installation, the TCS-1 System shall be in complete working
order and shall consist of the Purchased Equipment and the Leased Equipment.
8. EQUIPMENT TESTING AND OPERATOR'S ACCEPTANCE
8.1 Notice of Availability for Testing
Upon completion of the installation of the TCS-1 System at the Site, the
Manufacturer shall give the Operator written notice that the TCS-1 System is
available for testing operations.
8.2 Test Period
8.2.1 Immediately upon giving notice to the Operator that the TCS-1 System
is available for testing operations, the Manufacturer shall, at its own expense,
furnish an engineer (technician?) to supervise the operation of the TCS-1 for a
period of three days (the "Test Period"). During the Test Period, the TCS-1
System shall demonstrate the capability of disintegrating scrap tires at the
rate of the equivalent of one million (1,000,000) passenger car tires per year
on a twenty-four hour per day, seven-day per week, continuous operating basis.
8.2.2 All power, fuel, light, water, oil, or other necessary supplies and
all personnel (other than the engineer or technician furnished by the
Manufacturer), authorizations, permits, real and personal property, contracts,
equipment, reports, etc. necessary for the successful operation of the TCS-1
System, as set forth on Schedule 8.2.2, shall be provided by the Operator.
8.2.3 The Manufacturer shall furnish to the Operator all data regarding
the TCS-1 System in order to enable the Operator to operate such System and, in
addition to the training to be provided pursuant to the Projected Maintenance
Agreement or otherwise, the Manufacturer shall, during the Test Period, instruct
at least two of the Operator's employees in accordance with Section 5.2.5 of
this Agreement with respect to the operation, and operating maintenance of the
TCS-1 System, and use reasonable care in training such employee, provided that
if in the Manufacturer's sole opinion any employee is not adequately qualified,
the Operator shall designate another of its employees to receive such
instruction.
8.3 Acceptance
8.3.1 Unless the TCS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer's
offer to sell the Purchased Equipment and to lease the Leased Equipment to the
Operator shall automatically be deemed to have been accepted by the Operator as
of the Acceptance Date, which shall occur on the first day following the
completion of the Test Period and the Operator shall have no right to revoke
such acceptance for any reason.
8.3.2 If the TCS-1, or any part of it, fails to operate in accordance with
the specifications set forth in Paragraph 8.2.1, above, the Manufacturer shall
have ninety (90) days in which to cure the problems responsible for such
failure. Costs of all parts and labor required to bring the TCS-1 into full
working condition shall be borne by the Manufacture unless the failure to
operate in accordance with the specifications set forth in Paragraph 8.2.1,
above, shall have been caused by any act or failure to act on the part of the
Operator or its personnel, including but not limited to the failure of the
Operator to have brought the Site into conformance with the Site Plan
Specifications.
290
<PAGE>
8.3.3 Upon written notice to the Operator that the problems which caused
the TCS-1 System to fail to operate as required during the Test Period have been
cured, the Manufacturer shall, at the request of the Operator, commence a second
Test Period for up to three days, in which case the acceptance criteria of
Paragraph 8.3.1 shall pertain to such second Test Period (or any subsequent Test
Period) with the same force and effect as to the initial Test Period.
9. RISK OF LOSS
9.1 The risk of loss, injury, or destruction of the Leased Equipment from
any cause whatsoever, except negligence or willful destruction by the Operator
shall be borne by the Manufacturer during the term of the Lease therefor
provided hereunder.
9.2 The risk of loss, injury, or destruction of the Purchased Equipment
from any cause whatsoever, except negligence or willful destruction by the
Operator shall be borne by the Manufacturer only until title passes to the
Operator.
9.3 Any loss, injury, or destruction to the TCS-1, or any part of it,
after title to the Purchased Equipment passes to the Operator, shall not serve
in any manner to release the Operator from the obligation to pay the Rent
Payments provided for Section 4.3, above.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE MANUFACTURER
The Manufacturer hereby represents, warrants, and covenants to the
Operator, as follows:
10.1 Corporate Status
The Tirex Corporation is (i) duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) has full
power to own all of its properties and carry on its business; and (iii) is
qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
10.2 Corporate Action
Prior to the date hereof, the board of directors of the Manufacturer has
duly adopted resolutions approving the execution and delivery to the Operator of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained.
10.3 Patents
10.3.1 The Manufacturer has obtained a patent in the United States and
Canada for the Disintegration System which constitutes the "Leased Equipment".
The Manufacturer is the sole owner of such patent and of all rights thereunder.
10.3.2 The Manufacturer shall defend, to the best of its ability and at
its own expense, all actions, suits, or proceedings instituted against the
Operator insofar as the same are based on any claims that the said Proprietary
Equipment, or any part thereof, constitutes an infringement of any patent of the
291
<PAGE>
United States or Canada and shall indemnify the Operator against all damages,
costs, and expenses which the Operator may incur as a result of any action which
may be brought or threatened against the Operator with respect to the equipment
covered by such patent, provided that:
(a) The Manufacturer shall have the right at any time or from time to
time to modify the TCS-1 System in a manner which will not lessen
the utility thereof;
(b) The Operator gives the Manufacturer immediate notice in writing of
the institution of the action, suit, or proceeding and permits the
Manufacturer, through its counsel, to defend same, and gives the
Manufacturer all information, assistance, and authority to enable
the Manufacturer to do; and
(c) The Operator has made no change of any kind in the TCS-1 System
without obtaining the prior written permission of the Manufacturer.
10.3.3 When information is brought to the attention of the Manufacturer or
the Operator that others are unlawfully infringing on the patent covering the
Leased Equipment, or on any other patent granted to the Manufacturer in the
future on any other component or part of the TCS-1, the Manufacturer shall
prosecute diligently any infringer at the Manufacturer's own expense.
10.3.4 The Manufacturer has designed, developed, and built a fully
computerized front-end tire preparation system and a freezing chamber. The
Manufacturer believes that such equipment is proprietary to it and intends, as
promptly as practicable, to file patent applications therefor. The Manufacturer
has no present knowledge of any information which would adversely affect the
validity of its outstanding patent or the issuance of additional patents
pursuant to the above described projected patent applications. However, nothing
in this Paragraph shall constitute a warranty by the Manufacturer that further
patents will granted or that, in the absence of a final court determination, any
particular patent is valid and enforceable or that any patent may not be the
subject of patent infringement claims.
10.4 Warranties
Subject to the failure of the Operator to maintain the TCS-1 in accordance
with standards and procedures to be specified in the Projected Maintenance
Agreement or otherwise, the Manufacturer warrants that the TCS-1 will be capable
of disintegrating scrap tires at the rate of the equivalent of one million
(1,000,000) passenger car tires per year on a twenty-four hour, seven day per
week operating basis. The Manufacturer further warrants and represents that the
TCS-1 System will meet or exceed all applicable U.S. permitting and operating
rules and regulations including but not limited to those promulgated by OSHA and
the EPA. The Manufacturer further warrants the TCS-1 System against defects in
workmanship and materials or failure to perform in accordance with the
specifications set forth in Paragraph 8.2.1, above for one year after the
Acceptance Date. No other representations or warranties have been made by the
Manufacturer or relied upon by the Operator. If any defects in the
Manufacturer's work or materials are discovered within one year of delivery the
Operator shall give notice within five days of such discovery. THIS WARRANTY IS
EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES.
11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE OPERATOR
The Operator hereby represents, warrants, and covenants to the
Manufacturer, as follows:
11.1 Corporate Status
ENERCON America Distribution Limited is (i) duly organized corporation,
validly existing and in good standing under the laws of the State of Ohio; (ii)
has full power to own all of its properties and carry on its business; and (iii)
is qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the
292
<PAGE>
business transacted by it, does not make qualification necessary in any other
jurisdiction or jurisdictions.
11.2 Financial Condition of the Operator
The books and records of the Operator are complete and accurate and fairly
present the financial condition and the results of operations of the Operator as
of the date hereof. There are no material liabilities, either fixed or
contingent, not reflected in such books and records other than contracts or
obligations in the ordinary and usual course of business; and no such contracts
or obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of the Operator as reflected in such books and records.
11.3 Defaults and Conflicts
There are no defaults on the part of the Operator under any contract,
lease, mortgage, pledge, credit agreement, title retention agreement, security
agreement, lien, encumbrance or any other commitment, contract, agreement or
undertaking to which the Operator is a party. The execution of this Agreement
will not violate or breach any material agreement, contract, or commitment to
which the Operator is a party.
11.4 Corporate Action
Prior to the date hereof, the boards of directors of the Operator has duly
adopted resolutions approving the execution and delivery to the Manufacturer of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained,
and the Operator will, within 30 days of the execution of this Agreement,
furnish the Manufacturer with a copy of the resolutions of the board of
directors of the Operator authorizing the Operator to purchase the Purchased
Equipment and lease the Leased Equipment pursuant to the terms and conditions of
this Agreement;
11.5 Insurance
11.5.1 The Operator, at its own cost and expense, shall insure the Leased
Equipment against burglary, theft, fire, and vandalism in the amount of US
$1,000,000 and obtain public liability insurance with minimum limits, as the
parties shall mutually agree, for property damage in such form and with such
insurance companies as shall be satisfactory to the Manufacturer. All insurance
policies shall name both the Operator and the Manufacturer as insureds and
copies of the policies and the receipts for the payment of premiums shall be
furnished to the Manufacturer. Each damage policy shall provide for payment of
all losses directly to the Manufacturer. Each liability policy shall provide
that all losses be paid on behalf of the Operator and the Manufacturer, as their
respective interests appear.
11.5.2 In the event that the Operator shall fail to comply with the
provisions of Paragraph ll.5.1, above, then the Operator shall pay to the
Manufacturer an adequate premium in advance per annum to enable the Manufacturer
to insure the Leased Equipment and all such insurance policies shall be held in
the custody of the Manufacturer.
11.6 Indemnification
The Operator agrees to indemnify, protect, save, and keep harmless the
Manufacturer, its agents, employees, successors, and assigns from and against
all losses, damages, injuries, claims, demands, and expenses, including legal
expenses , of whatsoever nature arising out of the use, condition
293
<PAGE>
(including but not limited to latent and other defects and whether or not
discoverable by it), or operation of the TCS-1 System, or any part of it, by any
person who used, operated, or came into contact with such TCS-1 System at the
Site and to defend any suit seeking such damages even though the allegations of
such suit are groundless, false, or fraudulent, provided however that the
Operator agrees to give prompt notice to the Manufacturer once the Operator has
actual knowledge of any claims as to which indemnity shall be sought, and shall
permit the Manufacturer (at the Operator's expense) to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Manufacturer, who shall conduct the defense of said claim or litigation, shall
be reasonably satisfactory to the Operator; The Operator shall not, in the
defense of any such claim or litigation, except with the consent of the
Manufacturer, consent to the entry of any judgment or enter into any settlement
that does not include as an unconditional term, the giving by the claimant or
plaintiff to Manufacturer of a release from all liability in respect to such
claim or litigation.
11.7 Access
The Operator shall insure that the Manufacturer, and its agents and
employees, shall at all times have free access to the Operator's premises for
the purpose of inspecting the Leased Equipment and observing its use and
operation, and making alterations, improvements, or additions thereto; and the
Operator shall afford all reasonable facilities therefor, and shall allow the
Manufacturer to make such reasonable alterations, improvements, or additions as
the Manufacturer shall deem necessary, at the expense of the Manufacturer.
11.8 Taxes
The Operator shall pay all taxes, assessments, penalties, and fees which
may be levied or assessed on or with respect to the installation of the TCS-1
System and, at all times during the term of the Lease of the Leased Equipment,
the Operator shall pay all taxes and assessments which may be levied upon or in
respect of the TCS-1 System or its operation, and shall pay any other liability
of any character which may be imposed or incurred as an incident to the physical
possession or operation of such System.
11.9 Compliance with Applicable Law
The Operator shall provide, at its own expense, all requisite permits and
licenses necessary for the installation and operation of the TCS-1 System at the
Site and shall exercise its best efforts to maintain its compliance with all
applicable federal, state, and local laws, statutes, rules, and regulations and,
in the event of any non-compliance which renders impossible the operation of the
Site as a tire recycling facility, the Operator shall exercise its best efforts
to cure such non-compliance promptly.
11.10 Subordination
The Operator shall procure from every owner, landlord, mortgagee, or other
secured party having any interest in the real property on which the TCS-1 System
is to be installed or in the Operator's place of business or the equipment
therein, and deliver to the Manufacturer, a written consent to such installation
and a writing to the effect that the lien of any such mortgage or other interest
is subordinate to the rights of the Manufacturer with respect to the Leased
Equipment.
11.11 Ancillary Agreements
294
<PAGE>
11.11.1 The Operator will, simultaneously with the execution of this
Agreement, and in consideration of the premises and the mutual promises and
agreements made herein, enter into the following agreements with the
Manufacturer or such person, corporation, firm, partnership, or other entity as
the Manufacturer shall appoint in its stead:
(a) The Royalty Agreement, of even date herewith, between the
Manufacturer and the Operator providing for the Operator to pay to
the Manufacturer a royalty of three percent (3%) of the gross
proceeds from the sale, other than to the Manufacturer pursuant to
the Crumb Rubber Purchase Option Agreement, by the Operator of
rubber crumb and steel from scrap tires disintegrated by the
Operator through the utilization of the TCS-1 System, a copy of
which Royalty Agreement is attached as Schedule 11.11(a) hereto; and
(b) The Crumb Rubber Purchase Option Agreement, of even date herewith,
between the Operator and the Manufacturer or such person,
corporation, firm, partnership, or other entity as the Manufacturer
shall appoint in its stead, granting an option to the Manufacturer
to purchase up to 40% of the crumb rubber produced by the TCS-1
System, a copy of which Agreement is attached as Schedule 11.11(b)
hereto
11.11.2 It is the intention of the parties that within sixty days after
payment of the first payment due under Paragraph 3.3, above, the Manufacturer
and the Operator, jointly, shall commence the development of a mutually
acceptable Projected Maintenance Agreement and that within five business days of
the completion of the said Projected Maintenance Agreement, the Operator will,
in consideration of the premises and the mutual promises and agreements made
herein, enter into the Projected Maintenance Agreement with the Manufacturer or
such person, corporation, firm, partnership, or other entity as the Manufacturer
and the Operator shall jointly agree to and appoint in its stead, on mutually
agreed upon terms. Notwithstanding the foregoing, the failure of the parties to
enter into the Projected Maintenance Agreement will not constitute a breach of
this Agreement or otherwise affect the respective rights and obligations of the
parties hereunder.
12. DEFAULTS
12.1 Default by Manufacturer
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Manufacturer:
(a) If at any time prior to the delivery of the TCS-1 System to the
Site:
(i) The Manufacturer makes an assignment for the benefit of
creditors;
(ii) A voluntary or involuntary petition is filed by or against the
Manufacturer under any law having for its purpose and
adjudication of the Manufacturer a bankrupt or the extension
of the time of payment of, adjustment of, or other arrangement
affecting the liabilities of the Manufacturer, or the
reorganization of the Manufacturer and such petition is not
discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(iii) A Receiver is appointed for the property of the Manufacturer
and is not discharged or dismissed within one hundred twenty
(120) days after such appointment;
or
(iv) Any distress, execution, or attachment is levied upon the
Manufacturer's property to the extent that the Manufacturer is
not able to fulfill its obligations to deliver the TCS-1
within 90 days of the anticipated Deliver Date.
(a)
295
<PAGE>
(b) The Manufacturer fails to deliver the TCS-1 System in accordance
with the terms and provisions of Section 7, above, within 90 days of
the Delivery Date unless prior thereto, the Operator has failed to
meet the payment provisions set forth above in Section 3.3 of this
Agreement;
(c) The TCS-1 System fails to operate for a full Test (or re-test)
Period, in accordance with Section 8.2 hereof, within ninety (90)
days from the date the TCS-1 System is completely installed at the
Site.
12.2 Default by Operator
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Operator:
(a) The Operator fails to make any payment required to be made pursuant
to Sections 3.3 or 4.3 of this Agreement or, if the parties shall
enter into the Projected Maintenance Agreement, any payment required
to be made by the Operator under the Projected Maintenance Agreement
and such failure to make payment shall have continued for a period
of ten (10) days after written notice from the Manufacturer;
(b) The Operator refuses to accept or allow the Manufacturer to install
or test the TCS-1 System in accordance with Sections 7.2, 8.2, and
8.3 of this Agreement, notwithstanding that such System has been:
(i) delivered to the Operator's Site on a timely basis or (ii)
delivered to the Site and has performed in accordance with the
specifications set forth in Section 8.2 hereof for the prescribed
Test Period;
(c) The Operator makes an assignment for the benefit of creditors;
(d) A voluntary or involuntary petition is filed by or against the
Operator under any law having for its purpose and adjudication of
the Operator a bankrupt or the extension of the time of payment of,
adjustment of, or other arrangement affecting the liabilities of the
Operator, or the reorganization of the Operator and such petition is
not discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(e) A Receiver is appointed for the property of the Operator;
(f) Any distress, execution, or attachment is levied upon the machines
or the Operator's property; or
(g) The Operator fails to faithfully and fully comply with the terms and
provisions of Section 5.2 of this Agreement, with any such failure
deemed to be an irremediable material breach of this Agreement
immediately upon its occurrence.
(h) The Operator fails to reasonably, faithfully, and fully maintain the
TCS-1 in accordance with standards and procedures to be specified in
the Projected Maintenance Agreement or otherwise, and fails to cure
such breach within the time period specified therein with respect to
such failure.
12.3 Remedies Available to the Operator upon Default by Manufacturer
If the Manufacture shall be in default pursuant to Paragraphs 12.1 (a),
(b), or (c) of this Agreement, unless such default shall have been caused by any
act or failure to act on the part of the Operator or its personnel, including
but not limited to the failure of the Operator to have brought the Site into
conformance with the Site Plan) Specifications, the Operator shall have the
right to rescind this agreement by serving written notice ("Notice of
Rescission") upon the Manufacturer and the Operator shall thereupon be entitled
to stipulated damages in the agreed to amount of one million dollars (US
296
<PAGE>
$1,000,000). In such event, the Manufacturer shall, at its own expense, remove
the TCS-1 System as promptly as practicable following its receipt of such Notice
of Rescission and all monies theretofore paid by the Operator to the
Manufacturer pursuant to Sections 3.3 and 4.3, above, shall be returned by the
Manufacturer to the Operator.
12.4 Remedies Available to the Manufacturer upon Default by the Operator
12.4.1 The Operator acknowledges and agrees that its breach of any
provision contained in Section 5.2 of this Agreement will cause irreparable harm
to the Manufacturer. The Operator therefore agrees that, if the Operator or any
of the Operator's affiliates, agents, employees, or associates has breached, or
is attempting or threatening to breach, any provision contained hereinabove in
the said Section 5.2, then the Manufacturer shall have the right to obtain from
any court or arbitrator having jurisdiction, such equitable relief as may be
appropriate, including a decree enjoining the Operator from any further such
breach of such provisions, and enjoining the Operator from engaging in any
aspect of the tire recycling business which is in competition with tire
recycling businesses which utilize tire disintegration equipment manufactured by
the Manufacturer, either directly or indirectly through or in association with
any other person, firm, corporation, or organization during the term of this
Agreement. Notwithstanding the foregoing, for purposes of this Agreement, the
parties agree that a tire recycling business utilizing a microwave tire
recycling system will not be deemed to be in competition with tire recycling
businesses which utilize tire disintegration equipment manufactured by the
Manufacturer
12.4.2 In the event of any default by the Operator under this Agreement,
the Manufacturer may at its option, at any time thereafter terminate this
Agreement by written notice ("Notice of Termination"), given in Accordance with
Section 16 hereof. Such termination may be made effective, at the option of the
Manufacturer, simultaneously with or at any time after the happening of any such
default.
12.4.3 Upon any termination of this Agreement prior to payment in full of
the entire Purchase Price of US $2,250,000 for the Purchased Equipment, in
accordance with the terms of Section 3.3 of this Agreement, the Manufacturer
shall immediately have possession of the entire TCS-1 System, and the
Manufacturer may enter upon the premises where the said TCS-1 System is located,
take possession of the Leased Equipment and without previous demand or notice
and without legal process, and remove it from the Operator's premises at the
Operator's expense.
12.4.4 Upon any termination of this Agreement after payment in full of the
entire Purchase Price of US $2,250,000 for the Purchased Equipment has been made
by the Operator, the Manufacturer shall immediately have possession of the
Leased Equipment and the Manufacturer may enter upon the premises where the
TCS-1 System is located, remove the Leased Equipment from the said TCS-1 System
and take possession of the Leased Equipment without previous demand or notice
and without legal process, and remove it from the Operator's premises at the
Operator's expense.
12.4.5 The Operator acknowledges and agrees that any refusal on its part
to permit the Manufacturer to enter its premises and remove either the TCS-1
System or the Leased Equipment in accordance with Paragraph 12.4.3 or 12.4.4 of
this Agreement will cause irreparable harm to the Manufacturer. The Operator
therefore agrees that in the event of any such refusal on its part, the
Manufacturer shall have the right to obtain from any court or arbitrator having
jurisdiction, such equitable relief as may be appropriate, including a decree
enjoining the Operator from any further such refusal of entry and removal.
12.4.6 In the event of any default by the Operator prior to the Acceptance
Date, the Manufacturer shall be entitled to liquidated damages including but not
limited to retention of up to one million dollars (US $1,000,000) out of the
monies paid by the Operator pursuant to Paragraph 3.3 and all costs of
delivering and removing and re-delivering the TCS-1 System.
12.4.7 In the event of any default by the Operator after the Acceptance
Date or pursuant to Paragraph 12.2(b) of this Agreement, the Manufacturer shall
be entitled to liquidated damages including
297
<PAGE>
but not limited to retention of up to one million dollars (US $1,000,000) out of
the monies paid by the Operator pursuant to Paragraph 3.3, all costs of
delivering and removing and re-delivering the TCS-1 System, and damages for the
Operator's failure to perform for the full term of the Lease provided in Section
4.2 of this Agreement.
12.4.8 In the event of any default on the part of the Operator pursuant to
Paragraphs 12.2(a) or 12.2(b) of this Agreement, the Manufacturer shall have the
right to allow the Operator, for a period of sixty (60) days, to obtain a buyer
for the TCS-1 System, satisfactory to the Manufacture, provided however that,
unless specifically waived in writing by the Manufacturer, the Operator shall
continue liable under this Agreement lease for the full term of the Lease
provided for in Section 4.2 of this Agreement. In the event that the Operator
shall fail to obtain a buyer for the TCS-1 System, satisfactory to the
Manufacture, the Manufacturer shall use its best efforts to dispose of the
equipment, either as a single TCS-1 System or as separate components in any
appropriate public disposal manner. In the event of a sale of the equipment to a
Buyer located by either the Operator or the Manufacturer, the Manufacturer shall
return to the Operator all funds received from such disposal in excess of: (i)
liquidated damages under Paragraphs 12.4.6 or 12.4.7, above, (b) any monies
owing to Manufacturer by Operator under Section 3.3, and any costs incurred by
the Manufacturer for the removal and public disposal of the repossessed TCS-1.
12.4.9 In the event of any default on the part of the Operator, the
Manufacturer shall not be deemed to have waived any of its rights hereunder by
reason of its failure to assert its rights or its failure to take cognizance of
such breach.
12.4.10 The foregoing remedies provided herein for the benefit of the
Manufacturer shall not be exclusive but in addition to any other remedies the
Manufacturer may have by virtue of the breach by the Operator, in law or in
equity, from any court or arbitration proceeding having jurisdiction over such
matter.
13. OPERATOR'S SALE OF Purchased Equipment
13.1 Manufacturer's Right to Retrieve Leased Equipment Prior to Sale
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer shall have all rights of entry and removal provided above in
Paragraphs 12.4.4 and 12.4.5 of this Agreement, provided however that in
addition to such rights, if such event shall occur during the term of the said
Lease, the Manufacturer shall also have the rights provided to it in Paragraph
12.4.7 of this Agreement.
13.2 Manufacturer's Right of First Refusal
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer will have a right of first refusal to repurchase the TCS-1 System,
at its fair market value, within a sixty (60) day period following the
Manufacturer's receipt of such notice;
14. ASSIGNMENT
298
<PAGE>
The Operator shall not transfer, deliver, sublease, or encumber the Leased
Equipment to any person, corporation, or firm, and the Lease provided in Section
4.2 of this Agreement may not be assigned by the Operator except with the
Manufacturer's express prior written consent.
15. FAILURE OF PERFORMANCE
Delays in or failure of performance occasioned by war, fire, flood,
embargo, car shortage, accident, explosion, expropriation of plant or product by
federal or state authority, or other like cause beyond the control of the
Manufacturer, or Act of God, or by strike, lockout, or other labor trouble, or
inability to obtain sufficient labor interfering with the production or
transportation of the TCS-1 System, or any part thereof, or any replacement
therefor, whether because of governmental action affecting the Manufacturer or
its suppliers, or by any action or proceeding at law or in equity, or otherwise,
shall not subject the Manufacturer to any liability.
16. NOTICES
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.
17. CONDITIONS PRECEDENT TO MANUFACTURER'S OBLIGATION
The obligations of the Manufacturer hereunder are subject to fulfillment,
prior to the Delivery Date, of the following conditions:
17.1 Truth of Representation
The representations and warranties by or on behalf of Operator contained
in this Agreement or in any document delivered to the Manufacturer pursuant to
the provisions hereof shall be true in all material respects at and as of the
Delivery Date as though such representations and warranties were made at and as
of such time.
17.2 Compliance with Covenants
The Operator shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with prior or simultaneously with to the Delivery Date.
(ii) 17.3 Financing Arrangements
The Operator will deliver to the Manufacturer within sixty (60) days of
the execution of this Agreement, evidence satisfactory to the Manufacturer that
the Operator has arranged for adequate financing to meet the payment schedule
set forth in Section 3.3, above.
299
<PAGE>
18. ARBITRATION
All controversies arising out of or relating to this Agreement, or any
modification thereof, shall be settled by arbitration in New York City in
accordance with the Arbitration Rules then obtaining of the American Arbitration
Association.
19. BINDING EFFECT.
19.1 This agreement shall bind and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns,
provided, however, that this Agreement cannot be assigned by the Operator except
in accordance with Section 14 of this Agreement. Nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm or corporation other than the parties hereto and their respective legal
representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
19.2 All the right, title, and interest of the Manufacturer under the
Lease may be enforced by the Manufacturer, its successors, and assigns. The
Lease shall continue in full force and effect notwithstanding the death,
incapacity, or dissolution of the Operator or the increase, decrease, or change
in the personnel of or members of the Operator, and shall be binding upon the
Operator and the Operator's estate, legal representatives, heirs, and
successors.
20. GENERAL
20.1 Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
20.2 Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
20.3 Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
20.4 Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
20.5 Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
20.6 Entire Agreement
300
<PAGE>
This Agreement is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof.
20.7 Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
20.8 Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel of the Manufacturer and the Operator, provided however, that
any failure of the Operator or its counsel to approve any such notices or other
publicity shall in no way prevent the Manufacturer from complying fully with its
public disclosure obligations under the rules and regulations of the United
States Securities and Exchange Commission or any other governmental body or
agency in the United States or in any other applicable jurisdiction.
20.9 Counterparts
This Agreement 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 Agreement.
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
--------------------------------------
Terence C. Byrne, President
ENERCON AMERICA DISTRIBUTION LIMITED
By/s/ David L. Holmes
--------------------------------------
David L. Holmes
301
EXHIBIT 10 (oo)
302
<PAGE>
THE TIREX CORPORATION
----------
TRUCK TIRE
EQUIPMENT LEASE AND PURCHASE AGREEMENT
----------
Truck Tire Lease and Purchase Agreement, made this 19th day of August 1998,
among
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
(the "Manufacturer")
1. DEFINITIONS
1.1 "Acceptance Date" shall mean the first day following the completion of
the Test Period.
1.2 Delivery Date shall mean March 30, 1999 or such other date as the
parties hereto shall mutually agree.
1.3 "Leased Equipment shall mean Items 010 and 011 of the Proprietary
Equipment, as set forth on Schedule 1.8 hereto.
1.4 "Manufacturer" shall mean The Tirex Corporation and Tirex-Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
1.5 "Nonproprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCTS-1 System specified in Schedule 1.5 hereto.
1.6 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.7 "Projected Maintenance Agreement" shall mean the agreement for the
maintenance of the TCTS-1 System, which the Manufacturer and the Operator will
prepare on mutually agreeable terms.
1.8 "Proprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCTS- 1 System specified in Schedule 1.8 hereto.
1.9 "Purchased Equipment shall mean Items 001 through 009 of the
Proprietary Equipment, as specified on Schedule 1.8 hereto, and the
Nonproprietary Equipment, as specified on Schedule 1.5 hereto.
1.10 "Site" shall mean the premises of Blackstar LLC in Woodburne, Indiana
or such other site as the Operator shall specify.
303
<PAGE>
1.11 "TCTS-1 System" shall mean the Manufacturer's proprietary cryogenic
truck tire disintegration system, consisting of: (i) the patented "Leased
Equipment" and the (ii) "Purchased Equipment" which includes but is not limited
to a front-end tire preparation system and a freezing chamber which the
Manufacturer believes are proprietary to it and for which the Manufacturer
intends to apply for patents. This System will accept whole truck tires with an
inside diameter not exceeding twenty-four (24) inches and will process the tire
in such a manner as to allow the System to separate the steel and fiber from the
rubber which will be reduced to a size no larger than 5 mesh. The TCTS-1 System
shall meet or exceed all applicable U.S. permitting and operating rules and
regulations including but not limited to those promulgated by OSHA and EPA.
1.12 "Test Period" shall mean a three day period which shall commence
within ten days after completion of the installation of the TCTS-1 System,
during which Test Period, the TCTS-1 System shall be operated continually for up
to 24 hours per day.
2. RECITALS
Whereas:
2.1 The Manufacturer has invented, designed, developed, built, and
patented part of, and is the sole and exclusive owner, directly or indirectly,
through one or more subsidiaries, of all right title and interest in, the TCTS-1
System.
2.2 The Operator is a corporation organized for the principal purpose of
commercially exploiting, directly or indirectly, through one or more
subsidiaries, the TCTS-1 System by: (i) purchasing the Nonproprietary Equipment
and Items 001 - 009 of the Proprietary Equipment (referred to herein,
collectively, as the "Purchased Equipment"); (ii) leasing Items 010 and 011 of
the Proprietary Equipment (referred to herein, collectively, as the "Leased
Equipment"); and (iii) operating the TCTS-1 System.
3. AGREEMENT FOR PURCHASE AND SALE OF THE PURCHASED EQUIPMENT
3.1 Purchase and Sale
The Operator agrees to purchase, and the Manufacturer agrees to sell, the
Purchased Equipment, as defined in Section 1.7, above, in accordance with the
terms and conditions of this Agreement. The Operator may at its election take
title to the Purchased Equipment in a wholly owned subsidiary corporation to be
formed by it for such purpose. Such election by the Operator shall nowise
modify, diminish, or otherwise effect the Operator's liability hereunder to the
Manufacturer. The purchase and payment for the Purchased Equipment by the
Operator, and the sale, assignment, transfer, and delivery thereof by the
Manufacturer, shall take place subject to the fulfillment of the conditions
herein after provided.
3.2 Purchase Price
The purchase price for the Purchased Equipment (the "Purchase Price"),
installed and set in operation pursuant to Section 7 hereto, shall be the sum of
two million, two hundred fifty thousand United States dollars (US $2,250,000),
FOB Montreal.
3.3 Payment Terms
In the absence of arrangements for lease or letter of credit financing,
satisfactory to the Manufacturer, the Purchase Price for the Purchased Equipment
shall be paid as follows:
(a) 15% (US $337,500) upon execution of this Agreement;
304
<PAGE>
(b) 15% (US $337,500) upon acceptance by the Operator of equipment
drawings, layout drawings, and other written
specifications, such acceptance to be based upon
local permitting and applicable operating
requirements and shall not be unreasonably withheld
(c) 30% (US $675,000) two months after Manufacturer's giving notice of
commencement of manufacture.
(d) 10% (US $225,000) two months prior to the anticipated Delivery Date.
(e) 15% (US $337,500) on the Delivery Date; and
(f) 15%(US $337,500) on the Acceptance Date.
3.4 Taxes
Manufacturer and Operator acknowledge that there are a variety of country, state
and/or local taxes that may be assessed on the Purchased Equipment, the Leased
Equipment, and the purchase, sale, and operation thereof. The Manufacturer shall
be responsible for the prompt payment of all taxes, assessments, levies, export
taxes, or other governmental or regulatory payments that may be assessed by the
government of Canada or any political sub-division therein. The Operator shall
be responsible for the prompt payment of all taxes, assessments, levies, import
taxes, or other governmental or regulatory payments that shall be assessed by
the government of the United States of America or any political sub-division
therein.
4. AGREEMENT FOR OPERATING LEASE
4.1 Agreement to Lease Equipment
The Manufacturer, as lessor, and the Operator, as lessee, hereby enter
into an operating lease (the "Lease") for the Leased Equipment, consisting of
Items 010 and 011 specified on Schedule 1.8 hereto, subject to the following
terms and conditions:
4.2 Term of the Lease
4.2.1 The term of the Lease shall be sixty (60) months commencing on the
Acceptance date.
4.2.2 At the expiration of the full original term hereof, if this Lease
has remained in effect and the Operator has duly performed all its obligations
thereunder during the entire such term, then the Operator shall have the option
to either:
(a) Obtain a new lease agreement in the form then being generally offered by
the Operator to the trade under which the Operator shall replace the
Leased Equipment or the entire TCTS-1 System, as the case may be, with new
equipment, free of any installation charge payable by the Operator;
(b) Continue to use the same equipment installed hereunder and thereby extend
the term of this Lease at a reduced rental rate of US $6,250 per month for
a period of one year with further successive automatic one-year extensions
subject only to the Operator's right to terminate this Lease at the end of
any extension year upon prior written notice of not less than 90 days; or
(c) Request that the Manufacturer exercise its right of first refusal to
repurchase the Purchased Equipment pursuant to Section 13.2 of this
Agreement, in which event the Manufacturer shall have sixty (60) days
following the Manufacturer's receipt of such notice to either: (i) notify
the Operator of its intent to repurchase the Purchased Equipment and,
within ninety (90) days of such
305
<PAGE>
notice, effectuate such repurchase and thereupon enter upon the premises
where the said TCTS-1 System is located and remove the entire TCTS-1
System from the Operator's premises at the Manufacturer's expense, or (ii)
notify the Operator that it does not intend to repurchase the Purchased
Equipment and, as soon as practicable thereafter, enter upon the premises
where the TCTS-1 System is located, take possession of the Leased
Equipment without previous demand or notice and without legal process,
retrieve the Leased Equipment from the TCTS-1 System and remove the Leased
Equipment from the Operator's premises at the Manufacturer's expense.
4.3 Rent Payments
4.3.1 The Operator shall pay to the Manufacturer monthly rental payments
(the "Rent Payments") for the Leased Equipment at the rate of twelve thousand,
five hundred United States dollars (US $12,500) per month, payable in advance,
as follows:
(a) 30 days prior to the Delivery Date: (i) the first month's rent and;
(ii) as a security deposit, the last two months rent.
(b) One calendar month following the Delivery Date: the Rent Payment for
the period (the "Partial-Month Period") which commences one calendar
month following the Delivery Date and ends on the last day of the
calendar month in which such Partial-Month Period falls, will be
payable in cash on the first day of such Partial-Month Period, on a
pro rata basis.
(c) Normal monthly Rent Payments of US $12,500 will commence and be
payable on the first day of the first full calendar month following
the Partial-Month Period.
306
<PAGE>
EXAMPLE: If the Delivery Date is September 15, 1998:
================================================================================
Referenced Terms Period Covered Date Payment Due Amount of Payment
- --------------------------------------------------------------------------------
"First Month" September 15, 1998 August 17, 1998 US $12,500
through
October 14, 1998
- --------------------------------------------------------------------------------
"Security Last two monthly August 17, 1998 US $25,000
Deposit" rent payments
payable under lease
- --------------------------------------------------------------------------------
"Partial Month October 15, 1998 October 15, 1998 US $ 6,250
Period through
October 31, 1998
- --------------------------------------------------------------------------------
"First Regular November 1, 1998 November 1, 1998 US $12,500
Monthly Rental through
Payment" November 30, 1998
================================================================================
4.3.2 In the event of that payment of any Rent Payment is made by the
Operator more than five days after the date when such payment shall have been
due, the Operator shall pay a late charge of one percent (1%) of the entire
amount of such Rent Payment for every month in which such delinquency occurs or
continues.
5. TITLE TO EQUIPMENT
5.1 Title to Purchased Equipment
5.1.1 Title to the Purchased Equipment shall pass to the Operator upon
payment in full of the balance of the Purchase Price, due on the Acceptance
Date.
5.1.2 No rights to any plans or designs respecting the TCTS-1 System shall
pass to the Operator and the Operator shall not copy, reproduce, design, or
build, or cause, assist, or suffer to be copied, reproduced, designed, or built
by any other person, firm, or corporation any equipment in any way similar to,
or based upon, the design or structure of the TCTS-1 System.
5.2 Title to Leased Equipment
5.2.1 The Leased Equipment shall at all times remain the sole and
exclusive property of the Manufacturer (which reserves the right to assign or
encumber the Leased Equipment subject to the rights of the Operator under the
Operating Lease contained in Section 4 of this Agreement) and the Operator shall
have no right, title, or interest to the Leased Equipment but only the right to
use such Equipment under this Lease. The Leased Equipment shall not be
transferred or sublet by the Operator to any other person, firm or corporation,
the Operator shall not permit any other person, firm, or corporation to use the
Leased Equipment, and the said operating lease contained herein may not be
assigned by the Operator without the prior written consent of the Manufacturer.
In the event that the Manufacturer shall assign or encumber the Leased
Equipment, it shall give the Operator prompt written notice of such assignment
or encumbrance.
5.2.2 The Leased Equipment shall remain personal property of the
Manufacturer and shall not be deemed otherwise by reason of becoming attached to
the premises.
5.2.3 The Manufacturer shall have the right at any time or from time to
time to modify the Leased Equipment in a manner which will not lessen the
utility of the Leased Equipment;
5.2.4 The Operator shall not enter into, remove, tamper with, or breach
the security of, the Leased Equipment. The Operator shall not copy, reproduce,
design, or build, or cause, assist, or suffer to be copied, reproduced,
designed, or built by any other person, firm, or corporation any equipment in
any
307
<PAGE>
way similar to, or based upon, the design or structure of the Leased Equipment,
or of any part thereof. The Operator shall not permit any Leased Equipment to be
abused, not permit the removal of any plate or markings put on the Leased
Equipment by the Manufacturer, nor attach anything to or remove anything from
the Leased Equipment.
5.2.5 The Operator will not allow any repairs to the TCTS-1 or replacement
of parts to be done by any person or persons except technicians authorized by
the Manufacturer and/or as trained by the Manufacturer pursuant to Section 8.2.3
of this Agreement.
5.2.6 The Operator agrees that, in consideration of the Manufacturer
entering into this Lease, it will not move the TCTS-1 System from the Site
without the prior written consent of the Manufacturer.
6. SITE PREPARATION
6.1 Site Plan Specifications
6.1.1 Within 45 days of the execution of this Agreement, the Manufacturer
will furnish to the Operator "Site Plan Specifications" respecting the
electrical, ventilation, water supply, equipment drawings, layout drawings, and
disposal, and any other specifications required at the site for the installation
and operation of the TCTS-1 System. Delivery of the foregoing specifications
will be made by the Manufacturer to the Operator at the Manufacturer's plant in
Montreal.
6.1.2 Within 15 days of the delivery of the Site Plans Specifications in
accordance with Subparagraph 6.1.1, above, the Operator will notify the
Manufacturer of any failure of such Specifications to comply with all applicable
regulations and requirements. Unless such notice of failure to comply is
received by the Manufacturer, the said Site Plans Specifications will be deemed
to have been accepted by the Manufacturer.
6.2 Preparation of Site
Prior to the Delivery and installation of the TCTS-1 System, the Operator
shall make, at its own expense, all alterations to and changes in its premises
and equipment required to bring the site into complete conformance with the
above referenced Site Plan Specifications, with respect to which the Operator
shall obtain all necessary permissions and inspections, and which shall include
but not be limited to making any required structural changes and the
installation of:
(a) electrical equipment and power lines up to the electrical inputs or
control boxes attached to the TCTS-1 System, as designated on the
Site Plan Specifications;
(b) water supply sources and equipment up to the water inflow points
designated on the Site Plan Specifications;
(c) water drainage and disposal sites and equipment from the water
outflow points designated on the Site Plan Specifications;
(d) air ventilation sources and equipment as designated on the Site Plan
Specifications
(e) a "front-end loader" capable of moving and depositing the tires onto
the trommel screen specified in Schedule 1.5 hereto.
6.3 Notice to Inspect
308
<PAGE>
6.3.1 The Operator shall, not later than one month prior to the
anticipated Delivery Date, give written notice to the Manufacturer (the "Notice
to Inspect") that preparation of the site for the installation and operation of
the TCTS-1 has been completed in accordance with the Site Plan Specifications
and request that the Manufacturer inspect the site in order to confirm its
conformance with the Site Plan Specifications.
6.4 Manufacturer's Right to Inspect Site
6.4.1 The Manufacturer shall have the right, at any time within two weeks
of its receipt of the Notice to Inspect, to inspect the site and notify the
Operator in writing (the "Notice of Approval") that the Site is in conformance
with the Site Plan Specifications.
6.4.2 In the event that, after inspecting the Site, the Manufacturer
determines that the Site is not in conformance with the Site Plan
Specifications, then the Manufacturer shall have the right to require that the
Operator make any and all changes or additions required to bring the Site into
such conformance, at the sole expense of the Operator prior to the Delivery Date
and to postpone the Delivery Date until all such changes or additions are
completed. In such event, the Operator shall, upon completion of the required
changes or additions, give written notice to the Manufacturer ("Notice to
Re-inspect") that such changes or additions have been made in accordance with
the Manufacturer's instructions and that the Site is in complete conformance
with the Site Plan Specifications. The Manufacturer shall have the right, within
two weeks of its receipt of such Notice to re-inspect the Site. Such procedures
may be repeated, and the Manufacturer shall have no obligation to deliver the
TCTS-1 System, until the Manufacturer confirms upon inspection that the Site is
in conformance with the Site Plan Specifications or the Manufacturer fails to
inspect the Site within a reasonable time in light of the Manufacturer's
commitments to other customers.
7. DELIVERY AND INSTALLATION
7.1 Delivery
7.1.1 Unless the Delivery Date is rescheduled in accordance with the
provisions of paragraph 6.4.2 above, the Manufacturer shall deliver the TCTS-1
System to the site not later than 30 days after the Manufacturer determines that
the Site is in conformance with the Site Plan Specifications and that all legal
requirements have been met, in accordance with Section 6.4, above.
7.1.2 Delivery shall be made F.O.B. Montreal, Canada. The equipment
comprising the TCTS-1 System shall be placed in suitably protected containers
the nature of which shall be determined by mutual agreement of the parties. The
TCTS-1 System shall be delivered to the Site via a commercial transporter and
routing acceptable to the Manufacturer and the Operator. The Operator shall pay
all costs of transportation and delivery of the TCTS-1 System from the
Manufacturer's plant in Montreal to the Site.
7.1.3 In the event that delivery of the TCTS-1 System, or any part
thereof, for a period not exceeding thirty (30) days, shall be prevented by
causes beyond the control of the Manufacturer, including but not limited to acts
of God, labor troubles, failure of essential means of transportation, or changes
in policy with respect to exports or otherwise by the government of the
jurisdiction in which the Operator is located, the Delivery Date shall be
postponed for an additional period equal to the period of delay. In the event,
however, that such nondelivery continues after such extended period, the
Operator and the Manufacturer shall each have the right to cancel this agreement
by written notice, and in such case there shall be no obligation or liability on
the part of either party with respect to such undelivered equipment.
309
<PAGE>
7.2 Installation
7.2.1 The Manufacturer shall, at its own expense, install the TCTS-1
System at the Site.
7.2.2 Upon installation, the TCTS-1 System shall be in complete working
order and shall consist of the Purchased Equipment and the Leased Equipment.
8. EQUIPMENT TESTING AND OPERATOR'S ACCEPTANCE
8.1 Notice of Availability for Testing
Upon completion of the installation of the TCTS-1 System at the Site, the
Manufacturer shall give the Operator written notice that the TCTS-1 System is
available for testing operations.
8.2 Test Period
8.2.1 Immediately upon giving notice to the Operator that the TCTS-1
System is available for testing operations, the Manufacturer shall, at its own
expense, furnish an engineer (technician?) to supervise the operation of the
TCTS-1 for a period of three days (the "Test Period"). During the Test Period,
the TCTS-1 System shall demonstrate the capability of disintegrating scrap truck
tires at the rate of the equivalent of one million (1,000,000) passenger car
tires per year on a twenty-four hour per day, seven-day per week, continuous
operating basis.
8.2.2 All power, fuel, light, water, oil, or other necessary supplies and
all personnel (other than the engineer or technician furnished by the
Manufacturer), authorizations, permits, real and personal property, contracts,
equipment, reports, etc. necessary for the successful operation of the TCTS-1
System, as set forth on Schedule 8.2.2, shall be provided by the Operator.
8.2.3 The Manufacturer shall furnish to the Operator all data regarding
the TCTS-1 System in order to enable the Operator to operate such System and, in
addition to the training to be provided pursuant to the Projected Maintenance
Agreement or otherwise, the Manufacturer shall, during the Test Period, instruct
at least two of the Operator's employees in accordance with Section 5.2.5 of
this Agreement with respect to the operation, and operating maintenance of the
TCTS-1 System, and use reasonable care in training such employee, provided that
if in the Manufacturer's sole opinion any employee is not adequately qualified,
the Operator shall designate another of its employees to receive such
instruction.
8.3 Acceptance
8.3.1 Unless the TCTS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer's
offer to sell the Purchased Equipment and to lease the Leased Equipment to the
Operator shall automatically be deemed to have been accepted by the Operator as
of the Acceptance Date, which shall occur on the first day following the
completion of the Test Period and the Operator shall have no right to revoke
such acceptance for any reason.
8.3.2 If the TCTS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer
shall have ninety (90) days in which to cure the problems responsible for such
failure. Costs of all parts and labor required to bring the TCTS-1 into full
working condition shall be borne by the Manufacture unless the failure to
operate in accordance with the specifications set forth in Paragraph 8.2.1,
above, shall have been caused by any act or failure to act on the part of the
Operator or its personnel, including but not limited to the failure of the
Operator to have brought the Site into conformance with the Site Plan
Specifications.
310
<PAGE>
8.3.3 Upon written notice to the Operator that the problems which caused
the TCTS-1 System to fail to operate as required during the Test Period have
been cured, the Manufacturer shall, at the request of the Operator, commence a
second Test Period for up to three days, in which case the acceptance criteria
of Paragraph 8.3.1 shall pertain to such second Test Period (or any subsequent
Test Period) with the same force and effect as to the initial Test Period.
9. RISK OF LOSS
9.1 The risk of loss, injury, or destruction of the Leased Equipment from
any cause whatsoever, except negligence or willful destruction by the Operator
shall be borne by the Manufacturer during the term of the Lease therefor
provided hereunder.
9.2 The risk of loss, injury, or destruction of the Purchased Equipment
from any cause whatsoever, except negligence or willful destruction by the
Operator shall be borne by the Manufacturer only until title passes to the
Operator.
9.3 Any loss, injury, or destruction to the TCTS-1, or any part of it,
after title to the Purchased Equipment passes to the Operator, shall not serve
in any manner to release the Operator from the obligation to pay the Rent
Payments provided for Section 4.3, above.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE MANUFACTURER
The Manufacturer hereby represents, warrants, and covenants to the
Operator, as follows:
10.1 Corporate Status
The Tirex Corporation is (i) duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) has full
power to own all of its properties and carry on its business; and (iii) is
qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
10.2 Corporate Action
Prior to the date hereof, the board of directors of the Manufacturer has
duly adopted resolutions approving the execution and delivery to the Operator of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained.
10.3 Patents
10.3.1 The Manufacturer has obtained a patent in the United States and
Canada for the Disintegration System which constitutes the "Leased Equipment".
The Manufacturer is the sole owner of such patent and of all rights thereunder.
10.3.2 The Manufacturer shall defend, to the best of its ability and at
its own expense, all actions, suits, or proceedings instituted against the
Operator insofar as the same are based on any claims that the said Proprietary
Equipment, or any part thereof, constitutes an infringement of any patent of the
311
<PAGE>
United States or Canada and shall indemnify the Operator against all damages,
costs, and expenses which the Operator may incur as a result of any action which
may be brought or threatened against the Operator with respect to the equipment
covered by such patent, provided that:
(a) The Manufacturer shall have the right at any time or from time to
time to modify the TCTS-1 System in a manner which will not lessen
the utility thereof;
(b) The Operator gives the Manufacturer immediate notice in writing of
the institution of the action, suit, or proceeding and permits the
Manufacturer, through its counsel, to defend same, and gives the
Manufacturer all information, assistance, and authority to enable
the Manufacturer to do; and
(c) The Operator has made no change of any kind in the TCTS-1 System
without obtaining the prior written permission of the Manufacturer.
10.3.3 When information is brought to the attention of the Manufacturer or
the Operator that others are unlawfully infringing on the patent covering the
Leased Equipment, or on any other patent granted to the Manufacturer in the
future on any other component or part of the TCTS-1, the Manufacturer shall
prosecute diligently any infringer at the Manufacturer's own expense.
10.3.4 The Manufacturer has designed, developed, and built a fully
computerized front-end tire preparation system and a freezing chamber. The
Manufacturer believes that such equipment is proprietary to it and intends, as
promptly as practicable, to file patent applications therefor. The Manufacturer
has no present knowledge of any information which would adversely affect the
validity of its outstanding patent or the issuance of additional patents
pursuant to the above described projected patent applications. However, nothing
in this Paragraph shall constitute a warranty by the Manufacturer that further
patents will granted or that, in the absence of a final court determination, any
particular patent is valid and enforceable or that any patent may not be the
subject of patent infringement claims.
10.4 Warranties
Subject to the failure of the Operator to maintain the TCTS-1 in
accordance with standards and procedures to be specified in the Projected
Maintenance Agreement or otherwise, the Manufacturer warrants that the TCTS-1
will be capable of disintegrating scrap truck tires at the rate of the
equivalent of one million (1,000,000) passenger car tires per year on a
twenty-four hour, seven day per week operating basis. The Manufacturer further
warrants and represents that the TCTS-1 System will meet or exceed all
applicable U.S. permitting and operating rules and regulations including but not
limited to those promulgated by OSHA and the EPA. The Manufacturer further
warrants the TCTS-1 System against defects in workmanship and materials or
failure to perform in accordance with the specifications set forth in Paragraph
8.2.1, above for one year after the Acceptance Date. No other representations or
warranties have been made by the Manufacturer or relied upon by the Operator. If
any defects in the Manufacturer's work or materials are discovered within one
year of delivery the Operator shall give notice within five days of such
discovery. THIS WARRANTY IS EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES.
11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE OPERATOR
The Operator hereby represents, warrants, and covenants to the
Manufacturer, as follows:
11.1 Corporate Status
ENERCON America Distribution Limited is (i) duly organized corporation,
validly existing and in good standing under the laws of the State of Ohio; (ii)
has full power to own all of its properties and carry on its business; and (iii)
is qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the
312
<PAGE>
business transacted by it, does not make qualification necessary in any other
jurisdiction or jurisdictions.
11.2 Financial Condition of the Operator
The books and records of the Operator are complete and accurate and fairly
present the financial condition and the results of operations of the Operator as
of the date hereof. There are no material liabilities, either fixed or
contingent, not reflected in such books and records other than contracts or
obligations in the ordinary and usual course of business; and no such contracts
or obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of the Operator as reflected in such books and records.
11.3 Defaults and Conflicts
There are no defaults on the part of the Operator under any contract,
lease, mortgage, pledge, credit agreement, title retention agreement, security
agreement, lien, encumbrance or any other commitment, contract, agreement or
undertaking to which the Operator is a party. The execution of this Agreement
will not violate or breach any material agreement, contract, or commitment to
which the Operator is a party.
11.4 Corporate Action
Prior to the date hereof, the boards of directors of the Operator has duly
adopted resolutions approving the execution and delivery to the Manufacturer of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained,
and the Operator will, within 30 days of the execution of this Agreement,
furnish the Manufacturer with a copy of the resolutions of the board of
directors of the Operator authorizing the Operator to purchase the Purchased
Equipment and lease the Leased Equipment pursuant to the terms and conditions of
this Agreement;
11.5 Insurance
11.5.1 The Operator, at its own cost and expense, shall insure the Leased
Equipment against burglary, theft, fire, and vandalism in the amount of US
$1,000,000 and obtain public liability insurance with minimum limits, as the
parties shall mutually agree, for property damage in such form and with such
insurance companies as shall be satisfactory to the Manufacturer. All insurance
policies shall name both the Operator and the Manufacturer as insureds and
copies of the policies and the receipts for the payment of premiums shall be
furnished to the Manufacturer. Each damage policy shall provide for payment of
all losses directly to the Manufacturer. Each liability policy shall provide
that all losses be paid on behalf of the Operator and the Manufacturer, as their
respective interests appear.
11.5.2 In the event that the Operator shall fail to comply with the
provisions of Paragraph ll.5.1, above, then the Operator shall pay to the
Manufacturer an adequate premium in advance per annum to enable the Manufacturer
to insure the Leased Equipment and all such insurance policies shall be held in
the custody of the Manufacturer.
11.6 Indemnification
The Operator agrees to indemnify, protect, save, and keep harmless the
Manufacturer, its agents, employees, successors, and assigns from and against
all losses, damages, injuries, claims, demands, and expenses, including legal
expenses , of whatsoever nature arising out of the use, condition
313
<PAGE>
(including but not limited to latent and other defects and whether or not
discoverable by it), or operation of the TCTS-1 System, or any part of it, by
any person who used, operated, or came into contact with such TCTS-1 System at
the Site and to defend any suit seeking such damages even though the allegations
of such suit are groundless, false, or fraudulent, provided however that the
Operator agrees to give prompt notice to the Manufacturer once the Operator has
actual knowledge of any claims as to which indemnity shall be sought, and shall
permit the Manufacturer (at the Operator's expense) to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Manufacturer, who shall conduct the defense of said claim or litigation, shall
be reasonably satisfactory to the Operator; The Operator shall not, in the
defense of any such claim or litigation, except with the consent of the
Manufacturer, consent to the entry of any judgment or enter into any settlement
that does not include as an unconditional term, the giving by the claimant or
plaintiff to Manufacturer of a release from all liability in respect to such
claim or litigation.
11.7 Access
The Operator shall insure that the Manufacturer, and its agents and
employees, shall at all times have free access to the Operator's premises for
the purpose of inspecting the Leased Equipment and observing its use and
operation, and making alterations, improvements, or additions thereto; and the
Operator shall afford all reasonable facilities therefor, and shall allow the
Manufacturer to make such reasonable alterations, improvements, or additions as
the Manufacturer shall deem necessary, at the expense of the Manufacturer.
11.8 Taxes
The Operator shall pay all taxes, assessments, penalties, and fees which
may be levied or assessed on or with respect to the installation of the TCTS-1
System and, at all times during the term of the Lease of the Leased Equipment,
the Operator shall pay all taxes and assessments which may be levied upon or in
respect of the TCTS-1 System or its operation, and shall pay any other liability
of any character which may be imposed or incurred as an incident to the physical
possession or operation of such System.
11.9 Compliance with Applicable Law
The Operator shall provide, at its own expense, all requisite permits and
licenses necessary for the installation and operation of the TCTS-1 System at
the Site and shall exercise its best efforts to maintain its compliance with all
applicable federal, state, and local laws, statutes, rules, and regulations and,
in the event of any non-compliance which renders impossible the operation of the
Site as a tire recycling facility, the Operator shall exercise its best efforts
to cure such non-compliance promptly.
11.10 Subordination
The Operator shall procure from every owner, landlord, mortgagee, or other
secured party having any interest in the real property on which the TCTS-1
System is to be installed or in the Operator's place of business or the
equipment therein, and deliver to the Manufacturer, a written consent to such
installation and a writing to the effect that the lien of any such mortgage or
other interest is subordinate to the rights of the Manufacturer with respect to
the Leased Equipment.
11.11 Ancillary Agreements
314
<PAGE>
11.11.1 The Operator will, simultaneously with the execution of this
Agreement, and in consideration of the premises and the mutual promises and
agreements made herein, enter into the following agreements with the
Manufacturer or such person, corporation, firm, partnership, or other entity as
the Manufacturer shall appoint in its stead:
(a) The Royalty Agreement, of even date herewith, between the
Manufacturer and the Operator providing for the Operator to pay to
the Manufacturer a royalty of three percent (3%) of the gross
proceeds from the sale, other than to the Manufacturer pursuant to
the Crumb Rubber Purchase Option Agreement, by the Operator of
rubber crumb and steel from scrap tires disintegrated by the
Operator through the utilization of the TCTS-1 System, a copy of
which Royalty Agreement is attached as Schedule 11.11(a) hereto; and
(b) The Crumb Rubber Purchase Option Agreement, of even date herewith,
between the Operator and the Manufacturer or such person,
corporation, firm, partnership, or other entity as the Manufacturer
shall appoint in its stead, granting an option to the Manufacturer
to purchase up to 40% of the crumb rubber produced by the TCTS-1
System, a copy of which Agreement is attached as Schedule 11.11(b)
hereto
11.11.2 It is the intention of the parties that within sixty days after
payment of the first payment due under Paragraph 3.3, above, the Manufacturer
and the Operator, jointly, shall commence the development of a mutually
acceptable Projected Maintenance Agreement and that within five business days of
the completion of the said Projected Maintenance Agreement, the Operator will,
in consideration of the premises and the mutual promises and agreements made
herein, enter into the Projected Maintenance Agreement with the Manufacturer or
such person, corporation, firm, partnership, or other entity as the Manufacturer
and the Operator shall jointly agree to and appoint in its stead, on mutually
agreed upon terms. Notwithstanding the foregoing, the failure of the parties to
enter into the Projected Maintenance Agreement will not constitute a breach of
this Agreement or otherwise affect the respective rights and obligations of the
parties hereunder.
12. DEFAULTS
12.1 Default by Manufacturer
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Manufacturer:
(a) If at any time prior to the delivery of the TCTS-1 System to the
Site:
(i) The Manufacturer makes an assignment for the benefit of
creditors;
(ii) A voluntary or involuntary petition is filed by or against the
Manufacturer under any law having for its purpose and
adjudication of the Manufacturer a bankrupt or the extension
of the time of payment of, adjustment of, or other arrangement
affecting the liabilities of the Manufacturer, or the
reorganization of the Manufacturer and such petition is not
discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(iii) A Receiver is appointed for the property of the Manufacturer
and is not discharged or dismissed within one hundred twenty
(120) days after such appointment;
or
(iv) Any distress, execution, or attachment is levied upon the
Manufacturer's property to the extent that the Manufacturer is
not able to fulfill its obligations to deliver the TCTS-1
within 90 days of the anticipated Deliver Date.
(a)
315
<PAGE>
(b) The Manufacturer fails to deliver the TCTS-1 System in accordance
with the terms and provisions of Section 7, above, within 90 days of
the Delivery Date unless prior thereto, the Operator has failed to
meet the payment provisions set forth above in Section 3.3 of this
Agreement;
(c) The TCTS-1 System fails to operate for a full Test (or re-test)
Period, in accordance with Section 8.2 hereof, within ninety (90)
days from the date the TCTS-1 System is completely installed at the
Site.
12.2 Default by Operator
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Operator:
(a) The Operator fails to make any payment required to be made pursuant
to Sections 3.3 or 4.3 of this Agreement or, if the parties shall
enter into the Projected Maintenance Agreement, any payment required
to be made by the Operator under the Projected Maintenance Agreement
and such failure to make payment shall have continued for a period
of ten (10) days after written notice from the Manufacturer;
(b) The Operator refuses to accept or allow the Manufacturer to install
or test the TCTS-1 System in accordance with Sections 7.2, 8.2, and
8.3 of this Agreement, notwithstanding that such System has been:
(i) delivered to the Operator's Site on a timely basis or (ii)
delivered to the Site and has performed in accordance with the
specifications set forth in Section 8.2 hereof for the prescribed
Test Period;
(c) The Operator makes an assignment for the benefit of creditors;
(d) A voluntary or involuntary petition is filed by or against the
Operator under any law having for its purpose and adjudication of
the Operator a bankrupt or the extension of the time of payment of,
adjustment of, or other arrangement affecting the liabilities of the
Operator, or the reorganization of the Operator and such petition is
not discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(e) A Receiver is appointed for the property of the Operator;
(f) Any distress, execution, or attachment is levied upon the machines
or the Operator's property; or
(g) The Operator fails to faithfully and fully comply with the terms and
provisions of Section 5.2 of this Agreement, with any such failure
deemed to be an irremediable material breach of this Agreement
immediately upon its occurrence.
(h) The Operator fails to reasonably, faithfully, and fully maintain the
TCTS-1 in accordance with standards and procedures to be specified
in the Projected Maintenance Agreement or otherwise, and fails to
cure such breach within the time period specified therein with
respect to such failure.
12.3 Remedies Available to the Operator upon Default by Manufacturer
If the Manufacture shall be in default pursuant to Paragraphs 12.1 (a),
(b), or (c) of this Agreement, unless such default shall have been caused by any
act or failure to act on the part of the Operator or its personnel, including
but not limited to the failure of the Operator to have brought the Site into
conformance with the Site Plan) Specifications, the Operator shall have the
right to rescind this agreement by serving written notice ("Notice of
Rescission") upon the Manufacturer and the Operator
316
<PAGE>
shall thereupon be entitled to stipulated damages in the agreed to amount of one
million dollars (US $1,000,000). In such event, the Manufacturer shall, at its
own expense, remove the TCTS-1 System as promptly as practicable following its
receipt of such Notice of Rescission and all monies theretofore paid by the
Operator to the Manufacturer pursuant to Sections 3.3 and 4.3, above, shall be
returned by the Manufacturer to the Operator.
12.4 Remedies Available to the Manufacturer upon Default by the Operator
12.4.1 The Operator acknowledges and agrees that its breach of any
provision contained in Section 5.2 of this Agreement will cause irreparable harm
to the Manufacturer. The Operator therefore agrees that, if the Operator or any
of the Operator's affiliates, agents, employees, or associates has breached, or
is attempting or threatening to breach, any provision contained hereinabove in
the said Section 5.2, then the Manufacturer shall have the right to obtain from
any court or arbitrator having jurisdiction, such equitable relief as may be
appropriate, including a decree enjoining the Operator from any further such
breach of such provisions, and enjoining the Operator from engaging in any
aspect of the tire recycling business which is in competition with tire
recycling businesses which utilize tire disintegration equipment manufactured by
the Manufacturer, either directly or indirectly through or in association with
any other person, firm, corporation, or organization during the term of this
Agreement. Notwithstanding the foregoing, for purposes of this Agreement, the
parties agree that a tire recycling business utilizing a microwave tire
recycling system will not be deemed to be in competition with tire recycling
businesses which utilize tire disintegration equipment manufactured by the
Manufacturer
12.4.2 In the event of any default by the Operator under this Agreement,
the Manufacturer may at its option, at any time thereafter terminate this
Agreement by written notice ("Notice of Termination"), given in Accordance with
Section 16 hereof. Such termination may be made effective, at the option of the
Manufacturer, simultaneously with or at any time after the happening of any such
default.
12.4.3 Upon any termination of this Agreement prior to payment in full of
the entire Purchase Price of US $2,250,000 for the Purchased Equipment, in
accordance with the terms of Section 3.3 of this Agreement, the Manufacturer
shall immediately have possession of the entire TCTS-1 System, and the
Manufacturer may enter upon the premises where the said TCTS-1 System is
located, take possession of the Leased Equipment and without previous demand or
notice and without legal process, and remove it from the Operator's premises at
the Operator's expense.
12.4.4 Upon any termination of this Agreement after payment in full of the
entire Purchase Price of US $2,250,000 for the Purchased Equipment has been made
by the Operator, the Manufacturer shall immediately have possession of the
Leased Equipment and the Manufacturer may enter upon the premises where the
TCTS-1 System is located, remove the Leased Equipment from the said TCTS-1
System and take possession of the Leased Equipment without previous demand or
notice and without legal process, and remove it from the Operator's premises at
the Operator's expense.
12.4.5 The Operator acknowledges and agrees that any refusal on its part
to permit the Manufacturer to enter its premises and remove either the TCTS-1
System or the Leased Equipment in accordance with Paragraph 12.4.3 or 12.4.4 of
this Agreement will cause irreparable harm to the Manufacturer. The Operator
therefore agrees that in the event of any such refusal on its part, the
Manufacturer shall have the right to obtain from any court or arbitrator having
jurisdiction, such equitable relief as may be appropriate, including a decree
enjoining the Operator from any further such refusal of entry and removal.
12.4.6 In the event of any default by the Operator prior to the Acceptance
Date, the Manufacturer shall be entitled to liquidated damages including but not
limited to retention of up to one million dollars (US $1,000,000) out of the
monies paid by the Operator pursuant to Paragraph 3.3 and all costs of
delivering and removing and re-delivering the TCTS-1 System.
317
<PAGE>
12.4.7 In the event of any default by the Operator after the Acceptance
Date or pursuant to Paragraph 12.2(b) of this Agreement, the Manufacturer shall
be entitled to liquidated damages including but not limited to retention of up
to one million dollars (US $1,000,000) out of the monies paid by the Operator
pursuant to Paragraph 3.3, all costs of delivering and removing and
re-delivering the TCTS-1 System, and damages for the Operator's failure to
perform for the full term of the Lease provided in Section 4.2 of this
Agreement.
12.4.8 In the event of any default on the part of the Operator pursuant to
Paragraphs 12.2(a) or 12.2(b) of this Agreement, the Manufacturer shall have the
right to allow the Operator, for a period of sixty (60) days, to obtain a buyer
for the TCTS-1 System, satisfactory to the Manufacture, provided however that,
unless specifically waived in writing by the Manufacturer, the Operator shall
continue liable under this Agreement lease for the full term of the Lease
provided for in Section 4.2 of this Agreement. In the event that the Operator
shall fail to obtain a buyer for the TCTS-1 System, satisfactory to the
Manufacture, the Manufacturer shall use its best efforts to dispose of the
equipment, either as a single TCTS-1 System or as separate components in any
appropriate public disposal manner. In the event of a sale of the equipment to a
Buyer located by either the Operator or the Manufacturer, the Manufacturer shall
return to the Operator all funds received from such disposal in excess of: (i)
liquidated damages under Paragraphs 12.4.6 or 12.4.7, above, (b) any monies
owing to Manufacturer by Operator under Section 3.3, and any costs incurred by
the Manufacturer for the removal and public disposal of the repossessed TCTS-1.
12.4.9 In the event of any default on the part of the Operator, the
Manufacturer shall not be deemed to have waived any of its rights hereunder by
reason of its failure to assert its rights or its failure to take cognizance of
such breach.
12.4.10 The foregoing remedies provided herein for the benefit of the
Manufacturer shall not be exclusive but in addition to any other remedies the
Manufacturer may have by virtue of the breach by the Operator, in law or in
equity, from any court or arbitration proceeding having jurisdiction over such
matter.
13. OPERATOR'S SALE OF Purchased Equipment
13.1 Manufacturer's Right to Retrieve Leased Equipment Prior to Sale
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the
TCTS-1 System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer shall have all rights of entry and removal provided above in
Paragraphs 12.4.4 and 12.4.5 of this Agreement, provided however that in
addition to such rights, if such event shall occur during the term of the said
Lease, the Manufacturer shall also have the rights provided to it in Paragraph
12.4.7 of this Agreement.
13.2 Manufacturer's Right of First Refusal
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the
TCTS-1 System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer will have a right of first refusal to repurchase the TCTS-1 System,
at its fair market value, within a sixty (60) day period following the
Manufacturer's receipt of such notice;
14. ASSIGNMENT
318
<PAGE>
The Operator shall not transfer, deliver, sublease, or encumber the Leased
Equipment to any person, corporation, or firm, and the Lease provided in Section
4.2 of this Agreement may not be assigned by the Operator except with the
Manufacturer's express prior written consent.
15. FAILURE OF PERFORMANCE
Delays in or failure of performance occasioned by war, fire, flood,
embargo, car shortage, accident, explosion, expropriation of plant or product by
federal or state authority, or other like cause beyond the control of the
Manufacturer, or Act of God, or by strike, lockout, or other labor trouble, or
inability to obtain sufficient labor interfering with the production or
transportation of the TCTS-1 System, or any part thereof, or any replacement
therefor, whether because of governmental action affecting the Manufacturer or
its suppliers, or by any action or proceeding at law or in equity, or otherwise,
shall not subject the Manufacturer to any liability.
16. NOTICES
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.
17. CONDITIONS PRECEDENT TO MANUFACTURER'S OBLIGATION
The obligations of the Manufacturer hereunder are subject to fulfillment,
prior to the Delivery Date, of the following conditions:
17.1 Truth of Representation
The representations and warranties by or on behalf of Operator contained
in this Agreement or in any document delivered to the Manufacturer pursuant to
the provisions hereof shall be true in all material respects at and as of the
Delivery Date as though such representations and warranties were made at and as
of such time.
17.2 Compliance with Covenants
The Operator shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with prior or simultaneously with to the Delivery Date.
(ii) 17.3 Financing Arrangements
The Operator will deliver to the Manufacturer within sixty (60) days of
the execution of this Agreement, evidence satisfactory to the Manufacturer that
the Operator has arranged for adequate financing to meet the payment schedule
set forth in Section 3.3, above.
319
<PAGE>
18. ARBITRATION
All controversies arising out of or relating to this Agreement, or any
modification thereof, shall be settled by arbitration in New York City in
accordance with the Arbitration Rules then obtaining of the American Arbitration
Association.
19. BINDING EFFECT.
19.1 This agreement shall bind and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns,
provided, however, that this Agreement cannot be assigned by the Operator except
in accordance with Section 14 of this Agreement. Nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm or corporation other than the parties hereto and their respective legal
representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
19.2 All the right, title, and interest of the Manufacturer under the
Lease may be enforced by the Manufacturer, its successors, and assigns. The
Lease shall continue in full force and effect notwithstanding the death,
incapacity, or dissolution of the Operator or the increase, decrease, or change
in the personnel of or members of the Operator, and shall be binding upon the
Operator and the Operator's estate, legal representatives, heirs, and
successors.
20. GENERAL
20.1 Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
20.2 Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
20.3 Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
20.4 Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
20.5 Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
20.6 Entire Agreement
320
<PAGE>
This Agreement is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof.
20.7 Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
20.8 Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel of the Manufacturer and the Operator, provided however, that
any failure of the Operator or its counsel to approve any such notices or other
publicity shall in no way prevent the Manufacturer from complying fully with its
public disclosure obligations under the rules and regulations of the United
States Securities and Exchange Commission or any other governmental body or
agency in the United States or in any other applicable jurisdiction.
20.9 Counterparts
This Agreement 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 Agreement.
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
----------------------------------------
Terence C. Byrne, President
ENERCON AMERICA DISTRIBUTION LIMITED
By/s/ David L. Holmes
----------------------------------------
David L. Holmes
321
EXHIBIT 10 (pp)
322
<PAGE>
----------
THE TIREX CORPORATION
----------
ROYALTY AGREEMENT
Royalty Agreement, made this day of August 1998 between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee, respecting the "Leased Equipment", as those
terms are defined in the said Equipment Lease and Purchase Agreements.
Whereas, in consideration for the premises and the mutual promises made
therein, the Operator has agreed, pursuant to the Equipment Lease and Purchase
Agreements, to enter into this Royalty Agreement with the Manufacturer whereby
the Operator will pay to the Manufacturer certain royalties calculated upon the
gross proceeds from all sales of rubber crumb, fiber and steel from scrap tires
disintegrated by the TCS-1 System and the TCTS-1 System which are the respective
subjects of the said Equipment Lease and Purchase Agreements (the "Subject
Systems").
Now, Therefore, it is agreed as follows:
1. Definitions
1.2 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
323
<PAGE>
1.3 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.4 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreement.
2. Royalty Fee
2.1 The Operator shall pay to the Manufacturer, not more than fifteen (15)
days after the end of each month, a royalty fee equal to three percent (3%) of
the net proceeds from all sales of rubber crumb, fiber, and steel from scrap
tires disintegrated by the Subject Systems (the "Royalty Fee").
2.2 For purposes of this Royalty Agreement, the term "net proceeds" shall
mean all revenues from the sale, other than to the Manufacturer pursuant to the
Crumb Rubber Purchase Option Agreement, of rubber crumb, fiber and steel from
scrap tires disintegrated by the Subject Systems less any uncollected accounts
actually written off as bad debts by the Operator.
3. Payment Periods
Royalty Fees shall be reported and paid by the Operator to the
Manufacturer every month from the Acceptance Date throughout the life of the
Subject Systems.
4. Royalty Reports
The Operator shall prepare royalty reports ("Royalty Reports"), to be
delivered by the Operator to the Manufacturer, together with the Royalty Fee due
thereunder, covering the immediately preceding "Reporting Periods", in the
following manner:
(a) The initial Reporting Period shall be the Reporting Period in which
the Acceptance Date falls. For example, if the Acceptance Date is
September 15, 1998, the initial Reporting Period is the two-week
period which commenced on September 15, 1998 and ended on September
30, 1998, and the Royalty Report and Royalty Fee for such "Reporting
Period" is due on October 15, 1998.
(b) Each Royalty Report shall disclose the gross revenues from all sales
of steel, fiber, and rubber crumb produced by the operation of the
Subject Systems and the amount of the Royalty Fee calculated upon
the gross proceeds therefrom.
5. Inspection of Books
Upon written request, the Manufacturer or his designated agent may examine
the books and records of the Operator only insofar as they relate to this
Royalty Agreement and are reasonably required to verify the Operator's revenues
from sales of steel, fiber, and rubber crumb produced
324
<PAGE>
by the operation of the Subject Systems. Such examination shall take place at
the offices of the Operator only during normal business office operating hours.
6. Assignment
6.1 This Royalty Agreement may not be assigned by the Operator except as
part of the assignment of the Equipment Lease and Purchase Agreement, which may
only be assigned pursuant to the express written consent of the Manufacturer,
and any such assignment shall not relieve the Operator of its liabilities
hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Royalty Agreement may be transferred, assigned, pledged, or
hypothecated by the Manufacture as part of the sale of its business or
otherwise.
7. Notices
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.
8. Binding Effect.
8.1 This Royalty Agreement shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Royalty Agreement cannot be assigned by
the Operator except in accordance with Section 6.1 hereof. Nothing herein
expressed or implied is intended or shall be construed to confer upon or to give
any person, firm or corporation other than the parties hereto and their
respective legal representatives, successors and assigns any rights or benefits
under or by reason of this Royalty Agreement.
8.2 All the right, title, and interest of the Manufacturer under this
Royalty Agreement may be enforced by the Manufacturer, its successors, and
assigns. This Royalty Agreement shall continue in full force and effect
notwithstanding the death, incapacity, or dissolution of the Operator or the
increase, decrease, or change in the personnel of or members of the Operator,
and shall be binding upon the Operator and the Operator's estate, legal
representatives, heirs, and successors.
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the
325
<PAGE>
other party to confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
14. Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreements constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Royalty Fees. There are
no oral promises, conditions, representations, understandings, interpretations
or terms of any kind as conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
326
<PAGE>
17. Counterparts
This Agreement 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 Agreement.
In Witness Whereof, the parties hereto have caused this Royalty Agreement
to be executed the day and year first above written whatsoever.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
-----------------------------------------
David L. Holmes, President
THE TIREX CORPORATION
By/s/ Terence C. Byrne
-----------------------------------------
Terence C. Byrne, President
327
EXHIBIT 10 (qq)
328
<PAGE>
----------
THE TIREX CORPORATION
----------
RUBBER CRUMB PURCHASE OPTION AGREEMENT
Rubber Crumb Purchase Option Agreement, made this 19th day of August 1998,
between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee, respecting the "Leased Equipment", as those
terms are defined in the said Equipment Lease and Purchase Agreements.
Whereas, in consideration for the premises and the mutual promises made
therein, the Operator has agreed, pursuant to the Equipment Lease and Purchase
Agreements, to enter into this Option Agreement with the Manufacturer pursuant
to which the Operator hereby grants to the Manufacturer the option to purchase
up to forty percent (40%) of the rubber crumb yielded by the disintegration of
scrap tires in the TCS-1 System and the TCTS-1 System which are the respective
subjects of the said Equipment Lease and Purchase Agreements (the "Subject
System").
Now, Therefore, it is agreed as follows:
1. Definitions
1.1 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
329
<PAGE>
1.2 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.3 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreements.
2. Grant of Option
The Operator hereby grants to the Manufacturer an option (the "Option") to
purchase up to forty percent (40%) of the rubber crumb yielded by the
disintegration of scrap tires in the Subject Systems (the "Rubber Crumb
Output").
3. Term of Option
The term of the Option shall be coextensive with the term of the operating
lease provided for in Section 4 of the respective Equipment Lease and Purchase
Agreements and shall commence as of the Acceptance Date.
4. Conditions of Option
The Manufacturer's rights to purchase the Rubber Crumb Output pursuant to
this Option shall be subject to fulfillment of the following condition:
(a) the Manufacturer shall furnish to the Operator, in writing, within
ninety days of the Acceptance Date and every six months thereafter,
the Manufacturer's anticipated purchase projections (the "Six-Month
Projected Purchase Order") specifying the grades, types, and
quantities of Rubber Crumb Output which the Manufacturer commits to
purchase within the six-month period following the date of such
Projected Purchase Order;
The price, terms, and conditions specified in the Projected Purchase Order
will be negotiated every six months for a period of six months.
5. Inspection of Books
Upon written request, the Manufacturer or its designated agent may examine
the books and records of the Operator only insofar as they relate to this Rubber
Crumb Purchase Option Agreement and are reasonably required to verify the volume
of rubber crumb produced by the operation of the Subject Systems. Such
examination shall take place at the offices of the Operator only during normal
business office operating hours.
6. Assignment
330
<PAGE>
6.1 This Option Agreement may not be assigned by the Operator except as
part of the assignment of the Equipment Lease and Purchase Agreement, which may
only be assigned pursuant to the express written consent of the Manufacturer,
and any such assignment shall not relieve the Operator of its obligations
hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Option Agreement may be transferred, assigned, pledged, or
hypothecated by the Manufacture as part of the sale of its business or
otherwise.
7. Notices
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.
8. Binding Effect.
8.1 This Option Agreement shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Option Agreement cannot be assigned by the
Operator except in accordance with Section 6.1 hereof. Nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation other than the parties hereto and their respective
legal representatives, successors and assigns any rights or benefits under or by
reason of this Option Agreement.
8.2 All the right, title, and interest of the Manufacturer under this
Option Agreement may be enforced by the Manufacturer, its successors, and
assigns. This Option Agreement shall continue in full force and effect
notwithstanding the death, incapacity, or dissolution of the Operator or the
increase, decrease, or change in the personnel of or members of the Operator,
and shall be binding upon the Operator and the Operator's estate, legal
representatives, heirs, and successors.
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
10. Waiver
331
<PAGE>
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
14 Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreement constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Option. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
This Agreement 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 Agreement.
332
<PAGE>
In Witness Whereof, the parties hereto have caused this Option
Agreement to be executed the day and year first above written.
whatsoever.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
--------------------------------------
David L. Holmes
THE TIREX CORPORATION
By /s/ Terence C. Byrne
--------------------------------------
Terence C. Byrne, President
333
EXHIBIT 10 (rr)
334
<PAGE>
----------
THE TIREX CORPORATION
----------
PURCHASE RIGHTS AGREEMENT
Purchase Rights Agreement, made this 19th day of August 1998, between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee (the "Operating Lease"), respecting the
"Leased Equipment", as those terms are defined in the said Equipment Lease and
Purchase Agreements.
Whereas, Section 4 of each of the respective Equipment Lease and Purchase
Agreements contains the terms and provisions of the respective Operating Leases,
with Subparagraphs 4.2.2 (b) of each of such Agreements providing to the
Operator the sole and exclusive right to extend the terms of the Operating
Leases yearly, on a perpetual basis, at a reduced rental rate, or to terminate
the said Operating Leases upon 90 days written notice to the Manufacturer.
Whereas, the Operator wishes to have, and the Manufacturer has agreed to
grant to the Operator, the right to purchase the Leased Equipment in the event
that a voluntary or involuntary petition is filed by or against the Manufacturer
under Chapter 7 of the United States Bankruptcy laws having for its purpose and
adjudication of the Manufacturer a bankrupt and the liquidation of the
Manufacturer's assets pursuant thereto.
Now, Therefore, in consideration for the premises and the mutual promises
made herein and in the Equipment Lease and Purchase Agreements, it is agreed as
follows:
335
<PAGE>
1. Definitions
1.1 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
1.2 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.3 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreements.
2. Operator's Right to Purchase Leased Equipment
2.1 To the extent permitted under applicable bankruptcy laws and
regulations, the Manufacturer hereby grants to the Operator the right to
purchase the Leased Equipment in the event that a voluntary or involuntary
petition is filed by or against the Manufacturer under Chapter 7 of the United
States Bankruptcy laws having for its purpose the adjudication of the
Manufacturer as a bankrupt and the liquidation of the Manufacturer's assets
pursuant thereto, in which event:
(a) The Manufacturer shall, within five business days of such
occurrence, give written notice thereof to the Operator;
(b) The Operator shall, within five business days of receipt of the
above described notice, advise the Manufacturer whether or not it
wishes to purchase the Leased Equipment.
3. Purchase Price
The purchase price for the Leased Equipment shall be the greater of: (i)
seven hundred fifty thousand United States dollars (US $750,000) less $10,000
for each monthly rental payment (including $12,500 initial term payments and
$6,250 extended term payments) that Operator shall theretofore have paid under
the Operating Lease; or (ii) $50,000.
6. Assignment
6.1 This Purchase Rights Agreement may not be assigned by the Operator
except as part of the assignment of the Equipment Lease and Purchase Agreement,
which may only be assigned pursuant to the express written consent of the
Manufacturer, and any such assignment shall not relieve the Operator of its
obligations hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Purchase Rights Agreement may be transferred, assigned, pledged,
or hypothecated by the Manufacture as part of the sale of its business or
otherwise.
336
<PAGE>
7. Notices
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.
8. Binding Effect.
8.1 This Purchase Rights Agreement shall bind and inure to the benefit of
the parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Agreement cannot be assigned by the
Operator except in accordance with Section 6.1 hereof. Nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation other than the parties hereto and their respective
legal representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
337
<PAGE>
14 Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreement constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Operator's rights to
purchase the Leased Equipment. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
This Agreement 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 Agreement.
In Witness Whereof, the parties hereto have caused this Purchase Rights
Agreement to be executed the day and year first above written.
whatsoever.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
---------------------------------------
David L. Holmes
THE TIREX CORPORATION
By /s/ Terence C. Byrne
---------------------------------------
Terence C. Byrne, President
338
EXHIBIT 10 (ss)
339
<PAGE>
THE TIREX CORPORATION
----------
PASSENGER CAR
EQUIPMENT LEASE AND PURCHASE AGREEMENT
----------
Passenger Car Equipment Lease and Purchase Agreement, made this 9th day of
October 1998, among
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
(the "Manufacturer")
1. DEFINITIONS
1.1 "Acceptance Date" shall mean the first day following the completion of
the Test Period.
1.2 Delivery Date shall mean May 30, 1999 or such other date as the
parties hereto shall mutually agree.
1.3 "Leased Equipment shall mean Items 010 and 011 of the Proprietary
Equipment, as set forth on Schedule 1.8 hereto.
1.4 "Manufacturer" shall mean The Tirex Corporation and Tirex-Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
1.5 "Nonproprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCS-1 System specified in Schedule 1.5 hereto.
1.6 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.7 "Projected Maintenance Agreement" shall mean the agreement for the
maintenance of the TCS-1 System, which the Manufacturer and the Operator will
prepare on mutually agreeable terms.
340
<PAGE>
1.8 "Proprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCS-1 System specified in Schedule 1.8 hereto.
1.9 "Purchased Equipment shall mean Items 001 through 009 of the
Proprietary Equipment, as specified on Schedule 1.8 hereto, and the
Nonproprietary Equipment, as specified on Schedule 1.5 hereto.
1.10 "Site" shall mean the premises of Carbon Black Technologies, Ltd in
Johnstown, Pennsylvania or such other site as the Operator shall specify.
1.11 "TCS-1 System" shall mean the Manufacturer's proprietary cryogenic
passenger car tire disintegration system, consisting of: (i) the patented
"Leased Equipment" and the (ii) "Purchased Equipment" which includes but is not
limited to a front-end tire preparation system and a freezing chamber which the
Manufacturer believes are proprietary to it and for which the Manufacturer
intends to apply for patents. This System will accept whole passenger car tires
with an inside diameter not exceeding seventeen (17) inches and will process the
tire in such a manner as to allow the System to separate the steel and fiber
from the rubber which will be reduced to a size no larger than 5 mesh. The TCS-1
System shall meet or exceed all applicable U.S. permitting and operating rules
and regulations including but not limited to those promulgated by OSHA and EPA.
1.12 "Test Period" shall mean a three day period which shall commence
within ten days after completion of the installation of the TCS-1 System, during
which Test Period, the TCS-1 System shall be operated continually for up to 24
hours per day.
2. RECITALS
Whereas:
2.1 The Manufacturer has invented, designed, developed, built, and
patented part of, and is the sole and exclusive owner, directly or indirectly,
through one or more subsidiaries, of all right title and interest in, the TCS-1
System.
2.2 The Operator is a corporation organized for the principal purpose of
commercially exploiting, directly or indirectly, through one or more
subsidiaries, the TCS-1 System by: (i) purchasing the Nonproprietary Equipment
and Items 001 - 009 of the Proprietary Equipment (referred to herein,
collectively, as the "Purchased Equipment"); (ii) leasing Items 010 and 011 of
the Proprietary Equipment (referred to herein, collectively, as the "Leased
Equipment"); and (iii) operating the TCS-1 System.
3. AGREEMENT FOR PURCHASE AND SALE OF THE PURCHASED EQUIPMENT
3.1 Purchase and Sale
The Operator agrees to purchase, and the Manufacturer agrees to sell, the
Purchased Equipment, as defined in Section 1.7, above, in accordance with the
terms and conditions of this
341
<PAGE>
Agreement. The Operator may at its election take title to the Purchased
Equipment in a wholly owned subsidiary corporation to be formed by it for such
purpose. Such election by the Operator shall nowise modify, diminish, or
otherwise effect the Operator's liability hereunder to the Manufacturer. The
purchase and payment for the Purchased Equipment by the Operator, and the sale,
assignment, transfer, and delivery thereof by the Manufacturer, shall take place
subject to the fulfillment of the conditions herein after provided.
3.2 Purchase Price
The purchase price for the Purchased Equipment (the "Purchase Price"),
installed and set in operation pursuant to Section 7 hereto, shall be the sum of
two million, two hundred fifty thousand United States dollars (US $2,250,000),
FOB Montreal.
3.3 Payment Terms
In the absence of arrangements for lease or letter of credit financing,
satisfactory to the Manufacturer, the Purchase Price for the Purchased Equipment
shall be paid as follows:
(a) 15% (US $337,500) upon execution of this Agreement;
(b) 15% (US $337,500) upon acceptance by the Operator of equipment
drawings, layout drawings, and other written
specifications, such acceptance to be based upon
local permitting and applicable operating
requirements and shall not be unreasonably
withheld
(c) 30% (US $675,000) two months after Manufacturer's giving notice of
commencement of manufacture.
(d) 10% (US $225,000) two months prior to the anticipated Delivery
Date.
(e) 15% (US $337,500) on the Delivery Date; and
(f) 15% (US $337,500) on the Acceptance Date.
3.4 Taxes
Manufacturer and Operator acknowledge that there are a variety of country,
state and/or local taxes that may be assessed on the Purchased Equipment, the
Leased Equipment, and the purchase, sale, and operation thereof. The
Manufacturer shall be responsible for the prompt payment of all taxes,
assessments, levies, export taxes, or other governmental or regulatory payments
that may be assessed by the government of Canada or any political sub-division
therein. The Operator shall be responsible for the prompt payment of all taxes,
assessments, levies, import taxes, or other governmental or regulatory payments
that shall be assessed by the government of the United States of America or any
political sub-division therein.
342
<PAGE>
4. AGREEMENT FOR OPERATING LEASE
4.1 Agreement to Lease Equipment
The Manufacturer, as lessor, and the Operator, as lessee, hereby enter
into an operating lease (the "Lease") for the Leased Equipment, consisting of
Items 010 and 011 specified on Schedule 1.8 hereto, subject to the following
terms and conditions:
4.2 Term of the Lease
4.2.1 The term of the Lease shall be sixty (60) months commencing on the
Acceptance date.
4.2.2 At the expiration of the full original term hereof, if this Lease
has remained in effect and the Operator has duly performed all its obligations
thereunder during the entire such term, then the Operator shall have the option
to either:
(a) Obtain a new lease agreement in the form then being generally
offered by the Operator to the trade under which the Operator shall
replace the Leased Equipment or the entire TCS-1 System, as the case
may be, with new equipment, free of any installation charge payable
by the Operator;
(b) Continue to use the same equipment installed hereunder and thereby
extend the term of this Lease at a reduced rental rate of US $6,250
per month for a period of one year with further successive automatic
one-year extensions subject only to the Operator's right to
terminate this Lease at the end of any extension year upon prior
written notice of not less than 90 days; or
(c) Request that the Manufacturer exercise its right of first refusal to
repurchase the Purchased Equipment pursuant to Section 13.2 of this
Agreement, in which event the Manufacturer shall have sixty (60)
days following the Manufacturer's receipt of such notice to either:
(i) notify the Operator of its intent to repurchase the Purchased
Equipment and, within ninety (90) days of such notice, effectuate
such repurchase and thereupon enter upon the premises where the said
TCS-1 System is located and remove the entire TCS-1 System from the
Operator's premises at the Manufacturer's expense, or (ii) notify
the Operator that it does not intend to repurchase the Purchased
Equipment and, as soon as practicable thereafter, enter upon the
premises where the TCS-1 System is located, take possession of the
Leased Equipment without previous demand or notice and without legal
process, retrieve the Leased Equipment from the TCS-1 System and
remove the Leased Equipment from the Operator's premises at the
Manufacturer's expense.
4.3 Rent Payments
4.3.1 The Operator shall pay to the Manufacturer monthly rental payments
(the "Rent Payments") for the Leased Equipment at the rate of twelve thousand,
five hundred United States dollars (US $12,500) per month, payable in advance,
as follows:
343
<PAGE>
(a) 30 days prior to the Delivery Date: (i) the first month's rent and;
(ii) as a security deposit, the last two months rent.
(b) One calendar month following the Delivery Date: the Rent Payment for
the period (the "Partial-Month Period") which commences one calendar
month following the Delivery Date and ends on the last day of the
calendar month in which such Partial-Month Period falls, will be
payable in cash on the first day of such Partial-Month Period, on a
pro rata basis.
(c) Normal monthly Rent Payments of US $12,500 will commence and be
payable on the first day of the first full calendar month following
the Partial-Month Period.
344
<PAGE>
EXAMPLE: If the Delivery Date is September 15, 1998:
================================================================================
Referenced Terms Period Covered Date Payment Due Amount of
Payment
- --------------------------------------------------------------------------------
"First Month" September 15, 1998 August 17, 1998 US $12,500
through
October 14, 1998
- --------------------------------------------------------------------------------
"Security Last two monthly August 17, 1998 US $25,000
Deposit" rent payments
payable under lease
- --------------------------------------------------------------------------------
"Partial Month October 15, 1998 October 15, 1998 US $ 6,250
Period through
October 31, 1998
- --------------------------------------------------------------------------------
"First Regular November 1, 1998 November 1, 1998 US $12,500
Monthly Rental through
Payment" November 30, 1998
================================================================================
4.3.2 In the event of that payment of any Rent Payment is made by the
Operator more than five days after the date when such payment shall have been
due, the Operator shall pay a late charge of one percent (1%) of the entire
amount of such Rent Payment for every month in which such delinquency occurs or
continues.
5. TITLE TO EQUIPMENT
5.1 Title to Purchased Equipment
5.1.1 Title to the Purchased Equipment shall pass to the Operator upon
payment in full of the balance of the Purchase Price, due on the Acceptance
Date.
5.1.2 No rights to any plans or designs respecting the TCS-1 System shall
pass to the Operator and the Operator shall not copy, reproduce, design, or
build, or cause, assist, or suffer to be copied, reproduced, designed, or built
by any other person, firm, or corporation any equipment in any way similar to,
or based upon, the design or structure of the TCS-1 System.
5.2 Title to Leased Equipment
5.2.1 The Leased Equipment shall at all times remain the sole and
exclusive property of the Manufacturer (which reserves the right to assign or
encumber the Leased Equipment subject to the rights of the Operator under the
Operating Lease contained in Section 4 of this Agreement) and the Operator shall
have no right, title, or interest to the Leased Equipment but only the right to
use such Equipment under this Lease. The Leased Equipment shall not be
transferred or sublet by the Operator to any other person, firm or corporation,
the Operator shall not permit any other
345
<PAGE>
person, firm, or corporation to use the Leased Equipment, and the said operating
lease contained herein may not be assigned by the Operator without the prior
written consent of the Manufacturer. In the event that the Manufacturer shall
assign or encumber the Leased Equipment, it shall give the Operator prompt
written notice of such assignment or encumbrance.
5.2.2 The Leased Equipment shall remain personal property of the
Manufacturer and shall not be deemed otherwise by reason of becoming attached to
the premises.
5.2.3 The Manufacturer shall have the right at any time or from time to
time to modify the Leased Equipment in a manner which will not lessen the
utility of the Leased Equipment;
5.2.4 The Operator shall not enter into, remove, tamper with, or breach
the security of, the Leased Equipment. The Operator shall not copy, reproduce,
design, or build, or cause, assist, or suffer to be copied, reproduced,
designed, or built by any other person, firm, or corporation any equipment in
any way similar to, or based upon, the design or structure of the Leased
Equipment, or of any part thereof. The Operator shall not permit any Leased
Equipment to be abused, not permit the removal of any plate or markings put on
the Leased Equipment by the Manufacturer, nor attach anything to or remove
anything from the Leased Equipment.
5.2.5 The Operator will not allow any repairs to the TCS-1 or replacement
of parts to be done by any person or persons except technicians authorized by
the Manufacturer and/or as trained by the Manufacturer pursuant to Section 8.2.3
of this Agreement.
5.2.6 The Operator agrees that, in consideration of the Manufacturer
entering into this Lease, it will not move the TCS-1 System from the Site
without the prior written consent of the Manufacturer.
6. SITE PREPARATION
6.1 Site Plan Specifications
6.1.1 Within 45 days of the execution of this Agreement, the Manufacturer
will furnish to the Operator "Site Plan Specifications" respecting the
electrical, ventilation, water supply, equipment drawings, layout drawings, and
disposal, and any other specifications required at the site for the installation
and operation of the TCS-1 System. Delivery of the foregoing specifications will
be made by the Manufacturer to the Operator at the Manufacturer's plant in
Montreal.
6.1.2 Within 15 days of the delivery of the Site Plans Specifications in
accordance with Subparagraph 6.1.1, above, the Operator will notify the
Manufacturer of any failure of such Specifications to comply with all applicable
regulations and requirements. Unless such notice of failure to comply is
received by the Manufacturer, the said Site Plans Specifications will be deemed
to have been accepted by the Manufacturer.
346
<PAGE>
6.2 Preparation of Site
Prior to the Delivery and installation of the TCS-1 System, the Operator
shall make, at its own expense, all alterations to and changes in its premises
and equipment required to bring the site into complete conformance with the
above referenced Site Plan Specifications, with respect to which the Operator
shall obtain all necessary permissions and inspections, and which shall include
but not be limited to making any required structural changes and the
installation of:
(a) electrical equipment and power lines up to the electrical inputs or
control boxes attached to the TCS-1 System, as designated on the
Site Plan Specifications;
(b) water supply sources and equipment up to the water inflow points
designated on the Site Plan Specifications;
(c) water drainage and disposal sites and equipment from the water
outflow points designated on the Site Plan Specifications;
(d) air ventilation sources and equipment as designated on the Site Plan
Specifications
(e) a "front-end loader" capable of moving and depositing the tires onto
the trommel screen specified in Schedule 1.5 hereto.
6.3 Notice to Inspect
6.3.1 The Operator shall, not later than one month prior to the
anticipated Delivery Date, give written notice to the Manufacturer (the "Notice
to Inspect") that preparation of the site for the installation and operation of
the TCS-1 has been completed in accordance with the Site Plan Specifications and
request that the Manufacturer inspect the site in order to confirm its
conformance with the Site Plan Specifications.
6.4 Manufacturer's Right to Inspect Site
6.4.1 The Manufacturer shall have the right, at any time within two weeks
of its receipt of the Notice to Inspect, to inspect the site and notify the
Operator in writing (the "Notice of Approval") that the Site is in conformance
with the Site Plan Specifications.
6.4.2 In the event that, after inspecting the Site, the Manufacturer
determines that the Site is not in conformance with the Site Plan
Specifications, then the Manufacturer shall have the right to require that the
Operator make any and all changes or additions required to bring the Site into
such conformance, at the sole expense of the Operator prior to the Delivery Date
and to postpone the Delivery Date until all such changes or additions are
completed. In such event, the Operator shall, upon completion of the required
changes or additions, give written notice to the Manufacturer ("Notice to
Re-inspect") that such changes or additions have been made in
347
<PAGE>
accordance with the Manufacturer's instructions and that the Site is in complete
conformance with the Site Plan Specifications. The Manufacturer shall have the
right, within two weeks of its receipt of such Notice to re-inspect the Site.
Such procedures may be repeated, and the Manufacturer shall have no obligation
to deliver the TCS-1 System, until the Manufacturer confirms upon inspection
that the Site is in conformance with the Site Plan Specifications or the
Manufacturer fails to inspect the Site within a reasonable time in light of the
Manufacturer's commitments to other customers.
7. DELIVERY AND INSTALLATION
7.1 Delivery
7.1.1 Unless the Delivery Date is rescheduled in accordance with the
provisions of paragraph 6.4.2 above, the Manufacturer shall deliver the TCS-1
System to the site not later than 30 days after the Manufacturer determines that
the Site is in conformance with the Site Plan Specifications and that all legal
requirements have been met, in accordance with Section 6.4, above.
7.1.2 Delivery shall be made F.O.B. Montreal, Canada. The equipment
comprising the TCS-1 System shall be placed in suitably protected containers the
nature of which shall be determined by mutual agreement of the parties. The
TCS-1 System shall be delivered to the Site via a commercial transporter and
routing acceptable to the Manufacturer and the Operator. The Operator shall pay
all costs of transportation and delivery of the TCS-1 System from the
Manufacturer's plant in Montreal to the Site.
7.1.3 In the event that delivery of the TCS-1 System, or any part thereof,
for a period not exceeding thirty (30) days, shall be prevented by causes beyond
the control of the Manufacturer, including but not limited to acts of God, labor
troubles, failure of essential means of transportation, or changes in policy
with respect to exports or otherwise by the government of the jurisdiction in
which the Operator is located, the Delivery Date shall be postponed for an
additional period equal to the period of delay. In the event, however, that such
nondelivery continues after such extended period, the Operator and the
Manufacturer shall each have the right to cancel this agreement by written
notice, and in such case there shall be no obligation or liability on the part
of either party with respect to such undelivered equipment.
7.2 Installation
7.2.1 The Manufacturer shall, at its own expense, install the TCS-1 System
at the Site.
7.2.2 Upon installation, the TCS-1 System shall be in complete working
order and shall consist of the Purchased Equipment and the Leased Equipment.
348
<PAGE>
8. EQUIPMENT TESTING AND OPERATOR'S ACCEPTANCE
8.1 Notice of Availability for Testing
Upon completion of the installation of the TCS-1 System at the Site, the
Manufacturer shall give the Operator written notice that the TCS-1 System is
available for testing operations.
8.2 Test Period
8.2.1 Immediately upon giving notice to the Operator that the TCS-1 System
is available for testing operations, the Manufacturer shall, at its own expense,
furnish an engineer (technician?) to supervise the operation of the TCS-1 for a
period of three days (the "Test Period"). During the Test Period, the TCS-1
System shall demonstrate the capability of disintegrating scrap tires at the
rate of the equivalent of one million (1,000,000) passenger car tires per year
on a twenty-four hour per day, seven-day per week, continuous operating basis.
8.2.2 All power, fuel, light, water, oil, or other necessary supplies and
all personnel (other than the engineer or technician furnished by the
Manufacturer), authorizations, permits, real and personal property, contracts,
equipment, reports, etc. necessary for the successful operation of the TCS-1
System, as set forth on Schedule 8.2.2, shall be provided by the Operator.
8.2.3 The Manufacturer shall furnish to the Operator all data regarding
the TCS-1 System in order to enable the Operator to operate such System and, in
addition to the training to be provided pursuant to the Projected Maintenance
Agreement or otherwise, the Manufacturer shall, during the Test Period, instruct
at least two of the Operator's employees in accordance with Section 5.2.5 of
this Agreement with respect to the operation, and operating maintenance of the
TCS-1 System, and use reasonable care in training such employee, provided that
if in the Manufacturer's sole opinion any employee is not adequately qualified,
the Operator shall designate another of its employees to receive such
instruction.
8.3 Acceptance
8.3.1 Unless the TCS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer's
offer to sell the Purchased Equipment and to lease the Leased Equipment to the
Operator shall automatically be deemed to have been accepted by the Operator as
of the Acceptance Date, which shall occur on the first day following the
completion of the Test Period and the Operator shall have no right to revoke
such acceptance for any reason.
8.3.2 If the TCS-1, or any part of it, fails to operate in accordance with
the specifications set forth in Paragraph 8.2.1, above, the Manufacturer shall
have ninety (90) days in which to cure the problems responsible for such
failure. Costs of all parts and labor required to bring the TCS- 1 into full
working condition shall be borne by the Manufacture unless the failure to
operate in
349
<PAGE>
accordance with the specifications set forth in Paragraph 8.2.1, above, shall
have been caused by any act or failure to act on the part of the Operator or its
personnel, including but not limited to the failure of the Operator to have
brought the Site into conformance with the Site Plan Specifications.
8.3.3 Upon written notice to the Operator that the problems which caused
the TCS-1 System to fail to operate as required during the Test Period have been
cured, the Manufacturer shall, at the request of the Operator, commence a second
Test Period for up to three days, in which case the acceptance criteria of
Paragraph 8.3.1 shall pertain to such second Test Period (or any subsequent Test
Period) with the same force and effect as to the initial Test Period.
9. RISK OF LOSS
9.1 The risk of loss, injury, or destruction of the Leased Equipment from
any cause whatsoever, except negligence or willful destruction by the Operator
shall be borne by the Manufacturer during the term of the Lease therefor
provided hereunder.
9.2 The risk of loss, injury, or destruction of the Purchased Equipment
from any cause whatsoever, except negligence or willful destruction by the
Operator shall be borne by the Manufacturer only until title passes to the
Operator.
9.3 Any loss, injury, or destruction to the TCS-1, or any part of it,
after title to the Purchased Equipment passes to the Operator, shall not serve
in any manner to release the Operator from the obligation to pay the Rent
Payments provided for Section 4.3, above.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE MANUFACTURER
The Manufacturer hereby represents, warrants, and covenants to the
Operator, as follows:
10.1 Corporate Status
The Tirex Corporation is (i) duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) has full
power to own all of its properties and carry on its business; and (iii) is
qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
350
<PAGE>
10.2 Corporate Action
Prior to the date hereof, the board of directors of the Manufacturer has
duly adopted resolutions approving the execution and delivery to the Operator of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained.
10.3 Patents
10.3.1 The Manufacturer has obtained a patent in the United States and
Canada for the Disintegration System which constitutes the "Leased Equipment".
The Manufacturer is the sole owner of such patent and of all rights thereunder.
10.3.2 The Manufacturer shall defend, to the best of its ability and at
its own expense, all actions, suits, or proceedings instituted against the
Operator insofar as the same are based on any claims that the said Proprietary
Equipment, or any part thereof, constitutes an infringement of any patent of the
United States or Canada and shall indemnify the Operator against all damages,
costs, and expenses which the Operator may incur as a result of any action which
may be brought or threatened against the Operator with respect to the equipment
covered by such patent, provided that:
(a) The Manufacturer shall have the right at any time or from time to
time to modify the TCS-1 System in a manner which will not lessen
the utility thereof;
(b) The Operator gives the Manufacturer immediate notice in writing of
the institution of the action, suit, or proceeding and permits the
Manufacturer, through its counsel, to defend same, and gives the
Manufacturer all information, assistance, and authority to enable
the Manufacturer to do; and
(c) The Operator has made no change of any kind in the TCS-1 System
without obtaining the prior written permission of the Manufacturer.
10.3.3 When information is brought to the attention of the Manufacturer or
the Operator that others are unlawfully infringing on the patent covering the
Leased Equipment, or on any other patent granted to the Manufacturer in the
future on any other component or part of the TCS-1, the Manufacturer shall
prosecute diligently any infringer at the Manufacturer's own expense.
10.3.4 The Manufacturer has designed, developed, and built a fully
computerized front-end tire preparation system and a freezing chamber. The
Manufacturer believes that such equipment is proprietary to it and intends, as
promptly as practicable, to file patent applications therefor. The Manufacturer
has no present knowledge of any information which would adversely affect the
validity of its outstanding patent or the issuance of additional patents
pursuant to the above described projected patent applications. However, nothing
in this Paragraph shall constitute
351
<PAGE>
a warranty by the Manufacturer that further patents will granted or that, in the
absence of a final court determination, any particular patent is valid and
enforceable or that any patent may not be the subject of patent infringement
claims.
10.4 Warranties
Subject to the failure of the Operator to maintain the TCS-1 in accordance
with standards and procedures to be specified in the Projected Maintenance
Agreement or otherwise, the Manufacturer warrants that the TCS-1 will be capable
of disintegrating scrap tires at the rate of the equivalent of one million
(1,000,000) passenger car tires per year on a twenty-four hour, seven day per
week operating basis. The Manufacturer further warrants and represents that the
TCS-1 System will meet or exceed all applicable U.S. permitting and operating
rules and regulations including but not limited to those promulgated by OSHA and
the EPA. The Manufacturer further warrants the TCS-1 System against defects in
workmanship and materials or failure to perform in accordance with the
specifications set forth in Paragraph 8.2.1, above for one year after the
Acceptance Date. No other representations or warranties have been made by the
Manufacturer or relied upon by the Operator. If any defects in the
Manufacturer's work or materials are discovered within one year of delivery the
Operator shall give notice within five days of such discovery. THIS WARRANTY IS
EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES.
11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE OPERATOR
The Operator hereby represents, warrants, and covenants to the
Manufacturer, as follows:
11.1 Corporate Status
ENERCON America Distribution Limited is (i) duly organized corporation,
validly existing and in good standing under the laws of the State of Ohio; (ii)
has full power to own all of its properties and carry on its business; and (iii)
is qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
11.2 Financial Condition of the Operator
The books and records of the Operator are complete and accurate and fairly
present the financial condition and the results of operations of the Operator as
of the date hereof. There are no material liabilities, either fixed or
contingent, not reflected in such books and records other than contracts or
obligations in the ordinary and usual course of business; and no such contracts
or obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of the Operator as reflected in such books and records.
352
<PAGE>
11.3 Defaults and Conflicts
There are no defaults on the part of the Operator under any contract,
lease, mortgage, pledge, credit agreement, title retention agreement, security
agreement, lien, encumbrance or any other commitment, contract, agreement or
undertaking to which the Operator is a party. The execution of this Agreement
will not violate or breach any material agreement, contract, or commitment to
which the Operator is a party.
11.4 Corporate Action
Prior to the date hereof, the boards of directors of the Operator has duly
adopted resolutions approving the execution and delivery to the Manufacturer of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained,
and the Operator will, within 30 days of the execution of this Agreement,
furnish the Manufacturer with a copy of the resolutions of the board of
directors of the Operator authorizing the Operator to purchase the Purchased
Equipment and lease the Leased Equipment pursuant to the terms and conditions of
this Agreement;
11.5 Insurance
11.5.1 The Operator, at its own cost and expense, shall insure the Leased
Equipment against burglary, theft, fire, and vandalism in the amount of US
$1,000,000 and obtain public liability insurance with minimum limits, as the
parties shall mutually agree, for property damage in such form and with such
insurance companies as shall be satisfactory to the Manufacturer. All insurance
policies shall name both the Operator and the Manufacturer as insureds and
copies of the policies and the receipts for the payment of premiums shall be
furnished to the Manufacturer. Each damage policy shall provide for payment of
all losses directly to the Manufacturer. Each liability policy shall provide
that all losses be paid on behalf of the Operator and the Manufacturer, as their
respective interests appear.
11.5.2 In the event that the Operator shall fail to comply with the
provisions of Paragraph ll.5.1, above, then the Operator shall pay to the
Manufacturer an adequate premium in advance per annum to enable the Manufacturer
to insure the Leased Equipment and all such insurance policies shall be held in
the custody of the Manufacturer.
11.6 Indemnification
The Operator agrees to indemnify, protect, save, and keep harmless the
Manufacturer, its agents, employees, successors, and assigns from and against
all losses, damages, injuries, claims, demands, and expenses, including legal
expenses , of whatsoever nature arising out of the use, condition (including but
not limited to latent and other defects and whether or not discoverable by it),
or operation of the TCS-1 System, or any part of it, by any person who used,
operated,
353
<PAGE>
or came into contact with such TCS-1 System at the Site and to defend any suit
seeking such damages even though the allegations of such suit are groundless,
false, or fraudulent, provided however that the Operator agrees to give prompt
notice to the Manufacturer once the Operator has actual knowledge of any claims
as to which indemnity shall be sought, and shall permit the Manufacturer (at the
Operator's expense) to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Manufacturer, who shall
conduct the defense of said claim or litigation, shall be reasonably
satisfactory to the Operator; The Operator shall not, in the defense of any such
claim or litigation, except with the consent of the Manufacturer, consent to the
entry of any judgment or enter into any settlement that does not include as an
unconditional term, the giving by the claimant or plaintiff to Manufacturer of a
release from all liability in respect to such claim or litigation.
11.7 Access
The Operator shall insure that the Manufacturer, and its agents and
employees, shall at all times have free access to the Operator's premises for
the purpose of inspecting the Leased Equipment and observing its use and
operation, and making alterations, improvements, or additions thereto; and the
Operator shall afford all reasonable facilities therefor, and shall allow the
Manufacturer to make such reasonable alterations, improvements, or additions as
the Manufacturer shall deem necessary, at the expense of the Manufacturer.
11.8 Taxes
The Operator shall pay all taxes, assessments, penalties, and fees which
may be levied or assessed on or with respect to the installation of the TCS-1
System and, at all times during the term of the Lease of the Leased Equipment,
the Operator shall pay all taxes and assessments which may be levied upon or in
respect of the TCS-1 System or its operation, and shall pay any other liability
of any character which may be imposed or incurred as an incident to the physical
possession or operation of such System.
11.9 Compliance with Applicable Law
The Operator shall provide, at its own expense, all requisite permits and
licenses necessary for the installation and operation of the TCS-1 System at the
Site and shall exercise its best efforts to maintain its compliance with all
applicable federal, state, and local laws, statutes, rules, and regulations and,
in the event of any non-compliance which renders impossible the operation of the
Site as a tire recycling facility, the Operator shall exercise its best efforts
to cure such non-compliance promptly.
354
<PAGE>
11.10 Subordination
The Operator shall procure from every owner, landlord, mortgagee, or other
secured party having any interest in the real property on which the TCS-1 System
is to be installed or in the Operator's place of business or the equipment
therein, and deliver to the Manufacturer, a written consent to such installation
and a writing to the effect that the lien of any such mortgage or other interest
is subordinate to the rights of the Manufacturer with respect to the Leased
Equipment.
11.11 Ancillary Agreements
11.11.1 The Operator will, simultaneously with the execution of this
Agreement, and in consideration of the premises and the mutual promises and
agreements made herein, enter into the following agreements with the
Manufacturer or such person, corporation, firm, partnership, or other entity as
the Manufacturer shall appoint in its stead:
(a) The Royalty Agreement, of even date herewith, between the
Manufacturer and the Operator providing for the Operator to pay to
the Manufacturer a royalty of three percent (3%) of the gross
proceeds from the sale, other than to the Manufacturer pursuant to
the Crumb Rubber Purchase Option Agreement, by the Operator of
rubber crumb and steel from scrap tires disintegrated by the
Operator through the utilization of the TCS-1 System, a copy of
which Royalty Agreement is attached as Schedule 11.11(a) hereto; and
(b) The Crumb Rubber Purchase Option Agreement, of even date herewith,
between the Operator and the Manufacturer or such person,
corporation, firm, partnership, or other entity as the Manufacturer
shall appoint in its stead, granting an option to the Manufacturer
to purchase up to 40% of the crumb rubber produced by the TCS-1
System, a copy of which Agreement is attached as Schedule 11.11(b)
hereto
11.11.2 It is the intention of the parties that within sixty days after
payment of the first payment due under Paragraph 3.3, above, the Manufacturer
and the Operator, jointly, shall commence the development of a mutually
acceptable Projected Maintenance Agreement and that within five business days of
the completion of the said Projected Maintenance Agreement, the Operator will,
in consideration of the premises and the mutual promises and agreements made
herein, enter into the Projected Maintenance Agreement with the Manufacturer or
such person, corporation, firm, partnership, or other entity as the Manufacturer
and the Operator shall jointly agree to and appoint in its stead, on mutually
agreed upon terms. Notwithstanding the foregoing, the failure of the parties to
enter into the Projected Maintenance Agreement will not constitute a breach of
this Agreement or otherwise affect the respective rights and obligations of the
parties hereunder.
355
<PAGE>
12. DEFAULTS
12.1 Default by Manufacturer
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Manufacturer:
(a) If at any time prior to the delivery of the TCS-1 System to the
Site:
(i) The Manufacturer makes an assignment for the benefit of
creditors;
(ii) A voluntary or involuntary petition is filed by or against the
Manufacturer under any law having for its purpose and
adjudication of the Manufacturer a bankrupt or the extension
of the time of payment of, adjustment of, or other arrangement
affecting the liabilities of the Manufacturer, or the
reorganization of the Manufacturer and such petition is not
discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(iii) A Receiver is appointed for the property of the Manufacturer
and is not discharged or dismissed within one hundred twenty
(120) days after such appointment;
or
(iv) Any distress, execution, or attachment is levied upon the
Manufacturer's property to the extent that the Manufacturer is
not able to fulfill its obligations to deliver the TCS-1
within 90 days of the anticipated Deliver Date.
(a)
(b) The Manufacturer fails to deliver the TCS-1 System in accordance
with the terms and provisions of Section 7, above, within 90 days of
the Delivery Date unless prior thereto, the Operator has failed to
meet the payment provisions set forth above in Section 3.3 of this
Agreement;
(c) The TCS-1 System fails to operate for a full Test (or re-test)
Period, in accordance with Section 8.2 hereof, within ninety (90)
days from the date the TCS-1 System is completely installed at the
Site.
12.2 Default by Operator
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Operator:
356
<PAGE>
(a) The Operator fails to make any payment required to be made pursuant
to Sections 3.3 or 4.3 of this Agreement or, if the parties shall
enter into the Projected Maintenance Agreement, any payment required
to be made by the Operator under the Projected Maintenance Agreement
and such failure to make payment shall have continued for a period
of ten (10) days after written notice from the Manufacturer;
(b) The Operator refuses to accept or allow the Manufacturer to install
or test the TCS-1 System in accordance with Sections 7.2, 8.2, and
8.3 of this Agreement, notwithstanding that such System has been:
(i) delivered to the Operator's Site on a timely basis or (ii)
delivered to the Site and has performed in accordance with the
specifications set forth in Section 8.2 hereof for the prescribed
Test Period;
(c) The Operator makes an assignment for the benefit of creditors;
(d) A voluntary or involuntary petition is filed by or against the
Operator under any law having for its purpose and adjudication of
the Operator a bankrupt or the extension of the time of payment of,
adjustment of, or other arrangement affecting the liabilities of the
Operator, or the reorganization of the Operator and such petition is
not discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(e) A Receiver is appointed for the property of the Operator;
(f) Any distress, execution, or attachment is levied upon the machines
or the Operator's property; or
(g) The Operator fails to faithfully and fully comply with the terms and
provisions of Section 5.2 of this Agreement, with any such failure
deemed to be an irremediable material breach of this Agreement
immediately upon its occurrence.
(h) The Operator fails to reasonably, faithfully, and fully maintain the
TCS-1 in accordance with standards and procedures to be specified in
the Projected Maintenance Agreement or otherwise, and fails to cure
such breach within the time period specified therein with respect to
such failure.
12.3 Remedies Available to the Operator upon Default by Manufacturer
If the Manufacture shall be in default pursuant to Paragraphs 12.1 (a),
(b), or (c) of this Agreement, unless such default shall have been caused by any
act or failure to act on the part of the Operator or its personnel, including
but not limited to the failure of the Operator to have brought the Site into
conformance with the Site Plan) Specifications, the Operator shall have the
right to rescind this agreement by serving written notice ("Notice of
Rescission") upon the Manufacturer and the Operator shall thereupon be entitled
to stipulated damages in the agreed to amount of one million dollars (US
$1,000,000). In such event, the Manufacturer shall, at its own
357
<PAGE>
expense, remove the TCS-1 System as promptly as practicable following its
receipt of such Notice of Rescission and all monies theretofore paid by the
Operator to the Manufacturer pursuant to Sections 3.3 and 4.3, above, shall be
returned by the Manufacturer to the Operator.
12.4 Remedies Available to the Manufacturer upon Default by the Operator
12.4.1 The Operator acknowledges and agrees that its breach of any
provision contained in Section 5.2 of this Agreement will cause irreparable harm
to the Manufacturer. The Operator therefore agrees that, if the Operator or any
of the Operator's affiliates, agents, employees, or associates has breached, or
is attempting or threatening to breach, any provision contained hereinabove in
the said Section 5.2, then the Manufacturer shall have the right to obtain from
any court or arbitrator having jurisdiction, such equitable relief as may be
appropriate, including a decree enjoining the Operator from any further such
breach of such provisions, and enjoining the Operator from engaging in any
aspect of the tire recycling business which is in competition with tire
recycling businesses which utilize tire disintegration equipment manufactured by
the Manufacturer, either directly or indirectly through or in association with
any other person, firm, corporation, or organization during the term of this
Agreement. Notwithstanding the foregoing, for purposes of this Agreement, the
parties agree that a tire recycling business utilizing a microwave tire
recycling system will not be deemed to be in competition with tire recycling
businesses which utilize tire disintegration equipment manufactured by the
Manufacturer
12.4.2 In the event of any default by the Operator under this Agreement,
the Manufacturer may at its option, at any time thereafter terminate this
Agreement by written notice ("Notice of Termination"), given in Accordance with
Section 16 hereof. Such termination may be made effective, at the option of the
Manufacturer, simultaneously with or at any time after the happening of any such
default.
12.4.3 Upon any termination of this Agreement prior to payment in full of
the entire Purchase Price of US $2,250,000 for the Purchased Equipment, in
accordance with the terms of Section 3.3 of this Agreement, the Manufacturer
shall immediately have possession of the entire TCS-1 System, and the
Manufacturer may enter upon the premises where the said TCS-1 System is located,
take possession of the Leased Equipment and without previous demand or notice
and without legal process, and remove it from the Operator's premises at the
Operator's expense.
12.4.4 Upon any termination of this Agreement after payment in full of the
entire Purchase Price of US $2,250,000 for the Purchased Equipment has been made
by the Operator, the Manufacturer shall immediately have possession of the
Leased Equipment and the Manufacturer may enter upon the premises where the
TCS-1 System is located, remove the Leased Equipment from the said TCS-1 System
and take possession of the Leased Equipment without previous demand or notice
and without legal process, and remove it from the Operator's premises at the
Operator's expense.
12.4.5 The Operator acknowledges and agrees that any refusal on its part
to permit the Manufacturer to enter its premises and remove either the TCS-1
System or the Leased Equipment
358
<PAGE>
in accordance with Paragraph 12.4.3 or 12.4.4 of this Agreement will cause
irreparable harm to the Manufacturer. The Operator therefore agrees that in the
event of any such refusal on its part, the Manufacturer shall have the right to
obtain from any court or arbitrator having jurisdiction, such equitable relief
as may be appropriate, including a decree enjoining the Operator from any
further such refusal of entry and removal.
12.4.6 In the event of any default by the Operator prior to the Acceptance
Date, the Manufacturer shall be entitled to liquidated damages including but not
limited to retention of up to one million dollars (US $1,000,000) out of the
monies paid by the Operator pursuant to Paragraph 3.3 and all costs of
delivering and removing and re-delivering the TCS-1 System.
12.4.7 In the event of any default by the Operator after the Acceptance
Date or pursuant to Paragraph 12.2(b) of this Agreement, the Manufacturer shall
be entitled to liquidated damages including but not limited to retention of up
to one million dollars (US $1,000,000) out of the monies paid by the Operator
pursuant to Paragraph 3.3, all costs of delivering and removing and
re-delivering the TCS-1 System, and damages for the Operator's failure to
perform for the full term of the Lease provided in Section 4.2 of this
Agreement.
12.4.8 In the event of any default on the part of the Operator pursuant to
Paragraphs 12.2(a) or 12.2(b) of this Agreement, the Manufacturer shall have the
right to allow the Operator, for a period of sixty (60) days, to obtain a buyer
for the TCS-1 System, satisfactory to the Manufacture, provided however that,
unless specifically waived in writing by the Manufacturer, the Operator shall
continue liable under this Agreement lease for the full term of the Lease
provided for in Section 4.2 of this Agreement. In the event that the Operator
shall fail to obtain a buyer for the TCS-1 System, satisfactory to the
Manufacture, the Manufacturer shall use its best efforts to dispose of the
equipment, either as a single TCS-1 System or as separate components in any
appropriate public disposal manner. In the event of a sale of the equipment to a
Buyer located by either the Operator or the Manufacturer, the Manufacturer shall
return to the Operator all funds received from such disposal in excess of: (i)
liquidated damages under Paragraphs 12.4.6 or 12.4.7, above, (b) any monies
owing to Manufacturer by Operator under Section 3.3, and any costs incurred by
the Manufacturer for the removal and public disposal of the repossessed TCS-1.
12.4.9 In the event of any default on the part of the Operator, the
Manufacturer shall not be deemed to have waived any of its rights hereunder by
reason of its failure to assert its rights or its failure to take cognizance of
such breach.
12.4.10 The foregoing remedies provided herein for the benefit of the
Manufacturer shall not be exclusive but in addition to any other remedies the
Manufacturer may have by virtue of the breach by the Operator, in law or in
equity, from any court or arbitration proceeding having jurisdiction over such
matter.
359
<PAGE>
13. OPERATOR'S SALE OF Purchased Equipment
13.1 Manufacturer's Right to Retrieve Leased Equipment Prior to Sale
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer shall have all rights of entry and removal provided above in
Paragraphs 12.4.4 and 12.4.5 of this Agreement, provided however that in
addition to such rights, if such event shall occur during the term of the said
Lease, the Manufacturer shall also have the rights provided to it in Paragraph
12.4.7 of this Agreement.
13.2 Manufacturer's Right of First Refusal
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer will have a right of first refusal to repurchase the TCS- 1 System,
at its fair market value, within a sixty (60) day period following the
Manufacturer's receipt of such notice;
14. ASSIGNMENT
The Operator shall not transfer, deliver, sublease, or encumber the Leased
Equipment to any person, corporation, or firm, and the Lease provided in Section
4.2 of this Agreement may not be assigned by the Operator except with the
Manufacturer's express prior written consent.
15. FAILURE OF PERFORMANCE
Delays in or failure of performance occasioned by war, fire, flood,
embargo, car shortage, accident, explosion, expropriation of plant or product by
federal or state authority, or other like cause beyond the control of the
Manufacturer, or Act of God, or by strike, lockout, or other labor trouble, or
inability to obtain sufficient labor interfering with the production or
transportation of the TCS-1 System, or any part thereof, or any replacement
therefor, whether because of governmental action affecting the Manufacturer or
its suppliers, or by any action or proceeding at law or in equity, or otherwise,
shall not subject the Manufacturer to any liability.
360
<PAGE>
16. NOTICES
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.
17. CONDITIONS PRECEDENT TO MANUFACTURER'S OBLIGATION
The obligations of the Manufacturer hereunder are subject to fulfillment,
prior to the Delivery Date, of the following conditions:
17.1 Truth of Representation
The representations and warranties by or on behalf of Operator contained
in this Agreement or in any document delivered to the Manufacturer pursuant to
the provisions hereof shall be true in all material respects at and as of the
Delivery Date as though such representations and warranties were made at and as
of such time.
17.2 Compliance with Covenants
The Operator shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with prior or simultaneously with to the Delivery Date.
(ii) 17.3 Financing Arrangements
The Operator will deliver to the Manufacturer within sixty (60) days of
the execution of this Agreement, evidence satisfactory to the Manufacturer that
the Operator has arranged for adequate financing to meet the payment schedule
set forth in Section 3.3, above.
18. ARBITRATION
All controversies arising out of or relating to this Agreement, or any
modification thereof, shall be settled by arbitration in New York City in
accordance with the Arbitration Rules then obtaining of the American Arbitration
Association.
361
<PAGE>
19. BINDING EFFECT.
19.1 This agreement shall bind and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns,
provided, however, that this Agreement cannot be assigned by the Operator except
in accordance with Section 14 of this Agreement. Nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm or corporation other than the parties hereto and their respective legal
representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
19.2 All the right, title, and interest of the Manufacturer under the
Lease may be enforced by the Manufacturer, its successors, and assigns. The
Lease shall continue in full force and effect notwithstanding the death,
incapacity, or dissolution of the Operator or the increase, decrease, or change
in the personnel of or members of the Operator, and shall be binding upon the
Operator and the Operator's estate, legal representatives, heirs, and
successors.
20. GENERAL
20.1 Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
20.2 Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
20.3 Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
20.4 Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
20.5 Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
362
<PAGE>
20.6 Entire Agreement
This Agreement is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof.
20.7 Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
20.8 Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel of the Manufacturer and the Operator, provided however, that
any failure of the Operator or its counsel to approve any such notices or other
publicity shall in no way prevent the Manufacturer from complying fully with its
public disclosure obligations under the rules and regulations of the United
States Securities and Exchange Commission or any other governmental body or
agency in the United States or in any other applicable jurisdiction.
20.9 Counterparts
This Agreement 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 Agreement.
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
--------------------------------------------
Terence C. Byrne, President
ENERCON AMERICA DISTRIBUTION LIMITED
By/s/ David L. Holmes
--------------------------------------------
David L. Holmes
363
EXHIBIT 10 (tt)
364
<PAGE>
THE TIREX CORPORATION
----------
TRUCK TIRE
EQUIPMENT LEASE AND PURCHASE AGREEMENT
----------
Truck Tire Lease and Purchase Agreement, made this 9th day of October
1998, among
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5
(the "Manufacturer")
1. DEFINITIONS
1.1 "Acceptance Date" shall mean the first day following the completion of
the Test Period.
1.2 Delivery Date shall mean May 30, 1999 or such other date as the
parties hereto shall mutually agree.
1.3 "Leased Equipment shall mean Items 010 and 011 of the Proprietary
Equipment, as set forth on Schedule 1.8 hereto.
1.4 "Manufacturer" shall mean The Tirex Corporation and Tirex-Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
1.5 "Nonproprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCTS-1 System specified in Schedule 1.5 hereto.
1.6 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
365
<PAGE>
1.7 "Projected Maintenance Agreement" shall mean the agreement for the
maintenance of the TCTS-1 System, which the Manufacturer and the Operator will
prepare on
mutually agreeable terms.
1.8 "Proprietary Equipment" shall mean the constituent, integral, and
inseparable parts of the TCTS-1 System specified in Schedule 1.8 hereto.
1.9 "Purchased Equipment shall mean Items 001 through 009 of the
Proprietary Equipment, as specified on Schedule 1.8 hereto, and the
Nonproprietary Equipment, as specified on Schedule 1.5 hereto.
1.10 "Site" shall mean the premises of Carbon Black Technologies, Ltd. in
Johnstown, Pennsylvania, or such other site as the Operator shall specify.
1.11 "TCTS-1 System" shall mean the Manufacturer's proprietary cryogenic
truck tire disintegration system, consisting of: (i) the patented "Leased
Equipment" and the (ii) "Purchased Equipment" which includes but is not limited
to a front-end tire preparation system and a freezing chamber which the
Manufacturer believes are proprietary to it and for which the Manufacturer
intends to apply for patents. This System will accept whole truck tires with an
inside diameter not exceeding twenty-four (24) inches and will process the tire
in such a manner as to allow the System to separate the steel and fiber from the
rubber which will be reduced to a size no larger than 5 mesh. The TCTS-1 System
shall meet or exceed all applicable U.S. permitting and operating rules and
regulations including but not limited to those promulgated by OSHA and EPA.
1.12 "Test Period" shall mean a three day period which shall commence
within ten days after completion of the installation of the TCTS-1 System,
during which Test Period, the TCTS-1 System shall be operated continually for up
to 24 hours per day.
2. RECITALS
Whereas:
2.1 The Manufacturer has invented, designed, developed, built, and
patented part of, and is the sole and exclusive owner, directly or indirectly,
through one or more subsidiaries, of all right title and interest in, the TCTS-1
System.
2.2 The Operator is a corporation organized for the principal purpose of
commercially exploiting, directly or indirectly, through one or more
subsidiaries, the TCTS-1 System by: (i) purchasing the Nonproprietary Equipment
and Items 001 - 009 of the Proprietary Equipment (referred to herein,
collectively, as the "Purchased Equipment"); (ii) leasing Items 010 and 011 of
the Proprietary Equipment (referred to herein, collectively, as the "Leased
Equipment"); and (iii) operating the TCTS-1 System.
366
<PAGE>
3. AGREEMENT FOR PURCHASE AND SALE OF THE PURCHASED EQUIPMENT
3.1 Purchase and Sale
The Operator agrees to purchase, and the Manufacturer agrees to sell, the
Purchased Equipment, as defined in Section 1.7, above, in accordance with the
terms and conditions of this Agreement. The Operator may at its election take
title to the Purchased Equipment in a wholly owned subsidiary corporation to be
formed by it for such purpose. Such election by the Operator shall nowise
modify, diminish, or otherwise effect the Operator's liability hereunder to the
Manufacturer. The purchase and payment for the Purchased Equipment by the
Operator, and the sale, assignment, transfer, and delivery thereof by the
Manufacturer, shall take place subject to the fulfillment of the conditions
herein after provided.
3.2 Purchase Price
The purchase price for the Purchased Equipment (the "Purchase Price"),
installed and set in operation pursuant to Section 7 hereto, shall be the sum of
two million, two hundred fifty thousand United States dollars (US $2,250,000),
FOB Montreal.
3.3 Payment Terms
In the absence of arrangements for lease or letter of credit financing,
satisfactory to the Manufacturer, the Purchase Price for the Purchased Equipment
shall be paid as follows:
(a) 15% (US $337,500) upon execution of this Agreement;
(b) 15% (US $337,500) upon acceptance by the Operator of equipment
drawings, layout drawings, and other written
specifications, such acceptance to be based upon
local permitting and applicable operating
requirements and shall not be unreasonably
withheld
(c) 30% (US $675,000) two months after Manufacturer's giving notice of
commencement of manufacture.
(d) 10% (US $225,000) two months prior to the anticipated Delivery Date.
(e) 15% (US $337,500) on the Delivery Date; and
(f) 15% (US $337,500) on the Acceptance Date.
367
<PAGE>
3.4 Taxes
Manufacturer and Operator acknowledge that there are a variety of country,
state and/or local taxes that may be assessed on the Purchased Equipment, the
Leased Equipment, and the purchase, sale, and operation thereof. The
Manufacturer shall be responsible for the prompt payment of all taxes,
assessments, levies, export taxes, or other governmental or regulatory payments
that may be assessed by the government of Canada or any political sub-division
therein. The Operator shall be responsible for the prompt payment of all taxes,
assessments, levies, import taxes, or other governmental or regulatory payments
that shall be assessed by the government of the United States of America or any
political sub-division therein.
4. AGREEMENT FOR OPERATING LEASE
4.1 Agreement to Lease Equipment
The Manufacturer, as lessor, and the Operator, as lessee, hereby enter
into an operating lease (the "Lease") for the Leased Equipment, consisting of
Items 010 and 011 specified on Schedule 1.8 hereto, subject to the following
terms and conditions:
4.2 Term of the Lease
4.2.1 The term of the Lease shall be sixty (60) months commencing on the
Acceptance date.
4.2.2 At the expiration of the full original term hereof, if this Lease
has remained in effect and the Operator has duly performed all its obligations
thereunder during the entire such term, then the Operator shall have the option
to either:
(a) Obtain a new lease agreement in the form then being generally
offered by the Operator to the trade under which the Operator shall
replace the Leased Equipment or the entire TCTS-1 System, as the
case may be, with new equipment, free of any installation charge
payable by the Operator;
(b) Continue to use the same equipment installed hereunder and thereby
extend the term of this Lease at a reduced rental rate of US $6,250
per month for a period of one year with further successive automatic
one-year extensions subject only to the Operator's right to
terminate this Lease at the end of any extension year upon prior
written notice of not less than 90 days; or
(c) Request that the Manufacturer exercise its right of first refusal to
repurchase the Purchased Equipment pursuant to Section 13.2 of this
Agreement, in which event the Manufacturer shall have sixty (60)
days following the Manufacturer's receipt
368
<PAGE>
of such notice to either: (i) notify the Operator of its intent to
repurchase the Purchased Equipment and, within ninety (90) days of
such notice, effectuate such repurchase and thereupon enter upon the
premises where the said TCTS-1 System is located and remove the
entire TCTS-1 System from the Operator's premises at the
Manufacturer's expense, or (ii) notify the Operator that it does not
intend to repurchase the Purchased Equipment and, as soon as
practicable thereafter, enter upon the premises where the TCTS-1
System is located, take possession of the Leased Equipment without
previous demand or notice and without legal process, retrieve the
Leased Equipment from the TCTS-1 System and remove the Leased
Equipment from the Operator's premises at the Manufacturer's
expense.
4.3 Rent Payments
4.3.1 The Operator shall pay to the Manufacturer monthly rental payments
(the "Rent Payments") for the Leased Equipment at the rate of twelve thousand,
five hundred United States dollars (US $12,500) per month, payable in advance,
as follows:
(a) 30 days prior to the Delivery Date: (i) the first month's rent and;
(ii) as a security deposit, the last two months rent.
(b) One calendar month following the Delivery Date: the Rent Payment for
the period (the "Partial-Month Period") which commences one calendar
month following the Delivery Date and ends on the last day of the
calendar month in which such Partial-Month Period falls, will be
payable in cash on the first day of such Partial-Month Period, on a
pro rata basis.
(c) Normal monthly Rent Payments of US $12,500 will commence and be
payable on the first day of the first full calendar month following
the Partial-Month Period.
369
<PAGE>
EXAMPLE: If the Delivery Date is September 15, 1998:
================================================================================
Referenced Terms Period Covered Date Payment Due Amount of
Payment
- --------------------------------------------------------------------------------
"First Month" September 15, 1998 August 17, 1998 US $12,500
through
October 14, 1998
- --------------------------------------------------------------------------------
"Security Last two monthly August 17, 1998 US $25,000
Deposit" rent payments
payable under lease
- --------------------------------------------------------------------------------
"Partial Month October 15, 1998 October 15, 1998 US $6,250
Period through
October 31, 1998
- --------------------------------------------------------------------------------
"First Regular November 1, 1998 November 1, 1998 US $12,500
Monthly Rental through
Payment" November 30, 1998
================================================================================
4.3.2 In the event of that payment of any Rent Payment is made by the
Operator more than five days after the date when such payment shall have been
due, the Operator shall pay a late charge of one percent (1%) of the entire
amount of such Rent Payment for every month in which such delinquency occurs or
continues.
5. TITLE TO EQUIPMENT
5.1 Title to Purchased Equipment
5.1.1 Title to the Purchased Equipment shall pass to the Operator upon
payment in full of the balance of the Purchase Price, due on the Acceptance
Date.
5.1.2 No rights to any plans or designs respecting the TCTS-1 System shall
pass to the Operator and the Operator shall not copy, reproduce, design, or
build, or cause, assist, or suffer to be copied, reproduced, designed, or built
by any other person, firm, or corporation any equipment in any way similar to,
or based upon, the design or structure of the TCTS-1 System.
5.2 Title to Leased Equipment
5.2.1 The Leased Equipment shall at all times remain the sole and
exclusive property of the Manufacturer (which reserves the right to assign or
encumber the Leased Equipment subject to the rights of the Operator under the
Operating Lease contained in Section 4 of this Agreement) and the Operator shall
have no right, title, or interest to the Leased Equipment but only the right to
use such Equipment under this Lease. The Leased Equipment shall not be
transferred or sublet by the Operator to any other person, firm or corporation,
the Operator shall not permit any other
370
<PAGE>
person, firm, or corporation to use the Leased Equipment, and the said operating
lease contained herein may not be assigned by the Operator without the prior
written consent of the Manufacturer. In the event that the Manufacturer shall
assign or encumber the Leased Equipment, it shall give the Operator prompt
written notice of such assignment or encumbrance.
5.2.2 The Leased Equipment shall remain personal property of the
Manufacturer and shall not be deemed otherwise by reason of becoming attached to
the premises.
5.2.3 The Manufacturer shall have the right at any time or from time to
time to modify the Leased Equipment in a manner which will not lessen the
utility of the Leased Equipment;
5.2.4 The Operator shall not enter into, remove, tamper with, or breach
the security of, the Leased Equipment. The Operator shall not copy, reproduce,
design, or build, or cause, assist, or suffer to be copied, reproduced,
designed, or built by any other person, firm, or corporation any equipment in
any way similar to, or based upon, the design or structure of the Leased
Equipment, or of any part thereof. The Operator shall not permit any Leased
Equipment to be abused, not permit the removal of any plate or markings put on
the Leased Equipment by the Manufacturer, nor attach anything to or remove
anything from the Leased Equipment.
5.2.5 The Operator will not allow any repairs to the TCTS-1 or replacement
of parts to be done by any person or persons except technicians authorized by
the Manufacturer and/or as trained by the Manufacturer pursuant to Section 8.2.3
of this Agreement.
5.2.6 The Operator agrees that, in consideration of the Manufacturer
entering into this Lease, it will not move the TCTS-1 System from the Site
without the prior written consent of the Manufacturer.
6. SITE PREPARATION
6.1 Site Plan Specifications
6.1.1 Within 45 days of the execution of this Agreement, the Manufacturer
will furnish to the Operator "Site Plan Specifications" respecting the
electrical, ventilation, water supply, equipment drawings, layout drawings, and
disposal, and any other specifications required at the site for the installation
and operation of the TCTS-1 System. Delivery of the foregoing specifications
will be made by the Manufacturer to the Operator at the Manufacturer's plant in
Montreal.
6.1.2 Within 15 days of the delivery of the Site Plans Specifications in
accordance with Subparagraph 6.1.1, above, the Operator will notify the
Manufacturer of any failure of such Specifications to comply with all applicable
regulations and requirements. Unless such notice of failure to comply is
received by the Manufacturer, the said Site Plans Specifications will be deemed
to have been accepted by the Manufacturer.
371
<PAGE>
6.2 Preparation of Site
Prior to the Delivery and installation of the TCTS-1 System, the Operator
shall make, at its own expense, all alterations to and changes in its premises
and equipment required to bring the site into complete conformance with the
above referenced Site Plan Specifications, with respect to which the Operator
shall obtain all necessary permissions and inspections, and which shall include
but not be limited to making any required structural changes and the
installation of:
(a) electrical equipment and power lines up to the electrical inputs or
control boxes attached to the TCTS-1 System, as designated on the
Site Plan Specifications;
(b) water supply sources and equipment up to the water inflow points
designated on the Site Plan Specifications;
(c) water drainage and disposal sites and equipment from the water
outflow points designated on the Site Plan Specifications;
(d) air ventilation sources and equipment as designated on the Site Plan
Specifications
(e) a "front-end loader" capable of moving and depositing the tires onto
the trommel screen specified in Schedule 1.5 hereto.
6.3 Notice to Inspect
6.3.1 The Operator shall, not later than one month prior to the
anticipated Delivery Date, give written notice to the Manufacturer (the "Notice
to Inspect") that preparation of the site for the installation and operation of
the TCTS-1 has been completed in accordance with the Site Plan Specifications
and request that the Manufacturer inspect the site in order to confirm its
conformance with the Site Plan Specifications.
6.4 Manufacturer's Right to Inspect Site
6.4.1 The Manufacturer shall have the right, at any time within two weeks
of its receipt of the Notice to Inspect, to inspect the site and notify the
Operator in writing (the "Notice of Approval") that the Site is in conformance
with the Site Plan Specifications.
6.4.2 In the event that, after inspecting the Site, the Manufacturer
determines that the Site is not in conformance with the Site Plan
Specifications, then the Manufacturer shall have the right to require that the
Operator make any and all changes or additions required to bring the Site into
such conformance, at the sole expense of the Operator prior to the Delivery Date
and to postpone the Delivery Date until all such changes or additions are
completed. In such event, the Operator shall, upon completion of the required
changes or additions, give written notice to the Manufacturer ("Notice to
Re-inspect") that such changes or additions have been made in
372
<PAGE>
accordance with the Manufacturer's instructions and that the Site is in complete
conformance with the Site Plan Specifications. The Manufacturer shall have the
right, within two weeks of its receipt of such Notice to re-inspect the Site.
Such procedures may be repeated, and the Manufacturer shall have no obligation
to deliver the TCTS-1 System, until the Manufacturer confirms upon inspection
that the Site is in conformance with the Site Plan Specifications or the
Manufacturer fails to inspect the Site within a reasonable time in light of the
Manufacturer's commitments to other customers.
7. DELIVERY AND INSTALLATION
7.1 Delivery
7.1.1 Unless the Delivery Date is rescheduled in accordance with the
provisions of paragraph 6.4.2 above, the Manufacturer shall deliver the TCTS-1
System to the site not later than 30 days after the Manufacturer determines that
the Site is in conformance with the Site Plan Specifications and that all legal
requirements have been met, in accordance with Section 6.4, above.
7.1.2 Delivery shall be made F.O.B. Montreal, Canada. The equipment
comprising the TCTS-1 System shall be placed in suitably protected containers
the nature of which shall be determined by mutual agreement of the parties. The
TCTS-1 System shall be delivered to the Site via a commercial transporter and
routing acceptable to the Manufacturer and the Operator. The Operator shall pay
all costs of transportation and delivery of the TCTS-1 System from the
Manufacturer's plant in Montreal to the Site.
7.1.3 In the event that delivery of the TCTS-1 System, or any part
thereof, for a period not exceeding thirty (30) days, shall be prevented by
causes beyond the control of the Manufacturer, including but not limited to acts
of God, labor troubles, failure of essential means of transportation, or changes
in policy with respect to exports or otherwise by the government of the
jurisdiction in which the Operator is located, the Delivery Date shall be
postponed for an additional period equal to the period of delay. In the event,
however, that such nondelivery continues after such extended period, the
Operator and the Manufacturer shall each have the right to cancel this agreement
by written notice, and in such case there shall be no obligation or liability on
the part of either party with respect to such undelivered equipment.
7.2 Installation
7.2.1 The Manufacturer shall, at its own expense, install the TCTS-1
System at the Site.
7.2.2 Upon installation, the TCTS-1 System shall be in complete working
order and shall consist of the Purchased Equipment and the Leased Equipment.
373
<PAGE>
8. EQUIPMENT TESTING AND OPERATOR'S ACCEPTANCE
8.1 Notice of Availability for Testing
Upon completion of the installation of the TCTS-1 System at the Site, the
Manufacturer shall give the Operator written notice that the TCTS-1 System is
available for testing operations.
8.2 Test Period
8.2.1 Immediately upon giving notice to the Operator that the TCTS-1
System is available for testing operations, the Manufacturer shall, at its own
expense, furnish an engineer (technician?) to supervise the operation of the
TCTS-1 for a period of three days (the "Test Period"). During the Test Period,
the TCTS-1 System shall demonstrate the capability of disintegrating scrap truck
tires at the rate of the equivalent of one million (1,000,000) passenger car
tires per year on a twenty-four hour per day, seven-day per week, continuous
operating basis.
8.2.2 All power, fuel, light, water, oil, or other necessary supplies and
all personnel (other than the engineer or technician furnished by the
Manufacturer), authorizations, permits, real and personal property, contracts,
equipment, reports, etc. necessary for the successful operation of the TCTS-1
System, as set forth on Schedule 8.2.2, shall be provided by the Operator.
8.2.3 The Manufacturer shall furnish to the Operator all data regarding
the TCTS-1 System in order to enable the Operator to operate such System and, in
addition to the training to be provided pursuant to the Projected Maintenance
Agreement or otherwise, the Manufacturer shall, during the Test Period, instruct
at least two of the Operator's employees in accordance with Section 5.2.5 of
this Agreement with respect to the operation, and operating maintenance of the
TCTS-1 System, and use reasonable care in training such employee, provided that
if in the Manufacturer's sole opinion any employee is not adequately qualified,
the Operator shall designate another of its employees to receive such
instruction.
8.3 Acceptance
8.3.1 Unless the TCTS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer's
offer to sell the Purchased Equipment and to lease the Leased Equipment to the
Operator shall automatically be deemed to have been accepted by the Operator as
of the Acceptance Date, which shall occur on the first day following the
completion of the Test Period and the Operator shall have no right to revoke
such acceptance for any reason.
8.3.2 If the TCTS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Paragraph 8.2.1, above, the Manufacturer
shall have ninety (90) days in which to cure the problems responsible for such
failure. Costs of all parts and labor required to bring the TCTS-1 into full
working condition shall be borne by the Manufacture unless the
374
<PAGE>
failure to operate in accordance with the specifications set forth in Paragraph
8.2.1, above, shall have been caused by any act or failure to act on the part of
the Operator or its personnel, including but not limited to the failure of the
Operator to have brought the Site into conformance with the Site Plan
Specifications.
8.3.3 Upon written notice to the Operator that the problems which caused
the TCTS-1 System to fail to operate as required during the Test Period have
been cured, the Manufacturer shall, at the request of the Operator, commence a
second Test Period for up to three days, in which case the acceptance criteria
of Paragraph 8.3.1 shall pertain to such second Test Period (or any subsequent
Test Period) with the same force and effect as to the initial Test Period.
9. RISK OF LOSS
9.1 The risk of loss, injury, or destruction of the Leased Equipment from
any cause whatsoever, except negligence or willful destruction by the Operator
shall be borne by the Manufacturer during the term of the Lease therefor
provided hereunder.
9.2 The risk of loss, injury, or destruction of the Purchased Equipment
from any cause whatsoever, except negligence or willful destruction by the
Operator shall be borne by the Manufacturer only until title passes to the
Operator.
9.3 Any loss, injury, or destruction to the TCTS-1, or any part of it,
after title to the Purchased Equipment passes to the Operator, shall not serve
in any manner to release the Operator from the obligation to pay the Rent
Payments provided for Section 4.3, above.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE
MANUFACTURER
The Manufacturer hereby represents, warrants, and covenants to the
Operator, as follows:
10.1 Corporate Status
The Tirex Corporation is (i) duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) has full
power to own all of its properties and carry on its business; and (iii) is
qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
375
<PAGE>
10.2 Corporate Action
Prior to the date hereof, the board of directors of the Manufacturer has
duly adopted resolutions approving the execution and delivery to the Operator of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained.
10.3 Patents
10.3.1 The Manufacturer has obtained a patent in the United States and
Canada for the Disintegration System which constitutes the "Leased Equipment".
The Manufacturer is the sole owner of such patent and of all rights thereunder.
10.3.2 The Manufacturer shall defend, to the best of its ability and at
its own expense, all actions, suits, or proceedings instituted against the
Operator insofar as the same are based on any claims that the said Proprietary
Equipment, or any part thereof, constitutes an infringement of any patent of the
United States or Canada and shall indemnify the Operator against all damages,
costs, and expenses which the Operator may incur as a result of any action which
may be brought or threatened against the Operator with respect to the equipment
covered by such patent, provided that:
(a) The Manufacturer shall have the right at any time or from time to
time to modify the TCTS-1 System in a manner which will not lessen
the utility thereof;
(b) The Operator gives the Manufacturer immediate notice in writing of
the institution of the action, suit, or proceeding and permits the
Manufacturer, through its counsel, to defend same, and gives the
Manufacturer all information, assistance, and authority to enable
the Manufacturer to do; and
(c) The Operator has made no change of any kind in the TCTS-1 System
without obtaining the prior written permission of the Manufacturer.
10.3.3 When information is brought to the attention of the Manufacturer or
the Operator that others are unlawfully infringing on the patent covering the
Leased Equipment, or on any other patent granted to the Manufacturer in the
future on any other component or part of the TCTS-1, the Manufacturer shall
prosecute diligently any infringer at the Manufacturer's own expense.
10.3.4 The Manufacturer has designed, developed, and built a fully
computerized front-end tire preparation system and a freezing chamber. The
Manufacturer believes that such equipment is proprietary to it and intends, as
promptly as practicable, to file patent applications therefor. The Manufacturer
has no present knowledge of any information which would adversely affect the
validity of its outstanding patent or the issuance of additional patents
pursuant to the above described projected patent applications. However, nothing
in this Paragraph shall constitute
376
<PAGE>
a warranty by the Manufacturer that further patents will granted or that, in the
absence of a final court determination, any particular patent is valid and
enforceable or that any patent may not be the subject of patent infringement
claims.
10.4 Warranties
Subject to the failure of the Operator to maintain the TCTS-1 in
accordance with standards and procedures to be specified in the Projected
Maintenance Agreement or otherwise, the Manufacturer warrants that the TCTS-1
will be capable of disintegrating scrap truck tires at the rate of the
equivalent of one million (1,000,000) passenger car tires per year on a
twenty-four hour, seven day per week operating basis. The Manufacturer further
warrants and represents that the TCTS-1 System will meet or exceed all
applicable U.S. permitting and operating rules and regulations including but not
limited to those promulgated by OSHA and the EPA. The Manufacturer further
warrants the TCTS-1 System against defects in workmanship and materials or
failure to perform in accordance with the specifications set forth in Paragraph
8.2.1, above for one year after the Acceptance Date. No other representations or
warranties have been made by the Manufacturer or relied upon by the Operator. If
any defects in the Manufacturer's work or materials are discovered within one
year of delivery the Operator shall give notice within five days of such
discovery. THIS WARRANTY IS EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES.
11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE OPERATOR
The Operator hereby represents, warrants, and covenants to the
Manufacturer, as follows:
11.1 Corporate Status
ENERCON America Distribution Limited is (i) duly organized corporation,
validly existing and in good standing under the laws of the State of Ohio; (ii)
has full power to own all of its properties and carry on its business; and (iii)
is qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
11.2 Financial Condition of the Operator
The books and records of the Operator are complete and accurate and fairly
present the financial condition and the results of operations of the Operator as
of the date hereof. There are no material liabilities, either fixed or
contingent, not reflected in such books and records other than contracts or
obligations in the ordinary and usual course of business; and no such contracts
or obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of the Operator as reflected in such books and records.
377
<PAGE>
11.3 Defaults and Conflicts
There are no defaults on the part of the Operator under any contract,
lease, mortgage, pledge, credit agreement, title retention agreement, security
agreement, lien, encumbrance or any other commitment, contract, agreement or
undertaking to which the Operator is a party. The execution of this Agreement
will not violate or breach any material agreement, contract, or commitment to
which the Operator is a party.
11.4 Corporate Action
Prior to the date hereof, the boards of directors of the Operator has duly
adopted resolutions approving the execution and delivery to the Manufacturer of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained,
and the Operator will, within 30 days of the execution of this Agreement,
furnish the Manufacturer with a copy of the resolutions of the board of
directors of the Operator authorizing the Operator to purchase the Purchased
Equipment and lease the Leased Equipment pursuant to the terms and conditions of
this Agreement;
11.5 Insurance
11.5.1 The Operator, at its own cost and expense, shall insure the Leased
Equipment against burglary, theft, fire, and vandalism in the amount of US
$1,000,000 and obtain public liability insurance with minimum limits, as the
parties shall mutually agree, for property damage in such form and with such
insurance companies as shall be satisfactory to the Manufacturer. All insurance
policies shall name both the Operator and the Manufacturer as insureds and
copies of the policies and the receipts for the payment of premiums shall be
furnished to the Manufacturer. Each damage policy shall provide for payment of
all losses directly to the Manufacturer. Each liability policy shall provide
that all losses be paid on behalf of the Operator and the Manufacturer, as their
respective interests appear.
11.5.2 In the event that the Operator shall fail to comply with the
provisions of Paragraph ll.5.1, above, then the Operator shall pay to the
Manufacturer an adequate premium in advance per annum to enable the Manufacturer
to insure the Leased Equipment and all such insurance policies shall be held in
the custody of the Manufacturer.
11.6 Indemnification
The Operator agrees to indemnify, protect, save, and keep harmless the
Manufacturer, its agents, employees, successors, and assigns from and against
all losses, damages, injuries, claims, demands, and expenses, including legal
expenses , of whatsoever nature arising out of the use, condition (including but
not limited to latent and other defects and whether or not discoverable by it),
or operation of the TCTS-1 System, or any part of it, by any person who used,
operated,
378
<PAGE>
or came into contact with such TCTS-1 System at the Site and to defend any suit
seeking such damages even though the allegations of such suit are groundless,
false, or fraudulent, provided however that the Operator agrees to give prompt
notice to the Manufacturer once the Operator has actual knowledge of any claims
as to which indemnity shall be sought, and shall permit the Manufacturer (at the
Operator's expense) to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Manufacturer, who shall
conduct the defense of said claim or litigation, shall be reasonably
satisfactory to the Operator; The Operator shall not, in the defense of any such
claim or litigation, except with the consent of the Manufacturer, consent to the
entry of any judgment or enter into any settlement that does not include as an
unconditional term, the giving by the claimant or plaintiff to Manufacturer of a
release from all liability in respect to such claim or litigation.
11.7 Access
The Operator shall insure that the Manufacturer, and its agents and
employees, shall at all times have free access to the Operator's premises for
the purpose of inspecting the Leased Equipment and observing its use and
operation, and making alterations, improvements, or additions thereto; and the
Operator shall afford all reasonable facilities therefor, and shall allow the
Manufacturer to make such reasonable alterations, improvements, or additions as
the Manufacturer shall deem necessary, at the expense of the Manufacturer.
11.8 Taxes
The Operator shall pay all taxes, assessments, penalties, and fees which
may be levied or assessed on or with respect to the installation of the TCTS-1
System and, at all times during the term of the Lease of the Leased Equipment,
the Operator shall pay all taxes and assessments which may be levied upon or in
respect of the TCTS-1 System or its operation, and shall pay any other liability
of any character which may be imposed or incurred as an incident to the physical
possession or operation of such System.
11.9 Compliance with Applicable Law
The Operator shall provide, at its own expense, all requisite permits and
licenses necessary for the installation and operation of the TCTS-1 System at
the Site and shall exercise its best efforts to maintain its compliance with all
applicable federal, state, and local laws, statutes, rules, and regulations and,
in the event of any non-compliance which renders impossible the operation of the
Site as a tire recycling facility, the Operator shall exercise its best efforts
to cure such non-compliance promptly.
379
<PAGE>
11.10 Subordination
The Operator shall procure from every owner, landlord, mortgagee, or other
secured party having any interest in the real property on which the TCTS-1
System is to be installed or in the Operator's place of business or the
equipment therein, and deliver to the Manufacturer, a written consent to such
installation and a writing to the effect that the lien of any such mortgage or
other interest is subordinate to the rights of the Manufacturer with respect to
the Leased Equipment.
11.11 Ancillary Agreements
11.11.1 The Operator will, simultaneously with the execution of this
Agreement, and in consideration of the premises and the mutual promises and
agreements made herein, enter into the following agreements with the
Manufacturer or such person, corporation, firm, partnership, or other entity as
the Manufacturer shall appoint in its stead:
(a) The Royalty Agreement, of even date herewith, between the
Manufacturer and the Operator providing for the Operator to pay to
the Manufacturer a royalty of three percent (3%) of the gross
proceeds from the sale, other than to the Manufacturer pursuant to
the Crumb Rubber Purchase Option Agreement, by the Operator of
rubber crumb and steel from scrap tires disintegrated by the
Operator through the utilization of the TCTS-1 System, a copy of
which Royalty Agreement is attached as Schedule 11.11(a) hereto; and
(b) The Crumb Rubber Purchase Option Agreement, of even date herewith,
between the Operator and the Manufacturer or such person,
corporation, firm, partnership, or other entity as the Manufacturer
shall appoint in its stead, granting an option to the Manufacturer
to purchase up to 40% of the crumb rubber produced by the TCTS-1
System, a copy of which Agreement is attached as Schedule 11.11(b)
hereto
11.11.2 It is the intention of the parties that within sixty days after
payment of the first payment due under Paragraph 3.3, above, the Manufacturer
and the Operator, jointly, shall commence the development of a mutually
acceptable Projected Maintenance Agreement and that within five business days of
the completion of the said Projected Maintenance Agreement, the Operator will,
in consideration of the premises and the mutual promises and agreements made
herein, enter into the Projected Maintenance Agreement with the Manufacturer or
such person, corporation, firm, partnership, or other entity as the Manufacturer
and the Operator shall jointly agree to and appoint in its stead, on mutually
agreed upon terms. Notwithstanding the foregoing, the failure of the parties to
enter into the Projected Maintenance Agreement will not constitute a breach of
this Agreement or otherwise affect the respective rights and obligations of the
parties hereunder.
380
<PAGE>
12. DEFAULTS
12.1 Default by Manufacturer
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Manufacturer:
(a) If at any time prior to the delivery of the TCTS-1 System to the
Site:
(i) The Manufacturer makes an assignment for the benefit of
creditors;
(ii) A voluntary or involuntary petition is filed by or against the
Manufacturer under any law having for its purpose and
adjudication of the Manufacturer a bankrupt or the extension
of the time of payment of, adjustment of, or other arrangement
affecting the liabilities of the Manufacturer, or the
reorganization of the Manufacturer and such petition is not
discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(iii) A Receiver is appointed for the property of the Manufacturer
and is not discharged or dismissed within one hundred twenty
(120) days after such appointment;
or
(iv) Any distress, execution, or attachment is levied upon the
Manufacturer's property to the extent that the Manufacturer is
not able to fulfill its obligations to deliver the TCTS-1
within 90 days of the anticipated Deliver Date.
(a)
(b) The Manufacturer fails to deliver the TCTS-1 System in accordance
with the terms and provisions of Section 7, above, within 90 days of
the Delivery Date unless prior thereto, the Operator has failed to
meet the payment provisions set forth above in Section 3.3 of this
Agreement;
(c) The TCTS-1 System fails to operate for a full Test (or re-test)
Period, in accordance with Section 8.2 hereof, within ninety (90)
days from the date the TCTS-1 System is completely installed at the
Site.
12.2 Default by Operator
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within 90 days, shall constitute a default hereunder
by the Operator:
381
<PAGE>
(a) The Operator fails to make any payment required to be made pursuant
to Sections 3.3 or 4.3 of this Agreement or, if the parties shall
enter into the Projected Maintenance Agreement, any payment required
to be made by the Operator under the Projected Maintenance Agreement
and such failure to make payment shall have continued for a period
of ten (10) days after written notice from the Manufacturer;
(b) The Operator refuses to accept or allow the Manufacturer to install
or test the TCTS-1 System in accordance with Sections 7.2, 8.2, and
8.3 of this Agreement, notwithstanding that such System has been:
(i) delivered to the Operator's Site on a timely basis or (ii)
delivered to the Site and has performed in accordance with the
specifications set forth in Section 8.2 hereof for the prescribed
Test Period;
(c) The Operator makes an assignment for the benefit of creditors;
(d) A voluntary or involuntary petition is filed by or against the
Operator under any law having for its purpose and adjudication of
the Operator a bankrupt or the extension of the time of payment of,
adjustment of, or other arrangement affecting the liabilities of the
Operator, or the reorganization of the Operator and such petition is
not discharged or dismissed within one hundred twenty (120) days
after such petition is filed;
(e) A Receiver is appointed for the property of the Operator;
(f) Any distress, execution, or attachment is levied upon the machines
or the Operator's property; or
(g) The Operator fails to faithfully and fully comply with the terms and
provisions of Section 5.2 of this Agreement, with any such failure
deemed to be an irremediable material breach of this Agreement
immediately upon its occurrence.
(h) The Operator fails to reasonably, faithfully, and fully maintain the
TCTS-1 in accordance with standards and procedures to be specified
in the Projected Maintenance Agreement or otherwise, and fails to
cure such breach within the time period specified therein with
respect to such failure.
12.3 Remedies Available to the Operator upon Default by Manufacturer
If the Manufacture shall be in default pursuant to Paragraphs 12.1 (a),
(b), or (c) of this Agreement, unless such default shall have been caused by any
act or failure to act on the part of the Operator or its personnel, including
but not limited to the failure of the Operator to have brought the Site into
conformance with the Site Plan) Specifications, the Operator shall have the
right to rescind this agreement by serving written notice ("Notice of
Rescission") upon the Manufacturer and the Operator shall thereupon be entitled
to stipulated damages in the agreed to amount of one million dollars (US
$1,000,000). In such event, the Manufacturer shall, at its own
382
<PAGE>
expense, remove the TCTS-1 System as promptly as practicable following its
receipt of such Notice of Rescission and all monies theretofore paid by the
Operator to the Manufacturer pursuant to Sections 3.3 and 4.3, above, shall be
returned by the Manufacturer to the Operator.
12.4 Remedies Available to the Manufacturer upon Default by the Operator
12.4.1 The Operator acknowledges and agrees that its breach of any
provision contained in Section 5.2 of this Agreement will cause irreparable harm
to the Manufacturer. The Operator therefore agrees that, if the Operator or any
of the Operator's affiliates, agents, employees, or associates has breached, or
is attempting or threatening to breach, any provision contained hereinabove in
the said Section 5.2, then the Manufacturer shall have the right to obtain from
any court or arbitrator having jurisdiction, such equitable relief as may be
appropriate, including a decree enjoining the Operator from any further such
breach of such provisions, and enjoining the Operator from engaging in any
aspect of the tire recycling business which is in competition with tire
recycling businesses which utilize tire disintegration equipment manufactured by
the Manufacturer, either directly or indirectly through or in association with
any other person, firm, corporation, or organization during the term of this
Agreement. Notwithstanding the foregoing, for purposes of this Agreement, the
parties agree that a tire recycling business utilizing a microwave tire
recycling system will not be deemed to be in competition with tire recycling
businesses which utilize tire disintegration equipment manufactured by the
Manufacturer
12.4.2 In the event of any default by the Operator under this Agreement,
the Manufacturer may at its option, at any time thereafter terminate this
Agreement by written notice ("Notice of Termination"), given in Accordance with
Section 16 hereof. Such termination may be made effective, at the option of the
Manufacturer, simultaneously with or at any time after the happening of any such
default.
12.4.3 Upon any termination of this Agreement prior to payment in full of
the entire Purchase Price of US $2,250,000 for the Purchased Equipment, in
accordance with the terms of Section 3.3 of this Agreement, the Manufacturer
shall immediately have possession of the entire TCTS-1 System, and the
Manufacturer may enter upon the premises where the said TCTS-1 System is
located, take possession of the Leased Equipment and without previous demand or
notice and without legal process, and remove it from the Operator's premises at
the Operator's expense.
12.4.4 Upon any termination of this Agreement after payment in full of the
entire Purchase Price of US $2,250,000 for the Purchased Equipment has been made
by the Operator, the Manufacturer shall immediately have possession of the
Leased Equipment and the Manufacturer may enter upon the premises where the
TCTS-1 System is located, remove the Leased Equipment from the said TCTS-1
System and take possession of the Leased Equipment without previous demand or
notice and without legal process, and remove it from the Operator's premises at
the Operator's expense.
383
<PAGE>
12.4.5 The Operator acknowledges and agrees that any refusal on its part
to permit the Manufacturer to enter its premises and remove either the TCTS-1
System or the Leased Equipment in accordance with Paragraph 12.4.3 or 12.4.4 of
this Agreement will cause irreparable harm to the Manufacturer. The Operator
therefore agrees that in the event of any such refusal on its part, the
Manufacturer shall have the right to obtain from any court or arbitrator having
jurisdiction, such equitable relief as may be appropriate, including a decree
enjoining the Operator from any further such refusal of entry and removal.
12.4.6 In the event of any default by the Operator prior to the Acceptance
Date, the Manufacturer shall be entitled to liquidated damages including but not
limited to retention of up to one million dollars (US $1,000,000) out of the
monies paid by the Operator pursuant to Paragraph 3.3 and all costs of
delivering and removing and re-delivering the TCTS-1 System.
12.4.7 In the event of any default by the Operator after the Acceptance
Date or pursuant to Paragraph 12.2(b) of this Agreement, the Manufacturer shall
be entitled to liquidated damages including but not limited to retention of up
to one million dollars (US $1,000,000) out of the monies paid by the Operator
pursuant to Paragraph 3.3, all costs of delivering and removing and
re-delivering the TCTS-1 System, and damages for the Operator's failure to
perform for the full term of the Lease provided in Section 4.2 of this
Agreement.
12.4.8 In the event of any default on the part of the Operator pursuant to
Paragraphs 12.2(a) or 12.2(b) of this Agreement, the Manufacturer shall have the
right to allow the Operator, for a period of sixty (60) days, to obtain a buyer
for the TCTS-1 System, satisfactory to the Manufacture, provided however that,
unless specifically waived in writing by the Manufacturer, the Operator shall
continue liable under this Agreement lease for the full term of the Lease
provided for in Section 4.2 of this Agreement. In the event that the Operator
shall fail to obtain a buyer for the TCTS-1 System, satisfactory to the
Manufacture, the Manufacturer shall use its best efforts to dispose of the
equipment, either as a single TCTS-1 System or as separate components in any
appropriate public disposal manner. In the event of a sale of the equipment to a
Buyer located by either the Operator or the Manufacturer, the Manufacturer shall
return to the Operator all funds received from such disposal in excess of: (i)
liquidated damages under Paragraphs 12.4.6 or 12.4.7, above, (b) any monies
owing to Manufacturer by Operator under Section 3.3, and any costs incurred by
the Manufacturer for the removal and public disposal of the repossessed TCTS-1.
12.4.9 In the event of any default on the part of the Operator, the
Manufacturer shall not be deemed to have waived any of its rights hereunder by
reason of its failure to assert its rights or its failure to take cognizance of
such breach.
12.4.10 The foregoing remedies provided herein for the benefit of the
Manufacturer shall not be exclusive but in addition to any other remedies the
Manufacturer may have by virtue of the breach by the Operator, in law or in
equity, from any court or arbitration proceeding having jurisdiction over such
matter.
384
<PAGE>
13. OPERATOR'S SALE OF Purchased Equipment
13.1 Manufacturer's Right to Retrieve Leased Equipment Prior to Sale
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the
TCTS-1 System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer shall have all rights of entry and removal provided above in
Paragraphs 12.4.4 and 12.4.5 of this Agreement, provided however that in
addition to such rights, if such event shall occur during the term of the said
Lease, the Manufacturer shall also have the rights provided to it in Paragraph
12.4.7 of this Agreement.
13.2 Manufacturer's Right of First Refusal
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the
TCTS-1 System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer will have a right of first refusal to repurchase the TCTS-1 System,
at its fair market value, within a sixty (60) day period following the
Manufacturer's receipt of such notice;
14. ASSIGNMENT
The Operator shall not transfer, deliver, sublease, or encumber the Leased
Equipment to any person, corporation, or firm, and the Lease provided in Section
4.2 of this Agreement may not be assigned by the Operator except with the
Manufacturer's express prior written consent.
15. FAILURE OF PERFORMANCE
Delays in or failure of performance occasioned by war, fire, flood,
embargo, car shortage, accident, explosion, expropriation of plant or product by
federal or state authority, or other like cause beyond the control of the
Manufacturer, or Act of God, or by strike, lockout, or other labor trouble, or
inability to obtain sufficient labor interfering with the production or
transportation of the TCTS-1 System, or any part thereof, or any replacement
therefor, whether because of governmental action affecting the Manufacturer or
its suppliers, or by any action or proceeding at law or in equity, or otherwise,
shall not subject the Manufacturer to any liability.
385
<PAGE>
16. NOTICES
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.
17. CONDITIONS PRECEDENT TO MANUFACTURER'S OBLIGATION
The obligations of the Manufacturer hereunder are subject to fulfillment,
prior to the Delivery Date, of the following conditions:
17.1 Truth of Representation
The representations and warranties by or on behalf of Operator contained
in this Agreement or in any document delivered to the Manufacturer pursuant to
the provisions hereof shall be true in all material respects at and as of the
Delivery Date as though such representations and warranties were made at and as
of such time.
17.2 Compliance with Covenants
The Operator shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with prior or simultaneously with to the Delivery Date.
(ii) 17.3 Financing Arrangements
The Operator will deliver to the Manufacturer within sixty (60) days of
the execution of this Agreement, evidence satisfactory to the Manufacturer that
the Operator has arranged for adequate financing to meet the payment schedule
set forth in Section 3.3, above.
386
<PAGE>
18. ARBITRATION
All controversies arising out of or relating to this Agreement, or any
modification thereof, shall be settled by arbitration in New York City in
accordance with the Arbitration Rules then obtaining of the American Arbitration
Association.
19. BINDING EFFECT.
19.1 This agreement shall bind and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns,
provided, however, that this Agreement cannot be assigned by the Operator except
in accordance with Section 14 of this Agreement. Nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm or corporation other than the parties hereto and their respective legal
representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
19.2 All the right, title, and interest of the Manufacturer under the
Lease may be enforced by the Manufacturer, its successors, and assigns. The
Lease shall continue in full force and effect notwithstanding the death,
incapacity, or dissolution of the Operator or the increase, decrease, or change
in the personnel of or members of the Operator, and shall be binding upon the
Operator and the Operator's estate, legal representatives, heirs, and
successors.
20. GENERAL
20.1 Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
20.2 Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
20.3 Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
387
<PAGE>
20.4 Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
20.5 Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
20.6 Entire Agreement
This Agreement is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof.
20.7 Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
20.8 Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel of the Manufacturer and the Operator, provided however, that
any failure of the Operator or its counsel to approve any such notices or other
publicity shall in no way prevent the Manufacturer from complying fully with its
public disclosure obligations under the rules and regulations of the United
States Securities and Exchange Commission or any other governmental body or
agency in the United States or in any other applicable jurisdiction.
20.9 Counterparts
This Agreement 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 Agreement.
388
<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 /s/ Terence C. Byrne
---------------------------------
Terence C. Byrne, President
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
---------------------------------
David L. Holmes
389
EXHIBIT 10 (uu)
390
<PAGE>
----------
THE TIREX CORPORATION
----------
ROYALTY AGREEMENT
Royalty Agreement, made this 9th day of October 1998 between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee, respecting the "Leased Equipment", as those
terms are defined in the said Equipment Lease and Purchase Agreements.
Whereas, in consideration for the premises and the mutual promises made
therein, the Operator has agreed, pursuant to the Equipment Lease and Purchase
Agreements, to enter into this Royalty Agreement with the Manufacturer whereby
the Operator will pay to the Manufacturer certain royalties calculated upon the
gross proceeds from all sales of rubber crumb, fiber and steel from scrap tires
disintegrated by the TCS-1 System and the TCTS-1 System which are the respective
subjects of the said Equipment Lease and Purchase Agreements (the "Subject
Systems").
Now, Therefore, it is agreed as follows:
391
<PAGE>
1. Definitions
1.2 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
1.3 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.4 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreement.
2. Royalty Fee
2.1 The Operator shall pay to the Manufacturer, not more than fifteen (15)
days after the end of each month, a royalty fee equal to three percent (3%) of
the net proceeds from all sales of rubber crumb, fiber, and steel from scrap
tires disintegrated by the Subject Systems (the "Royalty Fee").
2.2 For purposes of this Royalty Agreement, the term "net proceeds" shall
mean all revenues from the sale, other than to the Manufacturer pursuant to the
Crumb Rubber Purchase Option Agreement, of rubber crumb, fiber and steel from
scrap tires disintegrated by the Subject Systems less any uncollected accounts
actually written off as bad debts by the Operator.
3. Payment Periods
Royalty Fees shall be reported and paid by the Operator to the
Manufacturer every month from the Acceptance Date throughout the life of the
Subject Systems.
4. Royalty Reports
The Operator shall prepare royalty reports ("Royalty Reports"), to be
delivered by the Operator to the Manufacturer, together with the Royalty Fee due
thereunder, covering the immediately preceding "Reporting Periods", in the
following manner:
(a) The initial Reporting Period shall be the Reporting Period in which
the Acceptance Date falls. For example, if the Acceptance Date is
September 15, 1998, the initial Reporting Period is the two-week
period which commenced on September 15, 1998 and ended on September
30, 1998, and the Royalty Report and Royalty Fee for such "Reporting
Period" is due on October 15, 1998.
(b) Each Royalty Report shall disclose the gross revenues from all sales
of steel, fiber, and rubber crumb produced by the operation of the
Subject Systems and the amount of the Royalty Fee calculated upon
the gross proceeds therefrom.
392
<PAGE>
5. Inspection of Books
Upon written request, the Manufacturer or his designated agent may examine
the books and records of the Operator only insofar as they relate to this
Royalty Agreement and are reasonably required to verify the Operator's revenues
from sales of steel, fiber, and rubber crumb produced by the operation of the
Subject Systems. Such examination shall take place at the offices of the
Operator only during normal business office operating hours.
6. Assignment
6.1 This Royalty Agreement may not be assigned by the Operator except as
part of the assignment of the Equipment Lease and Purchase Agreement, which may
only be assigned pursuant to the express written consent of the Manufacturer,
and any such assignment shall not relieve the Operator of its liabilities
hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Royalty Agreement may be transferred, assigned, pledged, or
hypothecated by the Manufacture as part of the sale of its business or
otherwise.
7. Notices
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.
8. Binding Effect.
8.1 This Royalty Agreement shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Royalty Agreement cannot be assigned by
the Operator except in accordance with Section 6.1 hereof. Nothing herein
expressed or implied is intended or shall be construed to confer upon or to give
any person, firm or corporation other than the parties hereto and their
respective legal representatives, successors and assigns any rights or benefits
under or by reason of this Royalty Agreement.
8.2 All the right, title, and interest of the Manufacturer under this
Royalty Agreement may be enforced by the Manufacturer, its successors, and
assigns. This Royalty Agreement shall continue in full force and effect
notwithstanding the death, incapacity, or dissolution of the Operator or the
increase, decrease, or change in the personnel of or members of the Operator,
and shall be binding upon the Operator and the Operator's estate, legal
representatives, heirs, and successors.
393
<PAGE>
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
14. Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreements constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Royalty Fees. There are
no oral promises, conditions, representations, understandings, interpretations
or terms of any kind as conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
394
<PAGE>
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
This Agreement 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 Agreement.
In Witness Whereof, the parties hereto have caused this Royalty Agreement
to be executed the day and year first above written whatsoever.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
------------------------------------
David L. Holmes, President
THE TIREX CORPORATION
By /s/ Terence C. Byrne
------------------------------------
Terence C. Byrne, President
395
EXHIBIT 10 (vv)
396
<PAGE>
----------
THE TIREX CORPORATION
----------
RUBBER CRUMB PURCHASE OPTION AGREEMENT
Rubber Crumb Purchase Option Agreement, made this 9th day of October 1998,
between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee, respecting the "Leased Equipment", as those
terms are defined in the said Equipment Lease and Purchase Agreements.
Whereas, in consideration for the premises and the mutual promises made
therein, the Operator has agreed, pursuant to the Equipment Lease and Purchase
Agreements, to enter into this Option Agreement with the Manufacturer pursuant
to which the Operator hereby grants to the Manufacturer the option to purchase
up to forty percent (40%) of the rubber crumb yielded by the disintegration of
scrap tires in the TCS-1 System and the TCTS-1 System which are the respective
subjects of the said Equipment Lease and Purchase Agreements (the "Subject
System").
Now, Therefore, it is agreed as follows:
1. Definitions
397
<PAGE>
1.1 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
1.2 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.3 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreements.
2. Grant of Option
The Operator hereby grants to the Manufacturer an option (the "Option") to
purchase up to forty percent (40%) of the rubber crumb yielded by the
disintegration of scrap tires in the Subject Systems (the "Rubber Crumb
Output").
3. Term of Option
The term of the Option shall be coextensive with the term of the operating
lease provided for in Section 4 of the respective Equipment Lease and Purchase
Agreements and shall commence as of the Acceptance Date.
4. Conditions of Option
The Manufacturer's rights to purchase the Rubber Crumb Output pursuant to
this Option shall be subject to fulfillment of the following condition:
(a) the Manufacturer shall furnish to the Operator, in writing, within
ninety days of the Acceptance Date and every six months thereafter,
the Manufacturer's anticipated purchase projections (the "Six-Month
Projected Purchase Order") specifying the grades, types, and
quantities of Rubber Crumb Output which the Manufacturer commits to
purchase within the six-month period following the date of such
Projected Purchase Order;
The price, terms, and conditions specified in the Projected Purchase Order
will be negotiated every six months for a period of six months.
5. Inspection of Books
Upon written request, the Manufacturer or its designated agent may examine
the books and records of the Operator only insofar as they relate to this Rubber
Crumb Purchase Option Agreement and are reasonably required to verify the volume
of rubber crumb produced by the
398
<PAGE>
operation of the Subject Systems. Such examination shall take place at the
offices of the Operator only during normal business office operating hours.
6. Assignment
6.1 This Option Agreement may not be assigned by the Operator except as
part of the assignment of the Equipment Lease and Purchase Agreement, which may
only be assigned pursuant to the express written consent of the Manufacturer,
and any such assignment shall not relieve the Operator of its obligations
hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Option Agreement may be transferred, assigned, pledged, or
hypothecated by the Manufacture as part of the sale of its business or
otherwise.
7. Notices
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.
8. Binding Effect.
8.1 This Option Agreement shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Option Agreement cannot be assigned by the
Operator except in accordance with Section 6.1 hereof. Nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation other than the parties hereto and their respective
legal representatives, successors and assigns any rights or benefits under or by
reason of this Option Agreement.
8.2 All the right, title, and interest of the Manufacturer under this
Option Agreement may be enforced by the Manufacturer, its successors, and
assigns. This Option Agreement shall continue in full force and effect
notwithstanding the death, incapacity, or dissolution of the Operator or the
increase, decrease, or change in the personnel of or members of the Operator,
and shall be binding upon the Operator and the Operator's estate, legal
representatives, heirs, and successors.
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
399
<PAGE>
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
14 Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreement constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Option. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
This Agreement 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 Agreement.
400
<PAGE>
In Witness Whereof, the parties hereto have caused this Option Agreement
to be executed the day and year first above written.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
----------------------------------
David L. Holmes
THE TIREX CORPORATION
By /s/ Terence C. Byrne
----------------------------------
Terence C. Byrne, President
401
EXHIBIT 10 (ww)
402
<PAGE>
----------
THE TIREX CORPORATION
----------
PURCHASE RIGHTS AGREEMENT
Purchase Rights Agreement, made this 9th day of October 1998, between:
ENERCON America Distribution Limited
540 Tansy Lane
Westerville, Ohio 43081
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to certain
equipment lease and purchase agreements, of even date herewith (the "Equipment
Lease and Purchase Agreements"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Purchased Equipment" and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee (the "Operating Lease"), respecting the
"Leased Equipment", as those terms are defined in the said Equipment Lease and
Purchase Agreements.
Whereas, Section 4 of each of the respective Equipment Lease and Purchase
Agreements contains the terms and provisions of the respective Operating Leases,
with Subparagraphs 4.2.2 (b) of each of such Agreements providing to the
Operator the sole and exclusive right to extend the terms of the Operating
Leases yearly, on a perpetual basis, at a reduced rental rate, or to terminate
the said Operating Leases upon 90 days written notice to the Manufacturer.
Whereas, the Operator wishes to have, and the Manufacturer has agreed to
grant to the Operator, the right to purchase the Leased Equipment in the event
that a voluntary or involuntary petition is filed by or against the Manufacturer
under Chapter 7 of the United States Bankruptcy laws having for its purpose and
adjudication of the Manufacturer a bankrupt and the liquidation of the
Manufacturer's assets pursuant thereto.
Now, Therefore, in consideration for the premises and the mutual promises
made herein and in the Equipment Lease and Purchase Agreements, it is agreed as
follows:
403
<PAGE>
1. Definitions
1.1 "Manufacturer" shall mean The Tirex Corporation and its successors and
assigns.
1.2 "Operator" shall mean ENERCON America Distribution Limited and all
other corporations, partnerships, or other entities, now or in the future
controlled by, under common control with, or in control of, ENERCON America
Distribution Limited, jointly and severally.
1.3 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreements.
2. Operator's Right to Purchase Leased Equipment
2.1 To the extent permitted under applicable bankruptcy laws and
regulations, the Manufacturer hereby grants to the Operator the right to
purchase the Leased Equipment in the event that a voluntary or involuntary
petition is filed by or against the Manufacturer under Chapter 7 of the United
States Bankruptcy laws having for its purpose the adjudication of the
Manufacturer as a bankrupt and the liquidation of the Manufacturer's assets
pursuant thereto, in which event:
(a) The Manufacturer shall, within five business days of such
occurrence, give written notice thereof to the Operator;
(b) The Operator shall, within five business days of receipt of the
above described notice, advise the Manufacturer whether or not it
wishes to purchase the Leased Equipment.
3. Purchase Price
The purchase price for the Leased Equipment shall be the greater of: (i)
seven hundred fifty thousand United States dollars (US $750,000) less $10,000
for each monthly rental payment (including $12,500 initial term payments and
$6,250 extended term payments) that Operator shall theretofore have paid under
the Operating Lease; or (ii) $50,000.
6. Assignment
6.1 This Purchase Rights Agreement may not be assigned by the Operator
except as part of the assignment of the Equipment Lease and Purchase Agreement,
which may only be assigned pursuant to the express written consent of the
Manufacturer, and any such assignment shall not relieve the Operator of its
obligations hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Purchase Rights Agreement may be transferred, assigned, pledged,
or hypothecated by the Manufacture as part of the sale of its business or
otherwise.
404
<PAGE>
7. Notices
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.
8. Binding Effect.
8.1 This Purchase Rights Agreement shall bind and inure to the benefit of
the parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Agreement cannot be assigned by the
Operator except in accordance with Section 6.1 hereof. Nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation other than the parties hereto and their respective
legal representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
9. Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
405
<PAGE>
14 Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreement constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Operator's rights to
purchase the Leased Equipment. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
This Agreement 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 Agreement.
In Witness Whereof, the parties hereto have caused this Purchase Rights
Agreement to be executed the day and year first above written.
ENERCON AMERICA DISTRIBUTION LIMITED
By /s/ David L. Holmes
` ---------------------------------
David L. Holmes, President
THE TIREX CORPORATION
By /s/ Terence C. Byrne
---------------------------------
Terence C. Byrne, President
406
EXHIBIT 10 (xx)
407
<PAGE>
----------
THE TIREX CORPORATION
----------
EQUIPMENT LEASE AND PURCHASE AGREEMENT
Equipment Lease and Purchase Agreement, made, as of the 12th day of
December 1997, between:
750824 Alberta Ltd.
Calgary, Alberta
Canada T2G 2E6
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
1. DEFINITIONS
1.1 "Acceptance Date" shall mean the first day following the completion of
the Test Period.
1.2 "Anticipated Delivery Date" shall mean September 15, 1998 or such
other date as the parties hereto shall mutually agree.
1.3 "Leased Proprietary Equipment" shall mean all of the following
constituent, integral parts of the TCS-1 System and all substitutions,
replacements, and improvements, and all repair and renewal parts installed
therein, as specified in the plans and specifications therefor, attached as
Schedule 1.3 hereto:
(a) the disintegration system including but not limited to all grinders
contained therein, and
(b) the separation systems, including but not limited to:
(i) a magnetic separator;
(ii) a fiber/crumb separator;
(iii) fiber collector
(iv) crumb rubber sizing system; and
(v) all integrated conveyance and exit belts, chutes, and other
components
1.4 "Maintenance Agreement" shall mean the maintenance agreement of to be
entered into between the Manufacturer and the Operator respecting the
maintenance of the TCS-1 System.
408
<PAGE>
1.5 "Manufacturer" shall mean The Tirex Corporation and Tirex Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
1.6 "Non Proprietary Equipment" shall mean all of the following
constituent, integral parts of the TCS-1 System:
(a) all baling 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, as
specified in the pertinent plans and specifications therefore; and
(b) freezing chambers and cryogenic systems and all substitutions,
replacements, and improvements, and all repair and renewal parts
installed therein, as specified in the plans and specifications
therefore;
1.7 "Operator" shall mean 750824 Alberta Ltd., a corporation existing
under the laws of the Province of Alberta, and all other corporations,
partnerships, or other entities, now or in the future controlled by, under
common control with, or in control of, 750824 Alberta Ltd., jointly and
severally.
1.8 "Proprietary Front-End System" shall mean the manufacturer's
proprietary front-end tire preparation system, all substitutions, replacements,
and improvements, and all repair and renewal parts installed therein, as
specified in the plans and specifications therefor, attached as Schedule 1.8
hereto.
1.9 "Purchased Equipment" shall mean the Proprietary Front-End System and
the NonLeased Proprietary Equipment, as those terms are defined in Sections 1.8
and 1.6 (b), collectively.
1.10 "Site" shall mean a site located in Calgary AB, to be identified by
the Operator.
1.11 "TCS-1 System" shall mean the Manufacturer's proprietary cryogenic
tire disintegration system, patent pending, consisting of the Proprietary
Front-End System, the Nonproprietary Equipment and the Leased Proprietary
Equipment, as specified in the plans and specifications attached as Schedule
1.3, 1.6 (b), and 1.8 hereto and all substitutions, replacements, and
improvements, and all repair and renewal parts installed therein.
1.12 "Test Period" shall mean a three (3) day period which shall commence
within ten (10) business days after completion of the installation of the TCS-1
System, during which Test Period, the TCS-1 System shall be operated continually
for 22 hours per day exclusive of any time devoted to adjustments and
acclamation.
2. RECITALS
Whereas:
409
<PAGE>
2.1 The Manufacturer has invented, built, and patented (patent allowed as
of October 23, 1997), and is the sole and exclusive owner, directly or
indirectly, through one or more subsidiaries, of all right title and interest in
the TCS-1 System.
2.2 The Operator is a Corporation incorporated under the laws of the
Province of Alberta, Canada, formed for the purpose of engaging, directly or
indirectly in the scrap tire disintegration business.
3. AGREEMENT FOR PURCHASE AND SALE OF PROPRIETARY FRONT-END
AND NON PROPRIETARY EQUIPMENT
3.1 Purchase and Sale
The Operator agrees to purchase, and the Manufacturer agrees to sell, the
Proprietary Front-End System and the Non Proprietary Equipment, as defined in
Sections 1.6 and 1.8, above (collectively, the "Purchased Equipment"), above, in
accordance with the terms and conditions of this Agreement. The Operator may at
its election take title to the Purchased Equipment in a wholly owned subsidiary
corporation to be formed by it for such purpose. Such election by the Operator
shall nowise modify, diminish, or otherwise affect the Operator's liability
hereunder to the Manufacturer. The purchase and payment for the Purchased
Equipment by the Operator, and the sale, assignment, transfer, and delivery
thereof by the Manufacturer, shall take place subject to the fulfillment of the
conditions hereinafter provided.
3.2 Purchase Price
The purchase price for the Purchased Equipment (the "Purchase Price"),
installed and set in operation pursuant to Section 7 and 8 hereof, shall be the
sum of two million, two hundred fifty thousand United States dollars (US
$2,250,000), FOB Montreal, which shall be deemed allocated as follows:
(a) Freezing Chamber and
Cryogenic Systems US $ 1,500,000
(b) Front End Tire
Preparation and
Bailing Systems 750,000
-------------
Total US $2,250,000
3.3 Payment Terms
The Purchase Price shall be paid by the Operator to the Manufacturer, as
follows:
(a) $25,000 deposit on execution of this Agreement, to be held in escrow
by the Operator's attorneys, LaPointe & Rosenstein of Montreal,
Canada (the "Escrow Agent"); The Escrow Agent shall release such
down payment to the Manufacturer upon Delivery of the TCS-1 System
to the Operator's
410
<PAGE>
Site, at which time such funds will be applied against the first and
last months rental payments under the Operating Lease set forth in
Section 4, below;
(b) $225,000 to be paid within sixty days of the execution of this
Agreement by way of a certified check or bank instrument
satisfactory to the Manufacturer;
(c) Balance to be paid on delivery by way of a certified check or other
bank instrument satisfactory to the Manufacturer.
4. AGREEMENT FOR OPERATING LEASE OF LEASED PROPRIETARY
EQUIPMENT
4.1 Agreement to Lease Equipment
The Manufacturer, as lessor, and the Operator, as lessee, hereby enter
into an operating lease (the "Lease") for the Leased Proprietary Equipment, as
defined in Section 1.3 above, subject to the following terms and conditions:
4.2 Term of the Lease
4.2.1 The term of the Lease shall be sixty (60) months commencing on the
Acceptance date.
4.2.2 At the expiration of the full original term hereof, if this Lease
has remained in effect and the Operator has duly performed all its obligations
thereunder during the entire such term, then the Operator shall have the option
to either:
(a) Obtain a new lease agreement in the form then being generally
offered by the Operator to the trade with renewal terms, as agreed
by the parties;
(b) Continue to use the same equipment installed hereunder and thereby
extend the term of this Lease at the a rental rate of US $6,250 per
month for a period of one year with further successive automatic
one-year extensions subject to either party's right to terminate
this Lease at the end of any extension year by at least 90 days
prior written notice of termination of the other; or
(c) Request that the Manufacturer exercise its right of first refusal to
repurchase the Purchased Equipment pursuant to Section 13.1 of this
Agreement, in which event the Manufacturer shall have thirty (30)
days to either: (i) notify the Operator of its intent to repurchase
the Purchased Equipment and, within sixty (60) days of such notice,
effectuate such repurchase and thereupon enter upon the premises
where the said TCS-1 System is located and remove the entire TCS-1
System from the
411
<PAGE>
Operator's premises at the Manufacturer's expense, or (ii) notify
the Operator that it does not intend to repurchase the Purchased
Equipment and, within thirty (30) days of such notice, enter upon
the premises where the TCS-1 System is located, take possession of
the Leased Proprietary Equipment without previous demand or notice
and without legal process, retrieve the Leased Proprietary Equipment
from the TCS-1 System and remove the Leased Proprietary Equipment
from the Operator's premises at the Manufacturer's expense.
4.3 Rent Payments
4.3.1 The Operator shall pay to the Manufacturer monthly rental payments
(the "Rent Payments") for the Leased Proprietary Equipment at the rate of twelve
thousand, five hundred United States dollars (US $12,500) per month, payable in
advance, as follows:
(a) the Rent Payment for the first 30-day period (the "Set-Off Period")
following the Acceptance Date shall be paid by way of a set-off in
the amount of US $12,500 against the deposit heretofore paid by the
Operator;
(b) the Rent Payment for the period (the "Partial-Month Period") which
commences on the first day following the Set-Off Period and ends on
the last day of the calendar month in which such Partial-Month
Period falls, will be payable in cash on the first day of such
Partial-Month Period, on a pro rata basis.
(c) Normal monthly Rent Payments of US $12,500 will commence and be
payable on the first day of the first full calendar month following
the Partial-Month Period, and shall be due and payable, in advance,
on the first day of each of the remaining months during the term of
the Lease except for the last month. Payment of the last month's
monthly Rent Payment shall be made by way of a set off against the
remaining $12,500 of the deposit paid by the Operator upon execution
of this Agreement.
EXAMPLE:
Acceptance Date: September 15th
Set-Off Period: September 16th through October 15th.
Partial-Month
Period: October 15th through October 31st, with Rent
Payment in the amount of $4,385 due and
` payable on October 15th.
Commencement of Regular
412
<PAGE>
Monthly Rental Payments November 1st, normal monthly Rent Payment of
$12,500 due and payable on such date.
4.3.2 In the event of that payment of any Rent Payment is made by the
Operator more than ten (10) days after the date when such payment shall have
been due, the Operator shall pay a late charge of one and a half percent (1.5 %)
of the entire amount of such Rent Payment for every month in which such
delinquency occurs or continues.
5. TITLE TO EQUIPMENT
5.1 Title to Purchased Equipment
5.1.1 Title to the Purchased Equipment shall pass to the Operator upon
payment in full of the balance of the Purchase Price, due on the Acceptance
Date.
5.1.2 No rights to any plans or designs respecting the TCS-1 System shall
pass to the Operator and the Operator shall not copy, reproduce, design, or
build, or cause, assist, or suffer to be copied, reproduced, designed, or built
by any other person, firm, or corporation any equipment in any way similar to,
or based upon, the design or structure of the TCS-1 System.
5.2 Title to Leased Proprietary Equipment
5.2.1 The Leased Proprietary Equipment shall at all times remain the sole
and exclusive property of the Manufacturer (which reserves the right to assign
or encumber the Leased Proprietary Equipment) and the Operator shall have no
right, title, or interest to the Leased Proprietary Equipment but only the right
to use such Equipment under this Lease. The Leased Proprietary Equipment shall
not be transferred or sublet by the Operator to any other person, firm or
corporation, the Operator shall not permit any other person, firm, or
corporation to use the Leased Proprietary Equipment, and this agreement may not
be assigned by the Operator either by its own act or by operation of law.
5.2.2 The Leased Proprietary Equipment shall remain personal property and
shall not be deemed otherwise by reason of becoming attached to the premises.
5.2.3 The Manufacturer shall have the right at any time or from time to
time to modify the Leased Proprietary Equipment in a manner which will not
lessen the utility of the Leased Proprietary Equipment;
5.2.4 The Operator shall not enter into, remove, tamper with, or breach
the security of, the Leased Proprietary Equipment. The Operator shall not copy,
reproduce, design, or build, or cause, assist, or suffer to be copied,
reproduced, designed, or built by any other person, firm, or corporation any
equipment in any way similar to, or based upon, the design or structure of the
Leased Proprietary Equipment, or of any part thereof. The Operator shall not
permit any Leased Proprietary Equipment to be abused, not permit the removal of
any descriptions, instructions, warnings plate or markings, or other writings of
any kind whatsoever put on the Leased Proprietary Equipment by the Manufacturer,
nor attach anything to or remove anything from the Leased Proprietary Equipment.
413
<PAGE>
5.2.5 In accordance with the terms of the Maintenance Agreement, the
Operator will not allow any repairs to the TCS-1 or replacement of parts to be
done by any person or persons except technicians authorized by the Manufacturer.
5.2.6 The Operator agrees that, in consideration of the Manufacturer
entering into this Lease, it will not move the TCS-1 System, of which the Leased
Proprietary Equipment forms a part, to any location outside of the state in
which the Site is located or outside of a fifty (50) mile radius of the Site,
without the prior written consent of the Manufacturer.
6. SITE PREPARATION
6.1 Site Plan Specifications
Within thirty (30) days of execution of this Agreement, the Manufacturer
will furnish to the Operator "Site Plan Specifications" respecting the
electrical, ventilation, water supply and disposal, and any other specifications
required at the site for the installation and operation of the TCS-1 System.
6.2 Preparation of Site
6.2.1 Prior to the Delivery and installation of the TCS-1 System, the
Operator shall make, at its own expense, all alterations to and changes in its
premises and equipment required to bring the site into complete conformance with
the above referenced Site Plan Specifications, with respect to which the
Operator shall obtain all necessary permissions and inspections, and which shall
include but not be limited to making any required structural changes and the
installation of:
(a) electrical equipment and power lines up to the electrical inputs or
control boxes attached to the TCS-1 System, as designated on the
Site Plan Specifications;
(b) water supply sources and equipment up to the water inflow points
designated on the Site Plan Specifications;
(c) water drainage and disposal sites and equipment from the water
outflow points designated on the Site Plan Specifications;
(d) air ventilation sources and equipment as designated on the Site Plan
Specifications
6.3 Notice to Inspect
6.3.1 The Operator shall, not later than one month prior to the
anticipated Delivery Date, give written notice to the Manufacturer (the "Notice
to Inspect") that: (i ) preparation of the site for the installation and
operation of the TCS-1 has been completed in accordance with the Site Plan
Specifications and (ii) all applicable governmental regulations have been
complied with and all required permits, licenses, and standards have been
obtained or met (together with copies of all documentary evidence thereof) and
request that the Manufacturer inspect the site in order to confirm the
foregoing.
414
<PAGE>
6.4 Manufacturer's Right to Inspect Site
6.4.1 The Manufacturer shall have the right, at any time within two weeks
of its receipt of the Notice to Inspect, to inspect the site and notify the
Operator in writing (the "Notice of Approval") that the Site is in conformance
with the Site Plan Specifications and that all legal requirements have been met.
6.4.2 In the event that, after inspecting the Site, the Manufacturer
determines that the Site is not in conformance with the Site Plan Specifications
or that any legal requirements have not been met, then the Manufacturer shall
have the right to require that the Operator make any and all changes or
additions required to bring the Site into such conformance, at the sole expense
of the Operator prior to the Delivery Date and to reschedule the Delivery Date
after all such changes or additions are completed and/or all legal requirements
are complied with. In such event, the Operator shall, upon completion of the
required changes or additions, give written notice to the Manufacturer ("Notice
to Re-inspect") that such changes or additions have been made in accordance with
the Manufacturer's instructions or governmental regulations and that the Site is
in complete conformance with the Site Plan Specifications and all applicable
regulations. The Manufacturer shall have the right, within two weeks of its
receipt of such Notice to reinspect the Site. Such procedures may be repeated,
and the Manufacturer shall have no obligation to deliver the TCS-1 System, until
the Manufacturer confirms upon inspection that the Site is in conformance with
the Site Plan Specifications, all governmental regulations are complied with,
and the Delivery Date is rescheduled in accordance with this Paragraph 6.4.2.
7. DELIVERY AND INSTALLATION
7.1 Delivery
7.1.1 If, by a date not later than fifteen business days prior to the
Anticipated Delivery Date, the Site is in conformance with the Site Plan
Specifications and all legal requirements have been met in accordance with
Section 6.4, above, then the Manufacturer shall deliver the TCS-1 System to the
Site on or before the Anticipated Delivery Date set forth in Paragraph 1.2,
above.
7.1.2 In the event that the Operator shall not meet the requirements of
Paragraph 7.1.1, above, for delivery not later than the Anticipated Delivery
Date, then, within ten business days of the date when the Site Plan
Specifications and all legal requirements have been met, the Manufacturer shall
reschedule a new delivery date, which new delivery date shall not be later than
fourteen months from the date of such rescheduling.
7.1.3 Delivery shall be made F.O.B. Montreal, Canada. The equipment
comprising the TCS-1 System shall be placed in suitably protected containers the
nature of which shall be determined by the Manufacturer. The Operator shall pay
all costs of transportation and delivery of the TCS-1 System from the
Manufacturer's plant in Montreal to the Site.
7.1.4 In the event that delivery of the TCS-1 System, or any part thereof,
for a period not exceeding sixty (60) days, shall be prevented by causes beyond
the control of the Seller,
415
<PAGE>
including but not limited to acts of God, labor troubles, failure of essential
means of transportation, or changes in policy with respect to exports or
otherwise by the government of the jurisdiction in which the Operator is
located, the Delivery Date shall be rescheduled after all of such causes have
been eliminated. In the event, however, that such nondelivery continues after
such extended period, the Operator and the Manufacturer shall each have the
right to cancel this agreement by written notice, and in such case there shall
be no obligation or liability on the part of either party with respect to such
undelivered equipment.
7.2 Installation
7.2.1 Within 5 days of the delivery of the TCS-1 System to the Site, the
Manufacturer shall, at its own expense, commence installation of the TCS-1
System at the Site.
7.2.2 Upon installation, the TCS-1 System shall be in complete working
order and shall consist of the Nonproprietary Equipment and the Purchased
Equipment, as specified in the plans and specifications set forth in Schedules
1.3,1.6 (b), and 1.8 hereto.
7.2.3 All equipment and labor required for installation shall be provided
by the Operator. The Manufacturer will provide to the Operator, not less than
two weeks prior to delivery, a list of all requirements necessary for
installation.
8. EQUIPMENT TESTING AND OPERATOR'S ACCEPTANCE
8.1 Notice of Availability for Testing
Upon completion of the installation of the TCS-1 System at the Site, the
Manufacturer shall give the Operator written notice that the TCS-1 System is
available for testing operations.
8.2 Test Period
8.2.1 Immediately upon giving notice to the Operator that the TCS-1 System
is available for testing operations, the Manufacturer shall, within ten business
days, at its own expense, provide a technical representative to supervise the
operation of the TCS-1 for a period of three (3) days (the "Test Period").
During the Test Period, the TCS-1 System shall operate in accordance with the
specifications set forth in Schedule 8.2 hereto, continually for 22 hours per
day.
8.2.2 All power, fuel, light, water, oil, or other necessary supplies and
all necessary personnel (other than the engineering technician furnished by the
Manufacturer) for the successful operation of the TCS-1 System, shall be
provided by the Operator.
8.2.3 The Manufacturer shall furnish to the Operator all data regarding
the TCS-1 System in order to enable the Operator to operate such System and, in
addition to the training to be provided pursuant to the Maintenance Agreement,
the Manufacturer shall, during the Test Period, instruct at least 2 of the
Operator's employees with respect to the operation, and operating
416
<PAGE>
maintenance of the TCS-1 System, and use reasonable care in training such
employee, provided that if in the Manufacturer's sole opinion any employee is
not adequately qualified, the Operator shall designate another of its employees
to receive such instruction.
8.3 Acceptance
8.3.1 Unless the TCS-1, or any part of it, fails to operate in accordance
with the specifications set forth in Schedule 8.2 hereto, the Manufacturer's
offer to sell the NonLeased Proprietary Equipment and to lease the Leased
Proprietary Equipment to the Operator shall automatically be deemed to have been
accepted by the Operator as of the Acceptance Date, which shall occur on the
first day following the completion of the Test Period and the Operator shall
have no right to revoke such acceptance for any reason.
8.3.2 If the TCS-1, or any part of it, fails to operate in accordance with
the specifications set forth in Schedule 8.2 hereto, the Manufacturer shall have
30 days in which to cure the problems responsible for such failure. Costs of all
parts and labor required to bring the TCS-1 into full working condition shall be
borne by the Manufacture unless the failure to operate in accordance with the
specifications set forth in Schedule 8.2. shall have been caused by any act or
failure to act on the part of the Operator or its personnel, including but not
limited to the failure of the Operator to have brought the Site into conformance
with the Site Plan Specifications.
8.3.3 Upon written notice to the Operator that the problems which caused
the TCS-1 System to fail to operate as required during the Test Period have been
cured, the Manufacturer shall, at the request of the Operator, commence a second
Test Period for up to three (3) days, in which case the acceptance criteria of
Paragraph 8.2.1 shall pertain to such second Test Period (or any subsequent Test
Period) with the same force and effect as to the initial Test Period.
9. RISK OF LOSS
9.1 The risk of loss, injury, or destruction of the Leased Proprietary
Equipment from any cause whatsoever, except negligence or willful destruction by
the Operator shall be borne by the Manufacturer during the term of the Lease
therefor provided hereunder.
9.2 The risk of loss, injury, or destruction of the NonLeased Proprietary
Equipment from any cause whatsoever, except negligence or willful destruction by
the Operator shall be borne by the Manufacturer only until title passes to the
Operator.
9.3 Any loss, injury, or destruction to the TCS-1, or any part of it,
after title to the Nonproprietary Equipment passes to the Operator, shall not
serve in any manner to release the Operator from the obligation to pay the Rent
Payments provided for Section 4.3, above.
10. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE
MANUFACTURER
The Manufacturer hereby represents, warrants, and covenants to the
Operator, as follows:
417
<PAGE>
10.1 Corporate Status
The Tirex Corporation is (i) duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) has full
power to own all of its properties and carry on its business; and (iii) is
qualified to do business as a foreign entity in each of the jurisdictions in
which it operates, if any, unless the character of the properties owned by it or
the nature of the business transacted by it, does not make qualification
necessary in any other jurisdiction or jurisdictions.
10.2 Corporate Action
Prior to the date hereof, the board of directors of the Manufacturer has
duly adopted resolutions approving the execution and delivery to the
Manufacturer of this Agreement and authorizing and consenting to each and every
one of the terms, warranties, representations, covenants and conditions herein
contained.
10.3 Patents
10.3.1 The Manufacturer has applied for a patent in the United States and
Canada for the Disintegration System forming part of the Leased Proprietary
Equipment. On October 23, 1997, the said patent application was allowed by the
United States Patent Office. Upon payment of certain fees, the patent will
therefore be issued. The Manufacturer is the sole owner of such patent
application and, upon the issuance of a patent in respect thereof, the
Manufacturer shall be the sole owner of such patent and of all rights
thereunder.
10.3.2 The Manufacturer shall defend, to the best of its ability and at
its own expense, all actions, suits, or proceedings instituted against the
Operator insofar as the same are based on any claims that the said Leased
Proprietary Equipment, or any part thereof, constitutes an infringement of any
patent of the United States or Canada and shall indemnify the Operator against
all damages, costs, and expenses which the Operator may incur as a result of any
action which may be brought or threatened against the Operator with respect to
the equipment covered by such patent, provided that:
(a) The Manufacturer shall have the right at any time or from time to
time to modify the TCS-1 System in a manner which will not lessen
the utility thereof;
(b) The Operator gives the Manufacturer immediate notice in writing of
the institution of the action, suit, or proceeding and permits the
Manufacturer, through its counsel, to defend same, and gives the
Manufacturer all information, assistance, and authority to enable
the Manufacturer to do; and
(c) The Operator has made no change of any kind in the TCS-1 System
without obtaining the prior written permission of the Manufacturer.
10.3.3 When information is brought to the attention of the Manufacturer or
the Operator that others are unlawfully infringing on the patents covering the
machine, the Manufacturer shall prosecute diligently any infringer at the
Manufacturer's own expense.
418
<PAGE>
10.4 Warranties
Subject to any default on the part of the Operator under the Maintenance
Agreement, the Manufacturer warrants that the TCS-1 will conform to the
descriptions contained in Schedules 1.3, 1.6 (b), and 1.8. The Manufacturer
further warrants the TCS-1 System against defects in workmanship and materials
or failure to perform in accordance with the specifications set forth in
Schedule 8.2 for one year after the Acceptance Date. No other representations or
warranties have been made by the Manufacturer or relied upon by the Buyer. If
any defects in the Manufacturer's work or materials are discovered within one
year of delivery the Operator shall give notice within seven (7) days of such
discovery. THIS WARRANTY IS EXPRESSLY IN LIEU OF ANY AND ALL OTHER WARRANTIES.
11. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE OPERATOR
The Operator hereby represents, warrants, and covenants to the
Manufacturer, as follows:
11.1 Corporate Status of 750824 Alberta Ltd.
The Operator is (i) a duly organized corporation, validly existing and in
good standing under the laws of the Province of Alberta; (ii) has full power to
own all of its properties and carry on its business; and (iii) is qualified to
do business as a foreign entity in each of the jurisdictions in which it
operates, if any, unless the character of the properties owned by it or the
nature of the business transacted by it, does not make qualification necessary
in any other jurisdiction or jurisdictions.
11.2 Financial Condition of the Operator
The books and records of the Operator are complete and accurate and fairly
present the financial condition and the results of operations of the Operator as
of the date hereof. There are no material liabilities, either fixed or
contingent, not reflected in such books and records other than contracts or
obligations in the ordinary and usual course of business; and no such contracts
or obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the financial
condition of the Operator as reflected in such books and records.
11.3 Defaults and Conflicts
There are no defaults on the part of the Operator under any contract,
lease, mortgage, pledge, credit agreement, title retention agreement, security
agreement, lien, encumbrance or any other commitment, contract, agreement or
undertaking to which the Operator is a party. The execution of this Agreement
will not violate or breach any material agreement, contract, or commitment to
which the Operator is a party.
11.4 Corporate Action
419
<PAGE>
Prior to the date hereof, the Board of Directors of the Operator has duly
adopted resolutions approving the execution and delivery to the Manufacturer of
this Agreement and authorizing and consenting to each and every one of the
terms, warranties, representations, covenants and conditions herein contained.
11.6 Insurance and Damage to Equipment
11.6.1 The Operator, at its own cost and expense, shall insure the Leased
Proprietary Equipment against burglary, theft, fire, and vandalism in the amount
of $500,000, or such other amount that the parties shall agree is required for
replacement costs, and obtain public liability insurance with minimum limits of
$500,000 per occurrence and $1,000,000 collectively, for bodily injury and for
property damage in such form and with such insurance companies as shall be
satisfactory to the Manufacturer. All insurance policies shall name both the
Operator and the Manufacturer as insured parties and copies of the policies and
the receipts for the payment of premiums shall be furnished to the Manufacturer.
Each damage policy shall provide for payment of all losses directly to the
Manufacturer. Each liability policy shall provide that all losses be paid on
behalf of the Operator and the Manufacturer, as their respective interests
appear.
11.6.2 In the event that the Operator shall fail to comply with the
provisions of Paragraph 11.6.1, above, then the Operator shall pay to the
Manufacturer an adequate premium in advance per annum to enable the Manufacturer
to insure the Leased Proprietary Equipment and all such insurance policies shall
be held in the custody of the Manufacturer.
11.6.3 In the event that all or any part of the TCS-1 System is damaged,
due to any cause whatsoever, to the extent that the TCS-1 System is not useable,
notwithstanding that the Manufacturer may have been partially or fully
compensated for the Leased Proprietary Equipment forming part of such damaged
TCS-1 System by way of insurance or otherwise, the Manufacturer shall
immediately have possession of the said Leased Proprietary Equipment and the
Manufacturer may enter upon the premises where the TCS-1 System is located,
remove the Leased Proprietary Equipment from the damaged TCS-1 System and take
possession of the said Leased Proprietary Equipment without previous demand or
notice and without legal process, and remove it from the Operator's premises at
the Manufacturer's expense.
11.7 Access
The Operator shall insure that the Manufacturer, and its agents and
employees, shall at all times have free access to the Operator's premises for
the purpose of inspecting the Leased Proprietary Equipment and observing its use
and operation, and making alterations, improvements, or additions thereto; and
the Operator shall afford all reasonable facilities therefor, and shall allow
the Manufacturer to make such reasonable alterations, improvements, or additions
as the Manufacturer shall deem necessary, at the expense of the Manufacturer.
11.8 Taxes
420
<PAGE>
The Operator shall pay all taxes, assessments, penalties, and fees which
may be levied or assessed on or with respect to the installation of the TCS-1
System and, at all times during the term of the Lease of the Leased Proprietary
Equipment, the Operator shall pay all taxes and assessments which may be levied
upon or in respect of the TCS-1 System or its operation, and shall pay any other
liability of any character which may be imposed or incurred as an incident to
the physical possession or operation of such System.
11.9 Compliance with Applicable Law
The Operator shall provide, at its own expense, all requisite permits and
licenses necessary for the installation and operation of the TCS-1 System at the
Site and shall exercise its best efforts to maintain its compliance with all
applicable federal, state, and local laws, statutes, rules, and regulations and,
in the event of any non-compliance which renders impossible the operation of the
Site as a tire recycling facility, the Operator shall exercise its best efforts
to cure such non-compliance promptly.
11.10 Subordination
Not less than three (3) months prior to the anticipated Delivery Date, the
Operator shall procure from every owner, landlord, mortgagee, or other secured
party having any interest in the real property on which the TCS-1 System is to
be installed or in the Operator's place of business or the equipment therein,
and deliver to the Manufacturer, a written consent to such installation and a
writing to the effect that the lien of any such mortgage or other interest is
subordinate to the rights of the Manufacturer with respect to the Leased
Proprietary Equipment.
11.11 Ancillary Agreements
11.11.1 The Operator will, simultaneously with the execution of this
Agreement, and in consideration of the premises and the mutual promises and
agreements made herein, enter into the following agreements with the
Manufacturer or such person, corporation, firm, partnership, or other entity as
the Manufacturer shall appoint in its stead:
(a) The Royalty Agreement, of even date herewith, between the
Manufacturer and the Operator providing for the Operator to pay to
the Manufacturer a royalty of three percent (3%) of the gross
proceeds from the sale by the Operator of rubber crumb fiber and
steel from scrap tires disintegrated by the Operator through the
utilization of the TCS-1 System, a copy of which Royalty Agreement
is attached as Schedule 11.11.1(a) hereto; and
(b) Rubber Crumb Purchase Agreement, attached as Schedule 11.11.1(b) to
this Agreement.
11.11.2 In addition, the Operator will, at such time during the term of
the Lease as the Manufacturer shall request, in further consideration of the
premises and the mutual promises and agreements made herein, enter into a
Maintenance and Technical and Market Support Agreement
421
<PAGE>
with the Manufacturer and/or such person, corporation, firm, partnership, or
other entity as the manufacturer shall appoint as its "Service Provider, with
respect to the maintenance of the TCS-1 System and certain technical and market
support services to be provided to the Operator. The terms of the Maintenance
and Technical and Market Support Agreement, which have not yet been finalized,
will require the Manufacturer or Service Provider, during the initial five-year
term of the Lease, except as required for Routine Maintenance Procedures, 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. The Manufacturer and the
Service Provider will also provide additional technical and market support,
including: (i) Pre-Operational Support respecting 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) installation support with
respect to all Site requirements and installation and testing of the System in
accordance with the requirements of the Lease and all applicable federal, state,
and local regulations; (iii) Laboratory Testing Facilities and Services with
respect to the testing and monitoring of the quality and properties of the
rubber crumb produced by the TCS-1 System, including but not limited to: (A)
total production rates (B) the comparative percentages of various crumb rubber
mesh sizes produced, and (C) 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; (iv)
testing and monitoring, on a continuing basis, oil samples from the System so as
to ascertain and monitor the wear factors on the bearings and on other
components of the System and recording and maintaining all test data and records
for the System; (v) creating and developing new products and uses for rubber
crumb produced by the TCS-1 System; and (v) accounting and record keeping
services. The monthly fee under the Maintenance and Technical and Market Support
Agreement will be nine thousand five hundred United States dollars (US $9,500)
per month.
12. DEFAULTS
12.1 Default by Manufacturer
12.1.1 Each of the following events shall be deemed to constitute breach
of this Agreement and, unless cured within ninety (90) days, shall constitute a
default hereunder by the Manufacturer:
(a) If at any time prior to the delivery of the TCS-1 System to the
Site:
(i) The Manufacturer makes an assignment for the benefit of
creditors;
(ii) A voluntary or involuntary petition is filed by or against the
Manufacturer under any law having for its purpose and
adjudication of the Manufacturer a bankrupt or the extension
of the time of
422
<PAGE>
payment of, adjustment of, or other arrangement affecting the
liabilities of the Manufacturer, or the reorganization of the
Manufacturer and such petition is not discharged or dismissed
within one hundred twenty (120) days after such petition is
filed;
(iii) A Receiver is appointed for the property of the Manufacturer
and is not discharged or dismissed within one hundred twenty
(120) days after such appointment;
or
(iv) Any distress, execution, or attachment is levied upon the
Manufacturer's property to the extent that the Manufacturer is
not able to fulfill its obligations to deliver the TCS-1
within ninety (90) of the anticipated Deliver Date.
(b) The Manufacturer fails to deliver the TCS-1 System in accordance
with the terms and provisions of Section 7, above, within ninety
(90) days of the Delivery Date unless prior thereto, the Operator
has failed to meet the payment provisions set forth above in Section
3.3 of this Agreement;
(c) The TCS-1 System fails to operate for a full Test (or re-test)
Period, in accordance with Section 8.2 hereof, as specified Schedule
8.2 hereto , within ninety (90) days from the date the TCS-1 System
is actually delivered to the Site.
12.2 Default by Operator
Each of the following events shall be deemed to constitute breach of this
Agreement and, unless cured within ninety (90) days, shall constitute a default
hereunder by the Operator:
(a) The Operator fails to make any payment required to be made pursuant
to Sections 3.3 or 4.3 of this Agreement or any payment required to
be made by the Operator under the Maintenance Agreement and such
failure to make payment shall have continued for a period of ten
(10) days after written notice from the Manufacturer;
(b) The Operator refuses to accept or allow the Manufacturer to install
or test the TCS-1 System in accordance with Sections 7.2, 8.2, and
8.3 of this Agreement, notwithstanding that such System has been:
(i) delivered to the Operator's Site on a timely basis or (ii)
delivered to the Site and has performed in accordance with the
specifications set forth in Schedule 8.2 hereof for the prescribed
Test Period;
(c) The Operator makes an assignment for the benefit of creditors;
(d) A voluntary or involuntary petition is filed by or against the
Operator under any law having for its purpose and adjudication of
the Operator a bankrupt or the extension of the time of payment of,
adjustment of, or other arrangement affecting
423
<PAGE>
the liabilities of the Operator, or the reorganization of the
Operator and such petition is not discharged or dismissed within one
hundred twenty (120) days after such petition is filed;
(e) A Receiver is appointed for the property of the Operator;
(f) Any distress, execution, or attachment is levied upon the machines
or the Operator's property; or
(g) The Operator fails to faithfully and fully comply with the terms and
provisions of Section 5.2 of this Agreement, with any such failure
deemed to be an irremediable material breach of this Agreement
immediately upon its occurrence.
(h) The Operator fails to faithfully and fully perform each of its
obligations under the Maintenance Agreement and fails to cure such
breach within the time period specified therein with respect to such
failure.
12.3 Remedies Available to the Operator upon Default by Manufacturer
If the Manufacture shall be in default pursuant to Paragraphs 12.1.1 (a),
(b), or (c) of this Agreement, unless such default shall have been caused by any
act or failure to act on the part of the Operator or its personnel, including
but not limited to the failure of the Operator to have brought the Site into
conformance with the Site Plan Specifications, the Operator shall have the right
to rescind this agreement by serving written notice ("Notice of Rescission")
upon the Manufacturer. In such event, the Manufacturer shall, at its own
expense, remove the TCS-1 System not later than forty-five (45) days following
its receipt of such Notice of Rescission and all monies theretofore paid by the
Operator to the Manufacturer pursuant to Section 4.3, above, shall be returned
by the Manufacturer to the Operator.
12.4 Remedies Available to the Manufacturer upon Default by the Operator
12.4.1 The Operator acknowledges and agrees that its breach of any
provision contained in Section 5.2 of this Agreement will cause irreparable harm
to the Manufacturer. The Operator therefore agrees that, if it is alleged by the
Manufacturer that the Operator or any of the Operator's affiliates, agents,
employees, or associates has breached, or is attempting or threatening to
breach, any provision contained hereinabove in the said Section 5.2, then the
Manufacturer shall have the right to obtain from any court or arbitrator having
jurisdiction, such equitable relief as may be appropriate, including a decree
enjoining the Operator from any further such breach of such provisions, and
enjoining the Operator from engaging in the tire recycling business, either
directly or indirectly through or in association with any other person, firm,
corporation, or organization during the term of this Agreement.
424
<PAGE>
12.4.2 In the event of any default by the Operator under this Agreement,
the Manufacturer may at its option, at any time thereafter terminate this
Agreement by written notice ("Notice of Termination"), given in Accordance with
Section 16 hereof. such termination may be made effective, at the option of the
Manufacturer, simultaneously with or at any time after the happening of any such
default.
12.4.3 Upon any termination of this Agreement prior to payment in full of
the entire Purchase Price of US $2,250,000 for Purchased Equipment, in
accordance with the terms of Section 3.3 of this Agreement, the Manufacturer
shall immediately have possession of the entire TCS-1 System, and the
Manufacturer may enter upon the premises where the said TCS-1 System is located,
take possession of it without previous demand or notice and without legal
process, and remove it from the Operator's premises at the Operator's expense.
12.4.4 Upon any termination of this Agreement after payment in full of the
entire Purchase Price of US $ 2,250,000 for the Purchased Equipment has been
made by the Operator, the Manufacturer shall immediately have possession of the
Leased Proprietary Equipment and the Manufacturer may enter upon the premises
where the TCS-1 System is located, remove the Leased Proprietary Equipment from
the said TCS-1 System and take possession of the Leased Proprietary Equipment
without previous demand or notice and without legal process, and remove it from
the Operator's premises at the Operator's expense.
12.4.5 The Operator acknowledges and agrees that any refusal on its part
to permit the Manufacturer to enter its premises and remove either the TCS-1
System or the Leased Proprietary Equipment in accordance with Paragraph 12.4.3
or 12.4.4 of this Agreement will cause irreparable harm to the Manufacturer. The
Operator therefore agrees that in the event of any such refusal on its part, the
Manufacturer shall have the right to obtain from any court or arbitrator having
jurisdiction, such equitable relief as may be appropriate, including a decree
enjoining the Operator from any further such refusal of entry and removal.
12.4.6 In the event of any default by the Operator prior to the Acceptance
Date, the Manufacturer shall be entitled to damages including but not limited to
retention of the full deposit paid by the Operator and all costs of delivering
and removing and re-delivering the TCS- 1 System.
12.4.7 In the event of any default by the Operator after the Acceptance
Date or pursuant to Paragraph 12.2(b) of this Agreement, the Manufacturer shall
be entitled to damages including but not limited to retention of the full
deposit paid by the Operator, all costs of delivering and removing and
re-delivering the TCS-1 System, and damages for the Operator's failure to
perform for the full term of the Lease provided in Section 4.2 of this
Agreement, including but not limited to immediate payment of the balance of all
Rent Payments due under the full term of the Lease,
12.4.8 In the event of any default on the part of the Operator pursuant to
Paragraphs 12.2(a) or 12.2(b) of this Agreement, the Manufacturer shall have the
right to allow the Operator, for a period of sixty (60) days, to obtain a buyer
for the TCS-1 System, satisfactory to the Manufacture, provided however that,
unless specifically waived in writing by the Manufacturer, the Operator shall
continue liable under this Agreement lease for the full term of the Lease
provided for in Section 4.2 of this Agreement.
425
<PAGE>
12.4.9 In the event of any default on the part of the Operator, the
Manufacturer shall not be deemed to have waived any of its rights hereunder by
reason of its failure to assert its rights or its failure to take cognizance of
such breach.
12.4.10 The foregoing remedies provided herein for the benefit of the
Manufacturer shall not be exclusive but in addition to any other remedies the
Manufacturer may have by virtue of the breach by the Operator, in law or in
equity, from any court or arbitration proceeding having jurisdiction over such
matter.
13. OPERATOR'S SALE OF NONLEASED PROPRIETARY EQUIPMENT
13.1 Manufacturer's Right to Retrieve Leased Proprietary Equipment Prior to Sale
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer shall have all rights of entry and removal provided above in
Paragraphs 12.4.4 and 12.4.5 of this Agreement, provided however that in
addition to such rights, if such event shall occur during the term of the said
Lease, the Manufacturer shall also have the rights provided to it in Paragraph
12.4.7 of this Agreement.
13.2 Manufacturer's Right of First Refusal
In the event that, during or after the term of the Lease provided in
Section 4.2 of this Agreement, the Operator wishes to divest itself of the TCS-1
System, pursuant to the discontinuance of its business, or otherwise, the
Operator will give to the Manufacturer written notice to that effect and the
Manufacturer will have a right of first refusal to repurchase the TCS- 1 System,
at its fair market value, within a thirty-day period following the
Manufacturer's receipt of such notice;
14. ASSIGNMENT
The Operator shall not transfer, deliver, sublease, or encumber the Leased
Proprietary Equipment to any person, corporation, or firm, and the Lease
provided in Section 4.2 of this Agreement may not be assigned by the Operator
except with the Manufacturer's express prior written consent.
15. FAILURE OF PERFORMANCE
426
<PAGE>
Delays in or failure of performance occasioned by war, fire, flood,
embargo, car shortage, accident, explosion, expropriation of plant or product by
federal or state authority, or other like cause beyond the control of the
Manufacturer, or Act of God, or by strike, lockout, or other labor trouble, or
inability to obtain sufficient labor interfering with the production or
transportation of the TCS-1 System, or any part thereof, or any replacement
therefor, whether because of governmental action affecting the Manufacturer or
its suppliers, or by any action or proceeding at law or in equity, or otherwise,
shall not subject the Manufacturer to any liability.
16. NOTICES
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.
17. CONDITIONS PRECEDENT TO MANUFACTURER'S OBLIGATION
The obligations of the Manufacturer hereunder are subject to fulfillment,
prior to the Deliver Date, of the following conditions:
17.1 Truth of Representation
The representations and warranties by or on behalf of Operator contained
in this Agreement or in any document delivered to the Manufacturer pursuant to
the provisions hereof shall be true in all material respects at and as of the
Delivery Date as though such representations and warranties were made at and as
of such time.
17.2 Compliance with Covenants
The Operator shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by or prior to the Delivery Date.
17.3 Collateral Agreements
Simultaneously with the execution of this Agreement, the Operator will:
427
<PAGE>
(a) enter into the following agreements with the Manufacturer or any
joint venture to which the Manufacturer is a party:
(i) the Royalty Agreement, attached as Schedule 11.11.1(a) to this
Agreement; and
(ii) the Rubber Crumb Purchase Agreement, attached as Schedule
11.11.1(b) to this Agreement.
(b) furnish the Manufacturer with a copy of the resolutions of the board
of directors of the Operator authorizing the Operator to purchase
the NonLeased Proprietary Equipment and lease the Leased Proprietary
Equipment pursuant to the terms and conditions of this Agreement;
17.4 Financing Arrangements
The Operator will deliver to the Manufacturer, not less than one hundred
(100) days prior to the anticipated Delivery Date, to confirm the Delivery Date,
an irrevocable commitment for lease or letter of credit financing, which
commitment shall be:
(a) for the full amount of the Purchase Price of the Nonproprietary
Equipment then outstanding;
(b) subject only to the conditions that the TCS-1 will consist of
Equipment specified in, and will operate in conformance with,
Schedules 1.3, 1.6 (b), and 1.8, and respectively.
18. ARBITRATION
All controversies arising out of or relating to this Agreement, or any
modification thereof, shall be settled by arbitration in New York City, pursuant
to the rules then obtaining of the American Arbitration Association.
19. BINDING EFFECT.
19.1 This agreement shall bind and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns,
provided, however, that this Agreement cannot be assigned by the Operator except
in accordance with Section 14 of this Agreement. Nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm or corporation other than the parties hereto and their respective legal
428
<PAGE>
representatives, successors and assigns any rights or benefits under or by
reason of this Agreement.
19.2 All the right, title, and interest of the Manufacturer under the
Lease may be enforced by the Manufacturer, its successors, and assigns. The
Lease shall continue in full force and effect notwithstanding the death,
incapacity, or dissolution of the Operator or the increase, decrease, or change
in the personnel of or members of the Operator, and shall be binding upon the
Operator and the Operator's estate, legal representatives, heirs, and
successors.
21. GENERAL
21.1 Further Assurances
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
21.2 Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
21.3 Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
21.4 Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
21.5 Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
21.6 Entire Agreement
This Agreement is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof.
429
<PAGE>
21.7 Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
21.8 Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
21.9 Counterparts
This Agreement 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 Agreement.
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
-----------------------------------
Terence C. Byrne, President
750824 ALBERTA LTD.
By /s/ Michael Supple
----------------------------------
Michael Supple, President
430
<PAGE>
THE TIREX CORPORATION
----------
ROYALTY AGREEMENT
----------
Royalty Agreement, made this day of December 1997, between:
Enviropower Industries Inc.
1509 Centre Street SW
Calgary, Alberta
Canada T2G 2E6
(the "Operator")
and
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
(the "Manufacturer")
Whereas, the Manufacturer and the Operator are parties to a certain
equipment lease and purchase agreement, of even date herewith (the "Equipment
Lease and Purchase Agreement"), between the Manufacturer and the Operator
respecting the sale by the Manufacturer and the Purchase by the Operator of the
"Proprietary Front-End System", the "Nonproprietary Equipment"(collectively, the
"Purchased Equipment") and the operating lease, between the Manufacturer, as
lessor, and the Operator, as lessee, respecting the "Leased Proprietary
Equipment", as those terms are defined in the said Equipment Lease and Purchase
Agreement.
Whereas, in consideration for the premises and the mutual promises made
therein, the Operator has agreed, pursuant to the Equipment Lease and Purchase
Agreement, to enter into this Royalty Agreement with the Manufacturer whereby
the Operator will pay to the Manufacturer certain royalties calculated upon the
gross proceeds from all sales of rubber crumb, fiber and steel from scrap tires
disintegrated by the TCS-1 System which is the subject of the said Equipment
Lease and Purchase Agreement (the "Subject TCS-1 System").
Now, Therefore, it is agreed as follows:
1. Definitions
1.1 "Manufacturer" shall mean The Tirex Corporation and Tirex-Canada Inc.,
and all other corporations, partnerships, or other entities, now or in the
future controlled by, under common control with, or in control of, The Tirex
Corporation, jointly and severally.
431
<PAGE>
1.2 "Operator" shall mean Enviropower Industries, a corporation existing
under the laws of the Province of Alberta, and all other corporations,
partnerships, or other entities, now or in the future controlled by, under
common control with, or in control of, Enviropower Industries, jointly and
severally.
1.3 All other Capitalized terms used herein and not otherwise defined
shall have the respective meanings attributed thereto in the Equipment Lease and
Purchase Agreement.
2. Royalty Fee
2.1 The Operator shall pay to the Manufacturer, not more than fifteen (15)
days after the end of each month, a royalty fee equal to three percent (3%) of
the gross proceeds from all sales of rubber crumb, fiber, and steel from scrap
tires disintegrated by the Subject TCS-1 System (the "Royalty Fee").
2.2 For purposes of this Royalty Agreement, the term "gross proceeds"
shall mean all revenues from the sale of rubber crumb, fiber and steel from
scrap tires disintegrated by the Subject TCS-1 System.
3. Payment Periods
Royalty Fees shall be reported and paid by the Operator to the
Manufacturer every month from the Acceptance Date throughout the life of the
Subject TCS-1 System.
4. Royalty Reports
The Operator shall prepare royalty reports ("Royalty Reports"), to be
delivered by the Operator to the Manufacturer, together with the Royalty Fee due
thereunder, covering the immediately preceding "Reporting Periods", in the
following manner:
The initial Reporting Period shall be the Reporting Period in which the
Acceptance Date falls. For example, if the Acceptance Date is
September 15, 1997, the initial Reporting Period is the two-week
period which commenced on September 15, 1997 and ended on September
30, 1997, and the Royalty Report and Royalty Fee for such "Reporting
Period" is due on October 15, 1997.
(b) Each Royalty Report shall disclose the gross revenues from all sales
of steel, fiber, and rubber crumb produced by the operation of the
Subject TCS-1 System and the amount of the Royalty Fee calculated
upon the gross proceeds therefrom.
5. Inspection of Books
432
<PAGE>
Upon written request, the Manufacturer or his designated agent may examine
the books and records of the Operator insofar as they relate to this Royalty
Agreement. Such examination shall take place at the offices of the Operator.
6. Assignment
6.1 This Royalty Agreement may not be assigned by the Operator except as
part of the assignment of the Equipment Lease and Purchase Agreement, which may
only be assigned pursuant to the express written consent of the Manufacturer,
and any such assignment shall not relieve the Operator of its liabilities
hereunder unless expressly waived in writing by the Manufacturer.
6.2 This Royalty Agreement may be transferred, assigned, pledged, or
hypothecated by the Manufacture as part of the sale of its business or
otherwise.
7. Notices
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.
8. Binding Effect.
8.1 This Royalty Agreement shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
assigns, provided, however, that this Royalty Agreement cannot be assigned by
the Operator except in accordance with Section 6.1 hereof. Nothing herein
expressed or implied is intended or shall be construed to confer upon or to give
any person, firm or corporation other than the parties hereto and their
respective legal representatives, successors and assigns any rights or benefits
under or by reason of this Royalty Agreement.
8.2 All the right, title, and interest of the Manufacturer under this
Royalty Agreement may be enforced by the Manufacturer, its successors, and
assigns. This Royalty Agreement shall continue in full force and effect
notwithstanding the death, incapacity, or dissolution of the Operator or the
increase, decrease, or change in the personnel of or members of the Operator,
and shall be binding upon the Operator and the Operator's estate, legal
representatives, heirs, and successors.
9. Further Assurances
433
<PAGE>
At any time, and from time to time, after the execution of this Agreement,
each party will execute such additional instruments and take such action as may
be reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
10. Waiver
Any failure on the part of any party hereto to comply with any of its
obligations, agreements or conditions hereunder may be waived in writing by the
party to whom such compliance is owed.
11. Brokers
Neither party has employed any brokers or finders with regard to this
Agreement, unless otherwise described in writing to all parties hereto.
12. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. Governing Law
This Agreement shall be governed by the laws of the State of Delaware.
14. Entire Agreement
This Agreement and the premises and mutual promises in the Equipment Lease
and Purchase Agreement constitute the entire agreement of the parties covering
everything agreed upon or understood with respect to the Royalty Fees. There are
no oral promises, conditions, representations, understandings, interpretations
or terms of any kind as conditions or inducements to the execution hereof.
15. Severability
If any part of this Agreement is deemed to be unenforceable the balance of
this Agreement shall remain in full force and effect.
16. Publicity
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be subject to the prior
approval of counsel to the Manufacturer.
17. Counterparts
434
<PAGE>
This Agreement 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 Agreement.
In Witness Whereof, the parties hereto have caused this Royalty Agreement
to be executed the day and year first above written.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
--------------------------------
Terence C. Byrne, President
ENVIROPOWER INDUSTRIES INC.
By /s/ Michael Supple
--------------------------------
Michael Supple, President
435
EXHIBIT 10 (yy)
436
<PAGE>
----------
TIREX AMERICA INC.
EUROPEAN MARKET DEVELOPMENT
CONSULTING AGREEMENT
----------
Consulting Agreement, executed this 29th day of May, 1997 to be effective
as of January 15, 1997 between Tirex America Inc., a Delaware corporation (the
"Corporation") with offices located at 3767 Thimens, Ville St. Laurent, Quebec,
Canada H4R 1W4 and Alan Crossley, Gran Via de Hortaleza 82A, 1*B, 28043 Madrid,
Spain (the "Consultant").
Whereas, the Consultant has expertise and substantial business and
marketing experience and contacts in Spain, Portugal, and other parts of Europe
as well as in India, which can be important to the Corporation.
Whereas, the Corporation wishes to assure itself of the consulting
services of the Consultant for the period provided in this Agreement, and the
Consultant is willing to provide such 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
European Market Development Consultant to the Corporation for the two-year
period commencing as of January 15, 1997 and ending on December 31, 1998 (the
"Engagement Period").
2. Consulting Services
The services to be rendered by the Consultant shall consist of advice and
opinions to the Corporation concerning, and the undertaking and effectuation of
activities necessary to establish and develop 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 market
development studies for the Iberian Peninsular and India. All such services are
to be performed only upon direct authorization from the Corporation and may be
performed by the Consultant directly or indirectly through GAPCO, SI, a market
research firm controlled by the Consultant ("GAPCO"). The Consultant shall have
the sole discretion as to the form, manner,
437
<PAGE>
and place in which the said consulting services shall be rendered. The
Consultant shall not, by this agreement, be prevented or 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, firms or corporations other than
the Corporation.
3. Compensation
For all services to be rendered hereunder by the Consultant during the
Engagement Period, the Consultant shall receive the following compensation:
(a) an annual salary of $75,000 (Canadian), commencing as of July 1,
1997;
(b) an expense allowance for the entire term of this Consulting
Agreement of up to $115,000 (Canadian);
(c) upon completion and delivery by GAPCO of a market development study
for the Iberian Peninsular, receipt of which is hereby acknowledged,
$40,000 (Canadian), which may be paid by the Company in cash or in
unregistered common stock of the Company, at a value of $.17 per
share, or a combination thereof.
(d) upon completion and delivery by GAPCO of a market development study
for the India Peninsular, receipt of which is hereby acknowledged,
$40,000 (Canadian), which may be paid by the Company in cash or in
unregistered common stock of the Company, at a value of $.17 per
share, or a combination thereof.
4. Secrets
The 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
hereafter 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.
438
<PAGE>
5. Non-Competition
During the 2 years following the termination of this Agreement, the
Consultant will not provide consulting services either as a consultant or as an
employee, either directly or otherwise to any business which is, or is preparing
or intending to be, in competition with the Corporation or to any business if
the provision of such consulting services would constitute or result in a
conflict of interest on the part of the Consultant with respect to his duties
and obligations hereunder.
6. Assignment
6.1 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 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.
the 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.
6.2 This Agreement is personal to the Consultant and may not be assigned
by him.
7. Entire Understanding
This 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 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.
Notwithstanding the foregoing, the parties agree that certain provisions of this
Agreement may be changed or amended for the purpose of accommodating tax
considerations of the parties without affecting the basic terms and conditions
of this Agreement.
8. Survival of Certain Agreements
439
<PAGE>
The covenants and agreements set forth in Articles 4 and 5, 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:
Tirex America Inc.
3767 Thimens, Suite 207
Ville St. Laurent
Quebec, Canada H4R 1W4
9.3 Any notice to the Consultant shall be addressed as follows:
Mr. Alan Crossley
Gran Via de Hortaleza 82A, 1oB
28043 Madrid, Spain
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.
440
<PAGE>
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.
Tirex America Inc.
By /s/ Terence C. Byrne
-----------------------------------
Terence C. Byrne, President
/s/ Alan Crossley
-----------------------------------
Alan Crossley
441
EXHIBIT 10 (zz)
442
<PAGE>
----------
THE TIREX CORPORATION
----------
MANAGING DIRECTOR
OF
EUROPEAN MARKET DEVELOPMENT
----------
CONTRACTUAL EMPLOYMENT AGREEMENT
Contractual Employment Agreement, executed this 1st day of July, 1997 to
be effective retroactively as of January 15, 1997 between The Tirex Corporation,
a Delaware corporation ("Tirex") with offices located at 740 St. Maurice, Suite
201 Montreal, Quebec, Canada H3C 1L5 and Alan Crossley, Gran Via de Hortaleza
82A, 1*B, 28043 Madrid, Spain ("Crossley"). For purposes of this Agreement, the
term "Tirex" shall mean The Tirex Corporation and 3143619 Canada Inc. (known and
doing business as "Tirex Canada Inc."), and all other corporations,
partnerships, or other entities, now or in the future controlled by, under
common control with, or in control of, The Tirex Corporation, jointly and
severally.
Whereas, Tirex is in the business of developing, manufacturing, and
distributing cryogenic scrap tire disintegration equipment and processes (the
"TCS-1 System") for the recovery of rubber crumb, wire and fiber from scrap
tires and wishes to launch the sale of its products and services in the markets
of the European Union.
Whereas, Crossley has expertise and substantial business and marketing
experience and contacts in the European market as well as in various other areas
in Asia and the Middle East, which can be important to Tirex.
Whereas, Tirex wishes to assure itself of the marketing services of
Crossley for the period provided in this Agreement, and Crossley is willing to
provide such services to Tirex 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:
443
<PAGE>
1. Term and Employment
1.1 Tirex agrees to and does hereby engage Crossley, and Crossley agrees
to and does hereby accept engagement by Tirex as Managing Director of European
Market Development for the one-year period, which commenced on January 15, 1997
(the "Engagement Period").
1.2 The terms of this Agreement shall be automatically extended for two
successive one-year periods, ("Extension Periods") unless, not later than 30
days prior to the end of the Engagement Period or the then current Extension
Period, either party shall give written notice to the other that such party does
not wish the term of this Agreement to be extended beyond the current Engagement
or Extension Period on the terms then in effect.
1.3 This Agreement cancels and replaces the European Market Development
Consulting Agreement (the "Consulting Agreement"), entered into by the parties
hereto on May 29, 1997, retroactively effective to January 15, 1997.
Notwithstanding the foregoing, the said Consulting Agreement shall remain in
effect with respect to all matters pertaining to certain market studies for the
Iberian Peninsular and India, which were heretofore conducted by GAPCO, Inc., a
corporation under the control of Crossley, and the compensation paid therefor by
Tirex, receipt of which is hereby acknowledged by Crossley.
2. Duties
2.1 Crossley shall be responsible for undertaking and effecting activities
necessary to establish and develop markets for the TCS-1 System and for the
crumb rubber which will be produced by the operation of the TCS-1 System
throughout the European Economic Union, India, Pakistan, Saudi Arabia (the
"Territory"), and such other areas as the parties may, from time to time,
mutually agree. Such activities shall include, but not be limited to, the
following:
(a) setting up the appropriate corporate structure and organization for
importing and distributing the TCS-1 System and crumb rubber into
and throughout the Territory;
(b) establishing and managing a network of TCS-1 System distributors and
crumb rubber brokers in the Territory;
(c) arranging importation and installation of TCS-1 Systems and
providing customer support as required to ensure effective
installation and maintenance of all TCS-1 Systems in the Territory;
(d) providing after-sales support to customers;
(e) serving as a liaison with Tirex in North America on matters of
interest to Tirex, including but not limited to technical
developments in the use of crumb rubber;
444
<PAGE>
(f) representing Tirex's interests in any other activities which Tirex
may, from time to time, undertake in the Territory, including local
manufacturing and trading in crumb rubber.
2.2 Tirex will, at all times during the Engagement Period:
(a) provide Crossley with appropriate support, including product
specifications, sales literature, and all other necessary and
available sales materials; and
(b) ensure that all members of Tirex's technical staff in the Territory
are fully trained and able to provide effective after sales services
to customers.
All such services are to be performed only upon direct authorization from
Tirex and must be performed by Crossley directly.
3. Compensation
3.1 For all services to be rendered hereunder by Crossley during the
Engagement Period, Crossley shall receive the following compensation:
(a) a salary, payable monthly, at the annual rate of $75,000 (Canadian)
commencing as of July 1, 1997.
(b) a sales commission of eight percent (8%) of the purchase price of
all sales of TCS-1 Systems within the Territory which shall be
payable, on a pro-rata basis, within two weeks of receipt by Tirex
of payments therefor, provided however that Tirex shall deduct, from
the amount of any sales commissions due under this Paragraph, all
salary payments made or payable to Crossley pursuant to sub
paragraph 3.1(a), above.
3.2 In the event that this Agreement is terminated by Tirex prior to the
end of the Engagement Period or any Extension Period, pursuant to Tirex's notice
that it does not wish to extend this Agreement, as provided in Paragraph 1.2
above, and Crossley gives written notice to Tirex, within 30 days of his receipt
of such notice, that he objects to the termination of this Agreement, then the
8% sales commission provided under subparagraph 3.1(b), above, shall be payable
to Crossley on all sales of the TCS-1 System in the Territory for a period of
two years following such termination.
3.3 In the event that, from time to time, Tirex shall not have the
financial resources to pay the salary provided for above, then, the Tirex's
obligation to pay such salary will be satisfied by the issuance to Crossley of
shares of the common stock of the Company ("Compensation Shares"), which shares
shall constitute compensation pursuant to the terms of this Agreement. All
Compensation Shares will be issued to Crossley at a value equal to fifty percent
445
<PAGE>
(50%) of the average of the high and low bid prices of Tirex America's common
stock as traded in the over-the-counter market and quoted in the NASDAQ
Electronic Bulletin Board during the period when such Compensation Shares were
earned.
4. Reimbursement of Expenses
During the Engagement Period, Tirex shall reimburse Crossley for properly
documented expenses paid by him on behalf, or for the account, of Tirex in the
course of carrying out his duties hereunder. Such reimbursements shall not be
made for any expenses other than those listed below and the amount reimbursed
for any permitted category of expense shall not exceed the following:
Office rent $20,000
Office and marketing assistant 25,000
Advertising and publicity 20,000
Multi-lingual translation of product
information (excluding both English & French) 15,000
Legal costs 10,000
Travel to potential clients 15,000
Attendance at trade shows 10,000
5. Termination
This Agreement may be terminated at any time prior to the end of the
Engagement Period or any Extension Period, by mutual written Agreement of the
parties and pursuant to the following:
5.1 For Cause. The Company may terminate the Employee's employment at any
time "for cause" with immediate effect upon delivering written notice to the
Employee. For purposes of this Agreement, "for cause" shall include: (a)
embezzlement, theft, larceny, material fraud, or other acts of dishonesty; (b)
material violation by employee of any of his obligations under this Agreement;
(c) conviction of or entrance of a plea of guilty or nolo contendere to a felony
or other crime which has or may have a material adverse effect on the Employee's
ability to carry out his duties under this Agreement or upon the reputation of
the Company; (d) conduct involving moral turpitude; (e) gross insubordination or
repeated insubordination after written warning by the President of the Company;
or (f) material and continuing failure by the Employee to perform the duties
described in Section 2 above in a quality and professional manner for at least
thirty (30) days after written warning by the Board of Directors or the
President of the Company. Upon termination for cause, the Company's sole and
exclusive obligation will be to pay the Employee his compensation earned through
the date of termination, and the Employee shall not be entitled to any
compensation after the date of termination.
5.2 Upon Death. In the event of the Employee's death during the term of
the this Agreement, the Company's sole and exclusive obligation will be to pay
to the Employee's
446
<PAGE>
spouse, if living, or to his estate, if his spouse is not then living, the
Employee's compensation earned through the date of death.
5.3 Upon Disability. The Company may terminate the Employee's employment
upon the Employee's total disability. The Employee shall be deemed to be totally
disabled if he is unable to perform his duties under this Agreement by reason of
mental or physical illness or accident for a period of three consecutive months.
Upon termination by reason of the Employee's disability, the Company's sole and
exclusive obligation will be to pay the Employee his compensation earned through
the date of termination.
6. Secrets
Crossley agrees that any trade secrets or any other like information of
value relating to the business and/or field of interest of Tirex or any of its
affiliates, or of any corporation or other legal entity in which Tirex 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 Tirex or any of its affiliates or which he may hereafter 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 Crossley and his personnel, if
any, in a fiduciary capacity solely for the benefit of Tirex, 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 Crossley
and his personnel, if any, to anyone, or be otherwise used by them, except in
the regular course of business of Tirex 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 Tirex or any of its affiliates.
7. Non-Competition
Unless this Agreement is terminated by Tirex prior to the end of the
Engagement Period or any Extension Period, without cause and over the objections
of Crossley, during the two years following the termination of this Agreement,
Crossley will not provide consulting services either as a consultant or as an
employee, either directly or otherwise to any business which is, or is preparing
or intending to be, in competition with Tirex.
8. Assignment
447
<PAGE>
8.1 This Agreement may be assigned by Tirex as part of the sale of
substantially all of its business; provided, however, that the purchaser shall
expressly assume all obligations of Tirex under this Agreement. Further, this
Agreement may be assigned by Tirex to an affiliate, provided that any such
affiliate shall expressly assume all obligations of Tirex under this Agreement,
and provided further that Tirex shall then fully guarantee the performance of
the Agreement by such affiliate. Crossley 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.
8.2 This Agreement is personal to Crossley and may not be assigned by him.
9. Entire Understanding
This 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 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.
Notwithstanding the foregoing, the parties agree that certain provisions of this
Agreement may be changed or amended for the purpose of accommodating tax
considerations of the parties without affecting the basic terms and conditions
of this Agreement.
10. Survival of Certain Agreements
The covenants and agreements set forth in Articles 4 and 5, hereof, shall
survive the expiration of the Engagement Period and shall survive termination of
this Agreement and remain in full force and effect.
11. Notices
11.1 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.
11.2 Any notice to Tirex or to any assignee of Tirex shall be addressed as
follows:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
448
<PAGE>
Canada H3C 1L5
11.3 Any notice to Crossley shall be addressed as follows:
Mr. Alan Crossley
Gran Via de Hortaleza 82A, 1oB
28043 Madrid, Spain
11.4 Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
12. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
13. 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.
14. Prior Agreements
Subject to the provisions of Paragraph 1.3, this Agreement supersedes and
cancels any and all prior agreements, whether written or oral, between the
parties.
15. Arbitration
In the event of any dispute among the parties hereto with respect to this
Agreement, the matters at issue will be submitted to the International Chamber
of Commerce in Geneva for arbitration, and the findings of the latter will be
binding on both parties.
In Witness Whereof, the parties hereto have executed the above Agreement
as of the day and year first above written.
449
<PAGE>
The Tirex Corporation
By /s/ Terence C. Byrne
----------------------------------
Terence C. Byrne, President
/s/ Alan Crossley
----------------------------------
Alan Crossley
450
EXHIBIT 10 (aaa)
451
<PAGE>
THE TIREX CORPORATION
----------
PROMISSORY NOTE
----------
$102,000 (US)
January 23, 1998
Montreal, Quebec
FOR VALUE RECEIVED, The Tirex Corporation, 740 St. Maurice, Suite 201,
Montreal, Quebec Canada H3C 1L5 (the "Maker"), promises to pay to the order of
Terence C. Byrne, 489 Grosvner Street, Westmount, Quebec Canada H3Y 2S5 (the
"Payee"), the principal sum of one hundred and two thousand United States
dollars (US $102,000) on the first to occur of: (i) thirty days from the date
hereof; (ii) the Maker's receipt from either or both of the private placements,
which it is currently effecting through H.J. Meyers & Co., Inc., as placement
agent (the "Private Placements"), proceeds in the amount of $100,000 over and
above the first $401,000 in proceeds therefrom; or (iii) proceeds from any other
equity financing provided that the total amount of proceeds from the Private
Placements and such other equity financing shall exceed, in the aggregate, the
sum of $500,000 (US), at the offices of the Payee, together with interest on the
unpaid principal balance at the annual rate of 7%, unless prepaid at the Maker's
election.
Payment of all sums hereunder shall be made in lawful money of the United
States of America. This Note shall be paid without claim of setoff, counterclaim
or deduction of any nature or for any cause whatsoever. A certificate from the
Payee of this Note shall be prima facie proof of the principal balance due
hereunder.
Payment of this Note shall be applied, first, to any charges arising out
of an event of default hereunder, second, to payment of all interest accrued,
and last, to the reduction of the unpaid principal balance hereunder.
If this Note shall be in default, then commencing as at the date of such
default, the whole sum of principal and interest shall become due immediately at
the option of the holder. Default shall include, but not be limited to, the
failure of the Maker to pay the interest or principal when due. In the event of
default in the payment of this Note in accordance with its terms, a charge, in
addition to continuing interest, at the rate of 5% per month, shall be made on
the full amount due an unpaid under this Note, commencing as at the date of such
default, until payment of all sums due hereunder shall have been paid in full.
Notwithstanding anything herein to the contrary, the maximum aggregate amount
and rate of interest payable hereunder, including the default charges as
hereinabove provided, shall in no event exceed the maximum amount and rate of
such interest and charges permitted by law, whereby, in such event, this note
shall be deemed revised and modified accordingly so as to provide in the
452
<PAGE>
aggregate for the maximum amount permitted by, and so as otherwise to comply in
all respects with, such law. Failure at any time to exercise any of the rights
and remedies of the Payee hereunder shall not constitute a waiver thereof, nor
shall it be a bar to Payee's exercising any other rights and remedies at that
time, or at a later time.
Subject to the above, if any one or more of the provisions of this Note
shall, for any reason, be held to be invalid, illegal or unenforceable, in whole
or in part, or in any respect, or if any one or more of the provisions of this
Note would operate to invalidate this Note, then, in any such event, such
provision or provisions shall only be deemed null and void and shall not affect
any other provision of this Note, and the remaining provisions of this Note
shall remain operative and in full force and effect, and in no way shall be
affected, prejudiced or disturbed thereby. This Note is delivered in and shall
be construed under the laws of the Province of Quebec.
The Maker shall be responsible for and pay forthwith all costs relating to
this Note which shall include but not be limited to reasonable legal, loan
processing, collection, administrative and closing costs.
THE TIREX CORPORATION
By /s/ Louis V. Muro
--------------------------------------
Louis V. Muro, Vice President of
Engineering and Member
of the Executive Committee
of the Board of Directors
453
EXHIBIT 10 (bbb)
454
<PAGE>
THE TIREX CORPORATION
----------
SECURED PROMISSORY NOTE
----------
U.S. $150,000
October 27, 1998
St.Helier, Jersey, Chanel Islands
FOR VALUE RECEIVED, The Tirex Corporation, 740 St. Maurice, Suite 201,
Montreal, Quebec H3C 1L5 (the "Maker"), promises to pay, on or before July 26,
1999, to the order of Bartholomew International Investments Limited,
Investments, Ltd., P.O. Box 484, Basel House, 108 Halkett Place, St. Helier,
Jersey JE4 5SS, Chanel Islands (the "Payee"), the principal sum of one hundred
fifty thousand (US $150,000) dollars at the offices of the Payee, together with
interest on the unpaid principal balance at the annual rate of 2% over the Prime
Rate charged by The Bank of Montreal as at such date, unless prepaid at the
Payee's election.
Payment of all sums hereunder shall be made in lawful money of the United
States of America, which payment shall be applied first to payment of accrued
interest and then to the reduction of the unpaid principal balance hereunder. A
certificate from the Payee of this Note shall be prima facie proof of the
principal balance due hereunder.
Upon default, the whole sum of principal and interest shall become due
immediately at the option of the holder. Default shall include, but not be
limited to, the failure of the Maker to pay the interest or principal when due.
Failure at any time to exercise any of the rights and remedies of the Payee
hereunder shall not constitute a waiver thereof, nor shall it be a bar to
Payee's exercising any other rights and remedies at that time, or at a later
time.
This Note is secured by the Maker's agreement, which is given hereby, that
in the event that the principal amount of this note and all unpaid interest
accrued thereon is not theretofore paid, the Maker shall issue to the Payee a
total of 500,000 unregistered shares of the Maker's common stock $.001 per share
(the "Collateral Shares"), as follows:
Failure to Pay By: Number of Shares To Be Issued
------------------ -----------------------------
January 26, 1999 166,666
April 26, 1999 166,666
July 26, 1999 166,667
455
<PAGE>
If any one or more of the provisions of this Note shall, for any reason,
be held to be invalid, illegal or unenforceable, in whole or in part, or in any
respect, or if any one or more of the provisions of this Note would operate to
invalidate this Note, then, in any such event, such provision or provisions
shall only be deemed null and void and shall not affect any other provision of
this Note, and the remaining provisions of this Note shall remain operative and
in full force and effect, and in no way shall be affected, prejudiced or
disturbed thereby. This Note shall be construed under the laws of the State of
Delaware.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
----------------------------------
Terence C. Byrne, President
456
EXHIBIT 10 (ccc)
457
<PAGE>
THE TIREX CORPORATION
----------
RELEASE AND INVESTMENT LETTER
----------
THIS RELEASE AND INVESTMENT AGREEMENT is given this 2nd day of December,
1998, by:
Bartholomew International Investments Limited
and
Terence C. Byrne
(hereafter referred to collectively as the "Releasors");
To:
The Tirex Corporation (hereafter referred to as the "Releasee")
RELEASE
Whereas, the Releasee is indebted to the Releasors in the aggregate amount
of $164,000 (the "Indebtedness"), consisting of: (i) $14,000 lent by Mr. Byrne
to the Releasee on or about November 30, 1998 pursuant to the Releasee's
promissory note which bore interest at an annual rate of 2% over the Bank of
Montreal's Prime Rate and which was due and payable on demand by Mr. Byrne; and
(ii) $150,000 lent by Bartholomew International Investments Limited on or about
October 27, 1998 pursuant to the Releasee's secured promissory note which bore
interest at an annual rate of 2% over the Bank of Montreal's Prime Rate and
which was due and payable on July 26, 1998.
Whereas, as part of the Releasee's negotiations to obtain short term bank
debt financing, the Releasors' have agreed to forego any interest on, and
repayment in cash of, the Indebtedness and to accept in full satisfaction of
such Indebtedness, unregistered shares of the Releasee's common stock valued at
fifty percent (50%) of the average of the high ask and low bid prices of such
stock, as traded in the over-the-counter market and quoted in the OTC Electronic
Bulletin Board on December 1, 1998 and release the Releasee from all liabilities
arising out the said Indebtedness and the Releasee has accepted such offer;
Whereas, in effectuation of the foregoing on December 2, 1998, the
Releasee authorized the issuance of a total of 2,523,077 shares of the
Releasee's unregistered common stock to Bartholomew.
458
<PAGE>
Now, therefore, in consideration of the premises set forth above and
intending to be legally bound hereby, the Releasors do hereby remise, release,
discharge, indemnify and hold harmless the Releasee, and each shareholder,
officer, director and employee of the Releasee, of and from all manner of
actions and causes of action, suits, debts, dues, accounts, bonds, wages,
benefits, covenants, contracts, agreements, judgments, claims and demands
whatsoever in law or in equity, and including without limitation all such
actions, claims and demands, etc. arising out of, being based upon, or being in
any way connected with or related to the Indebtedness.
In Witness Whereof, the Releasors intending to be legally bound hereby,
have caused this Release to be executed the day and year first above written.
Bartholomew International Investments Limited
By_________________________________
/s/ Terence C. Byrne
-----------------------------------
Terence C. Byrne
INVESTMENT AGREEMENT
This Investment Agreement is being executed and delivered to The Tirex
Corporation, referred to herein and in the Release set forth above, as the
"Releasee" by Terence C. Byrne and Bartholomew International Investments
Limited, referred to herein and in the Release set forth above, as the
"Releasors", in connection with the Releasors' acceptance in full satisfaction
of the one hundred-sixty-four thousand dollar (US $164,000) debt, which is owed
by the Releasee to the Releasors and which is referred to herein and in the
Release set forth above, as the "Indebtedness", an aggregate of 2,523,077 shares
of the common stock, $.001 par value (the "Shares") of the Releasee valued at
fifty percent (50%) of the average of the high ask and low bid prices of such
stock, as traded in the over-the-counter market and quoted in the OTC Electronic
Bulletin Board on December 1, 1998 in consideration of the Releasor's execution
of the above Release.
The Releasors acknowledge that the Releasee has advised them that the
Shares are not being registered under the Securities Act of 1933, as amended
(the "Act"), on the basis of the statutory exemption in Section 4(2) and on the
representations made by the them herein.
The Releasors hereby represent to the Releasee that they are acquiring the
Shares for investment for their own accounts and not with a view to the resale
or distribution thereof, and that they does not intend to divide their
participation with others or to resell or otherwise dispose of all or any part
of the Shares unless and until they are subsequently registered under the Act,
459
<PAGE>
or an exemption from such registration is available. In making these
representations, the Releasors understand that, in the view of the Securities
and Exchange Commission (the "Commission"), the statutory exemption referred to
above would not be available, if notwithstanding their representations, they had
in mind merely acquiring the Shares for resale upon the occurrence or
nonoccurrence of some pre-determined event.
The Releasors hereby accept the condition that before any transfer of the
Shares may be made by them, written approval must first be obtained from counsel
to the Releasee. The basis of such approval, which shall not be unreasonably
withheld, shall be compliance with requirements of the federal and state
statutes regulating securities. The Releasors understand that a legend to this
effect will be placed on the certificate or certificates representing the
Shares, and stop-transfer instructions to the Releasee's transfer agent will be
issued by the Releasee
The Releasors understand that the Shares must be held indefinitely until
registered under the Act, or an exemption from such registration is available.
In the event Rule 144 of the Commission hereafter becomes applicable to the
Shares, the Releasors understand that any routine sale of the Shares made
thereunder can be made only in limited amounts in accordance with the terms and
conditions of that Rule and that in case that Rule is not applicable, compliance
with Regulation A or some other disclosure exemption will be required. The
Releasors understand that the Releasee has no obligation to register the Shares
or to comply with Regulation A or any other exemption. However, the Releasee
shall supply them with any information necessary to enable him to make routine
sales of the Shares under Rule 144, if applicable.
The Releasors acknowledge that the Releasee has, during its negotiations
with them, furnished them with such financial and other data relating to the
Releasee and its business which they considered necessary or advisable to enable
them to form a decision concerning their acceptance of the shares in full
satisfaction of the monies owed to them in respect of the Indebtedness.
Bartholomew International Investments Limited
By_________________________________
/s/ Terence C. Byrne
-----------------------------------
Terence C. Byrne
460
EXHIBIT 10 (ddd)
461
<PAGE>
PROMISSORY NOTE
$14,000
November 30, 1998
Montreal, Quebec
FOR VALUE RECEIVED, The Tirex Corporation, 740 St. Maurice, Montreal,
Quebec, H3C 1L5 (the "Maker"), promises to pay, on demand, to the order of
Terence C. Byrne, 489 Grosvner Street, Westmount, Quebec, H3Y 2S5 (the "Payee"),
the principal sum of fourteen thousand United States dollars (US $14,000) at the
offices of the Payee, together with interest on the unpaid principal balance at
the annual rate of 2% over the Prime Rate charged by Citibank, NA as at such
date, unless prepaid at the Maker's election.
Payment of all sums hereunder shall be made in lawful money of the United
States of America, or the equivalent amount exchangeable for Canadian dollars,
which payment shall be applied first to payment of accrued interest and then to
the reduction of the unpaid principal balance hereunder. A certificate from the
Payee of this Note shall be prima facie proof of the principal balance due
hereunder.
Upon default, the whole sum of principal and interest shall become due
immediately at the option of the holder. Default shall include, but not be
limited to, the failure of the Maker to pay the interest or principal when due.
Failure at any time to exercise any of the rights and remedies of the Payee
hereunder shall not constitute a waiver thereof, nor shall it be a bar to
Payee's exercising any other rights and remedies at that time, or at a later
time.
If any one or more of the provisions of this Note shall, for any reason,
be held to be invalid, illegal or unenforceable, in whole or in part, or in any
respect, or if any one or more of the provisions of this Note would operate to
invalidate this Note, then, in any such event, such provision or provisions
shall only be deemed null and void and shall not affect any other provision of
this Note, and the remaining provisions of this Note shall remain operative and
in full force and effect, and in no way shall be affected, prejudiced or
disturbed thereby. This Note shall be construed under the laws of the State of
Delaware.
The Tirex Corporation
By /s/ Terence C. Byrne
--------------------------------
Terence C. Byrne, President
462
EXHIBIT 10 (eee)
463
<PAGE>
PROMISSORY NOTE
$70,405.31
April 8, 1998
Toms River, New Jersey
FOR VALUE RECEIVED, Louis V. Sanzaro, 1497 Lakewood Road, Toms River, New
Jersey 08755 (the "Maker"), promises to pay, on or before September 5, 1998, to
the order of The Tirex Corporation, 740 St. Maurice, Suite 201, Montreal, Quebec
H3C 1L5 (the "Payee"), the principal sum of seventy thousand, four hundred five
dollars and thirty-one cents (US $70,405.31) at the offices of the Payee,
together with interest on the unpaid principal balance at the annual rate of 8%
over the Prime Rate charged by Citibank, NA as at such date, unless prepaid at
the Payee's election.
Payment of all sums hereunder shall be made in lawful money of the United
States of America, which payment shall be applied first to payment of accrued
interest and then to the reduction of the unpaid principal balance hereunder. A
certificate from the Payee of this Note shall be prima facie proof of the
principal balance due hereunder.
Upon default, the whole sum of principal and interest shall become due
immediately at the option of the holder. Default shall include, but not be
limited to, the failure of the Maker to pay the interest or principal when due.
Failure at any time to exercise any of the rights and remedies of the Payee
hereunder shall not constitute a waiver thereof, nor shall it be a bar to
Payee's exercising any other rights and remedies at that time, or at a later
time.
This Note is secured by a security and pledge agreement, of even date
herewith, between the Maker and Payee (the "Security Agreement") pursuant to
which Maker has granted Payee a security interest in a certain stock certificate
representing 400,000 shares of the common stock of the Maker to be issued
forthwith to the Payee ("Collateral"). In the event of default by the Maker of
its obligations under this Note, the Payee shall have any and all rights
respecting the Collateral as set forth in the said Security Agreement.
If any one or more of the provisions of this Note shall, for any reason,
be held to be invalid, illegal or unenforceable, in whole or in part, or in any
respect, or if any one or more of the provisions of this Note would operate to
invalidate this Note, then, in any such event,
464
<PAGE>
such provision or provisions shall only be deemed null and void and shall not
affect any other provision of this Note, and the remaining provisions of this
Note shall remain operative and in full force and effect, and in no way shall be
affected, prejudiced or disturbed thereby. This Note shall be construed under
the laws of the State of Delaware.
/s/ Louis Sanzaro
----------------------------
Louis Sanzaro
465
EXHIBIT 10 (fff)
466
<PAGE>
----------
THE TIREX CORPORATION
SECURITY AND PLEDGE AGREEMENT
----------
This Security and Pledge Agreement (this "Agreement") is made this 8th day
of April by and between The Tirex Corporation, 740 St. Maurice, Suite 201
Montreal, Quebec H3C 1L5, ("Pledgee") and Louis Sanzaro, 1497 Lakewood Road,
Toms River, NJ 08755 (the "Pledgor") in connection with the Pledgee's loan of
$70,405.31 (the "Loan") granted by the Pledgee to the Pledgor contemporaneously
herewith pursuant to the Pledgee's secured promissory note, of even date
herewith, wherefore it is agreed:
1. Pledge
The Pledgor hereby assigns, by way of the duly endorsed, medallion
guaranteed stock power attached hereto, and hereby authorizes delivery by the
Pledgor's transfer agent to the Pledgee of a certificate (the "Certificate") to
be issued forthwith to the Pledgee pursuant to the terms of a certain consulting
agreement, dated January 28, 1998, by and between the Pledgee and the Pledgor,
which Certificate shall represent 400,000 shares of the common stock of the
Pledgee (the "Shares").
2. Term
The Pledgee shall hold the Shares as security to assure the repayment of
the Loan and such Shares shall remain so pledged until the said Loan is repaid
in full with interest.
3. Voting
At all meetings of shareholders for the election of directors, held at any
time while the Loan or any part thereof remains unpaid, such shares shall be
voted by the Pledgor.
4. Dividends
All dividends and other amounts hereafter declared on the Shares during
the term of this pledge shall be paid over to the Pledgor immediately upon
receipt.
467
<PAGE>
5. Adjustments
In the event that, during the term of this pledge, any share dividend,
reclassification, readjustment, or other change is declared or made in the
capital structure of the Pledgor, all new, substituted, or additional shares or
other securities , issued by reason of any such change shall be held by the
Pledgee under the terms of this agreement in the same manner as the Shares
originally pledged hereunder.
6. Redelivery of Pledge
Upon payment at or before maturity of the principal and interest of the
Loan, the Pledgee shall immediately redeliver the Shares and the stock power to
the Pledgor, and this agreement shall terminate.
7. Assignment
This Agreement may be assigned by the Pledgee as part of the sale of
substantially all of its business;
8. Notices
8.1 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.
8.2 Any notice to the Pledgee or to any assignee of the Pledgee shall be
addressed as follows:
The Tirex Corporation
740 St. Maurice, Suite 201
Montreal, Quebec
Canada H3C 1L5
8.3 Any notice to Pledgor shall be addressed as follows:
Louis Sanzaro
1497 Lakewood Road
Toms River, NJ 08755
8.4 Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
468
<PAGE>
9. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Delaware.
10. 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.
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, Pledgor
469
EXHIBIT 10 (ggg)
470
<PAGE>
----------
THE TIREX CORPORATION
----------
EXTENSION AND AMENDMENT
TO
PROMISSORY NOTE
Amendment, made this 5th day of September 1998, by and between:
The Tirex Corporation
740 St. Maurice
Montreal, Quebec, H3C 1L5
(the "Payee")
and
Louis V. Sanzaro
1497 Lakewood Road
Toms River NJ 08755
(the "Maker")
the Payee and the Maker, as designated above, on the promissory note of
the Maker, dated April 8, 1998, in the amount of $70,405.31 (the "Note"); Terms
used in this Amendment which are defined in the Note and not defined herein
shall have the same meaning herein as therein.
Whereas, the Maker is an officer and director of the Payee and in
connection therewith has consistently rendered services and substantial
financial assistance to the Payee, significantly above and beyond the scope of
his duties and responsibilities to the Payee and its shareholders, for which the
Maker has not received any compensation;
Whereas, in connection with the foregoing, the Payee is indebted to the
Maker, in an amount which may presently or in the future be in excess of the
amount of indebtedness of the Maker to the Payee under the Note;
Now therefore, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree to set forth herein an
extension and amendment to the Note, effective as of the date hereof, of the
Commencement Date, as follows:
A. EXTENSION
The maturity date of the Note is hereby extended to September 5, 1999 (the
"Extended Maturity Date"). No interest or principal under the Note is due or
payable until the said Extended Maturity Date.
471
<PAGE>
B. AMENDMENT
The Note is hereby amended so as to reduce the interest rate under the
Note from 8% over the prime rate charged by Citibank, NA (the "Prime Rate") to
2% over the said Prime Rate, from April 8, 1998 to the Maturity Date.
C. NO OTHER AMENDMENTS
Except as expressly provided in this Extension and Amendment, all of the
terms and conditions of the Note remain in full force and effect.
D. COUNTERPARTS
This Extension and 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
Extension and Amendment of the Note.
In Witness Whereof, the parties hereto have caused this Extension and
Amendment to be executed the day and year first above written.
THE TIREX CORPORATION
By /s/ Terence C. Byrne
----------------------------
Terence C. Byrne, President
/s/ Louis V. Sanzaro
----------------------------
Louis V. Sanzaro
472
EXHIBIT 10 (hhh)
473
<PAGE>
PROMISSORY NOTE
$30,000
Sept 9, 1997
Montreal, Quebec
FOR VALUE RECEIVED, Ocean Utility Contracting Co. Inc., 1497 Lakewood
Road, Toms River, New Jersey 08755 (the "Maker"), promises to pay, on demand, to
the order of The Tirex Corporation, 740 St. Maurice, Suite 201, Montreal, Quebec
H3C 1L5 (the "Payee"), the principal sum of thirty thousand United States
dollars (US $30,000) at the offices of the Payee, together with interest on the
unpaid principal balance at the annual rate of 2% over the Prime Rate charged by
Citibank, NA as at such date, unless prepaid at the Payee's election.
Payment of all sums hereunder shall be made in lawful money of the United
States of America, which payment shall be applied first to payment of accrued
interest and then to the reduction of the unpaid principal balance hereunder. A
certificate from the Payee of this Note shall be prima facie proof of the
principal balance due hereunder.
Upon default, the whole sum of principal and interest shall become due
immediately at the option of the holder. Default shall include, but not be
limited to, the failure of the Maker to pay the interest or principal when due.
Failure at any time to exercise any of the rights and remedies of the Payee
hereunder shall not constitute a waiver thereof, nor shall it be a bar to
Payee's exercising any other rights and remedies at that time, or at a later
time.
If any one or more of the provisions of this Note shall, for any reason,
be held to be invalid, illegal or unenforceable, in whole or in part, or in any
respect, or if any one or more of the provisions of this Note would operate to
invalidate this Note, then, in any such event, such provision or provisions
shall only be deemed null and void and shall not affect any other provision of
this Note, and the remaining provisions of this Note shall remain operative and
in full force and effect, and in no way shall be affected, prejudiced or
disturbed thereby. This Note shall be construed under the laws of the State of
Delaware.
Ocean Utility Contracting Co. Inc.
By /s/ Anthony Giordano
-----------------------------------
Anthony Giordano
474
EXHIBIT 10 (iii)
475
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
Letter of January 16, 1998 from the Societe de Developpement Industriel
du Quebec, known in English (but no longer used) as the Quebec
Industrial Development Society (QIDC), a corporation wholly-owned
by the Government of Quebec.
(Hereinafter, the Societe de developpement industriel du Quebec will be referred
to as QIDC)
CONFIDENTIAL January 16, 1998
Mr. Terence Byrne
President
3143619 Canada Inc.
740 St. Maurice
Suite 201
Montreal, Quebec
H3C 1L5
Subject: Offer of a loan guarantee
File: 49067
Dear Sir:
It is our pleasure to inform you that the QIDC has authorized a loan
guarantee in an amount up to $937,000 in favour of your company under the
Regulations of the Programme d'aide au financement des entreprises (*Assistance
Program for Financing of Enterprises) so as to finance refundable (*tax) credits
for scientific research and experimental development.
Accordingly, you will find attached two copies of an offer of a guarantee
which defines the terms and conditions. To accept this offer, you must return to
us, prior to February 16, 1998, one copy of said offer duly signed (*and) each
page should bear the initials of all of the signatories.
This must be accompanied by a certified copy of a resolution of your
enterprise (*company) authorizing a representative to accept the offer and to
sign all documents required to make it effective. To this end, we attach a draft
resolution which should be adopted by your enterprise.
In addition, you should include a cheque in the amount of $29,417.58
(*Canadian $) representing the payment of the guarantee fees ($18,740), of the
commitment commission ($9,370), of the Federal Goods and Services Tax
(*refundable sales tax) ($655.90) and the Quebec Sales Tax (*refundable sales
tax) ($651.68)
476
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
Also, you should enclose the duly signed annexes entitled "Autorisation
d'echange des renseignements avec Revenu Quebec" (*Authorization to Exchange
Information with Revenue Quebec - a document required by Quebec law for Revenue
Quebec to be allowed to divulge information to QIDC) and "Autorisation d'echange
des renseignements avec Revenu Canada" (*Authorization to Exchange Information
with Revenue Canada - a document required by federal law for Revenue Canada to
be allowed to divulge information to QIDC).
Once the fundamental conditions indicated in the Letter of Offer will have
been completed, QIDC will be able to issue to the lender a guarantee certificate
permitting the disbursement of an amount serving the finance the refundable tax
credits estimated for the fiscal year ending June 30, 1997.
For subsequent disbursements, you will find attached a form entitled
"Demande de mise en vigueur de la garantie" (*Request to Give Effect to the
Guarantee) which you should complete at the end of each financial year which is
subject to the present offer. Once this form will have been received, QIDC will
be able to issue a guarantee certificate to the lender permitting the
disbursement of the balance of the loan permitting the financing of the tax
credits for the year ending June 30, 1997 plus a portion of the loan serving to
finance the refundable tax credits estimated for the financial year ending June
30, 1998.
Please note that the disbursements of the loan cannot exceed 75% of the
amount of the refundable tax credits. To this effect, the lender should have
obtained a declaration by your company confirming the amount of scientific
research and experimental development expenses and the amount of the refundable
tax credits earned in the course of the period preceding this request for
disbursement.
During the entire term of this guarantee, we ask you to pay particular
attention to the commitments indicated in paragraphs 4.1.6 and 4.1.7 of the loan
guarantee offer.
If more information is required, we would ask you to contact the
undersigned.
Nous vous prions d'accepter, Monsieur, nos meilleurs salutations
(*standard closing sentence in French formal business correspondence for which
there is no equivalent in English and which has no effect on the content of the
letter or on its attachments)
Helene Payette
Portfolio Director
477
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
Technology Directorate
c.c. Bank of Montreal, 3300 Cote Vertu, St-Laurent, Quebec H4R 2B7
478
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
Letter of Offer of a Loan Guarantee dated January 16, 1998 from the Societe de
Developpement Industriel du Quebec, known in English (but no longer used) as the
Quebec Industrial Development Society (QIDC), a corporation wholly-owned by the
Government of Quebec.
(Hereinafter, the Societe de developpement industriel du Quebec will be referred
to as QIDC)
OFFER OF A LOAN GUARANTEE
File 49067
BY: QIDC, legal person, duly incorporated under the law of the Societe de
developpement industriel du Quebec (L.R.Q., c S-11.01), having its head
office at 1126 St-Louis Road, Sillery, Quebec, G1S 1E5, and having a place
of business at 770 Sherbrooke Street West, Montreal, Quebec, H3A 1G1,
hereinafter referred to as S.D.I. (*QIDC)
TO: 3143619 Canada Inc., legal person, duly incorporated, having its principal
place of business at 740 St. Maurice, Suite 201, Montreal, Quebec, H3C
1L5, hereinafter referred to as "the Enterprise" (* the Company)
1. LOAN GUARANTEE
1.1 QIDC offers to the company a guarantee, hereinafter referred to as
the "Guarantee", in the form of a security bond equal to 80% of the
net loss on a loan, to a maximum amount of $937,000 (*Canadian),
hereinafter referred to as the "Loan", approved by the Bank of
Montreal, hereinafter referred to as the "Lender", to the Company.
The Loan serves specifically to finance refundable tax credits for
scientific research and experimental development, as estimated by
QIDC, relative to the fiscal years of the Company ending June 30,
1997 and June 30, 1998, hereinafter referred to as the "Tax
Credits".
1.2 For purposes of the Guarantee, the net loss is defined as being the
sum of interest and capital of the Loan which are the object of a
guarantee certificate according to Article 3 of the present
(*offer), due and unpaid as of the date of the calling of the loan,
plus accumulated interest for a maximum period of three (3) months
from the date of the calling of the Loan, after deducting the net
proceeds of security offered as guarantee of the repayment of the
Loan, it being understood, however, that the accumulated interest as
of and since the calling of the Loan can never exceed, in the
calculation of the net loss, ten per cent (10%) of the balance of
capital of the Loan at the time it was called.
2. DURATION OF THE GUARANTEE
479
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
The Guarantee will become null and void between the Company and QIDC, the
latter being thus liberated from its obligations toward the Company with
respect to the Guarantee, as of the earliest of the following dates:
2.1 June 30, 2000
2.2 the date of total repayment of the Loan (including interest and all
accessory charges)
3. COMMITMENTS ESSENTIAL TO PUT THE GUARANTEE INTO EFFECT
3.1 Before putting the Guarantee into effect:
3.1.1 The Lender must have received from QIDC a loan guarantee
certificate, which will be delivered once the conditions
stipulated in sub-paragraphs 3.1.2 and following will have
been met to the satisfaction of QIDC; this guarantee
certificate will permit the Lender to disburse an amount
representing up to 80% of the portion of the Loan serving to
finance the refundable tax credits estimated for the first
financial year covered by the present offer.
3.1.2 The Company must have delivered to the Lender all security
required by the Lender for purposes of guaranteeing the
repayment of the amounts or obligations which are due to or
which might become due to the Lender by virtue of the Loan and
appearing in the "Declaration of the Lender", which is an
integral part of the "Request for Guarantee".
3.1.3 The Company must have signed a loan agreement with the Lender
containing notably:
3.1.3.1 An article to the effect that maximum amount of the
loan is $937,000 (*Canadian)
3.1.3.2 An article to the effect that the first disbursement
of the Loan (and all subsequent disbursements, as
the case may be) must definitely be used by the
Company for the payment of Deductions at Source due
and payable at the date of the first disbursement of
the Loan.
3.1.3.3 An article to the effect that, as of January 1,
1998, the payroll service of the Lender, or any
other recognized
480
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
payroll service within this field, will prepare the
payroll of the Company.
3.1.3.4 Articles to the effect that the Company must
reimburse the Lender that part of the Loan relative
to the Tax Credits at the earliest of the following
dates:
3.1.3.1.1 the date of filing of its Declaration of
Revenue (*Tax Returns) if there is, at
that moment, an offset against tax
credits receivable of income taxes
payable.
3.1.3.1.2 the date on which the Company was
supposed to file its Tax Returns if such
filing had not effectively been
undertaken.
3.1.3.1.3 the date of receipt of a refund from
competent authorities respecting Tax
Credits
3.1.3.1.4 the thirtieth (30th) day preceding the
expiry date of the Guarantee.
3.1.3.5 An article to the effect that the Company commits
itself to apply any cheque or any amount received
with respect to Tax Credits uniquely to the
reduction of the balance of the Loan, in default of
which, the Loan will become payable by the Company
within ten (10) days following such a default.
3.1.3.6 An article to the effect that the Loan will become
payable by the Company within ten (10) days of any
default or non-respect by the Company of its
commitments or obligations with respect to the
present offer or any amendment thereto, as the case
may be.
3.1.3.7 An article to the effect that the disbursements of
the Loan will not exceed 75% of the amount of the
refundable tax credits; to this effect, the Lender
must obtain from the Company, prior to each
disbursement of the Loan, a declaration confirming
to the Lender the amount of scientific research and
experimental development expenses as well as the
amount of refundable tax credits
481
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
earned in the course of the period preceding the
request for disbursement.
3.1.3.8 An article to the effect that a capital investment,
either in the form of share capital or interest-free
subordinated debt, in the Canadian dollar equivalent
as of the date of such capital investment to
US$503,000, be put into the Company, this being
understood that this capital investment will be at
least $700,000 Canadian.
3.2 Prior to each subsequent putting into effect of the Guarantee
3.2.1 The Company must transmit a "Demande de mise en vigueur de la
garantie" (*Request to Give Effect to the Guarantee) using the
form prescribed for this purpose, accompanied by an
Accountant's Report respecting the scientific research and
experimental development expenses prepared by the Company's
external auditors, or any other justification document
acceptable to QIDC, attesting to the amount of scientific
research and experimental development expenses incurred for
each of the fiscal years of the Company covered by the present
offer.
To the extent that QIDC is satisfied with the documents
referred to in 3.2.1, QIDC will issue in favour of the Lender
a guarantee certificate permitting the Lender to disburse the
balance of the Loan serving to finance the refundable tax
credits for the financial year concerned and, at the
discretion of QIDC, an amount representing up to 80% of the
Loan serving to finance the refundable tax credits for the
following fiscal year, as the case may be.
4. OBLIGATIONS OF THE COMPANY
4.1 From the date of acceptance of the present offer, and for the entire
duration of the Guarantee and until complete payment of any sum
which could become due to QIDC by the Company by virtue of the
present or by virtue of any guarantee certificate, the Company
commits itself to:
4.1.1 provide audited annual financial statements within ninety (90)
days of the end of the fiscal year, provide equally, upon
request, its semi-annual financial statements, the financial
statements of its subsidiaries and, as the case may be, its
consolidated financial statements or any other financial
statement required by QIDC, and this within the time delays
prescribed by QIDC;
482
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
4.1.2 transact on a commercial basis and at arm's length in its
commercial dealings with all persons;
4.1.3 to not provide loans or advances or any other form of
financial assistance to associated companies, within the
meaning of the Income Tax Act, nor to provide them with
investments, guarantees, nor effect with them transactions
outside of the normal course of business;
4.1.4 to neither liquidate nor dissolve itself without the prior
written consent of QIDC;
4.1.5 to inform QIDC and the Lender as received of any refund of Tax
Credits or as of when the Company will have become aware of
any compensation at source through the initiative of Revenue
Canada or Revenue Quebec or of any compensation through the
initiative of the Company;
4.1.6 to put into place and maintain an accounting system permitting
the identification by project of scientific research and
experimental development expenses;
4.1.7 to maintain a document system respecting scientific research
and experimental development projects and activities
acceptable to the fiscal authorities.
4.1.8 to provide to QIDC, upon written request by QIDC, and within
the time delays prescribed for such requests, any information
and any document which QIDC would judge useful and pertinent
to the application of the Guarantee, to the Tax Credits and to
the Reglement sur le Programme d'aide au financement des
entreprises (*Assistance Program for Financing of Enterprises
Regulation);
4.1.9 to provide to QIDC, as filed or as received, all tax returns,
all Notices of Assessment as well as all correspondence
related to refundable tax credits contemplated by the present
offer.
5. EVENTS OF DEFAULT
5.1 Notwithstanding any disposition to the contrary contained in the
present offer and even if the conditions have been respected, QIDC
reserves the right to annul any part of the Guarantee not put into
effect or to defer the putting into effect (*of the Guarantee), at
its discretion, and the Company commits itself to
483
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
reimburse upon demand the Loan plus interest, fees and accessory
costs in the following cases which constitute events of default.
5.1.1 if the Company, without having obtained the prior written
consent of QIDC, moves a substantial portion of its assets
outside of Quebec;
5.1.2 if the Company cedes its assets, is put under trusteeship
under the terms of the Bankruptcy and Insolvency Act
(L.R.C.(1985), Chapter B-3), makes a proposal to its creditors
or commits an act of bankruptcy under the terms of the said
law, or if the Company is under order to liquidate its assets
under the terms of the Law respecting the Dissolution of
Companies (L.R.Q., Chapter 14), or any other law to the same
effect, or if the Company is insolvent or on the point of
becoming insolvent or if the Company does not maintain its
legal existence or if the financial situation deteriorates to
the point of jeopardizing the survival of the Company.
5.1.3 if the Company avails itself of the dispositions of the law
facilitating certain transactions between the Company and its
creditors. (L.R.C. (1985) Chapter c-36) (similar to US Chapter
11 - reorganization)
5.1.4 if the Company loses 40% of its qualification for refundable
tax credits with respect to salary costs by virtue of the
Income tax Act, or its qualification for refundable tax
credits respecting scientific research and experimental
development tax credits by virtue of the Income Tax Actor in
respect to the Reglement sur le Programme d'aide au
financement des entreprises (*Assistance Program for Financing
of Enterprises Regulation);
5.1.5 if there is a change in control of the Company, not previously
authorized by QIDC, a "de facto" change of control of the
company, or a change in the nature of its operations;
It is to be understood with respect to control, the holding of
a number of voting shares sufficient to elect a majority of
the Directors of the Company. It is to be understood by "de
facto" control, the holding of such shares (*voting) by one or
more physical persons giving the control through the
intermediary of one or more legal persons to one or the other
of the shareholders of the Company.
5.1.6 if there is an interruption of business affairs or a
liquidation of the Company's assets;
484
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
5.1.7 if, at any time, the Company is party to litigation or to
judicial procedures before a court of justice or a tribunal, a
commission or government agency, or with Revenue Canada or
Revenue Quebec, without having revealed these matters to QIDC;
5.1.8 in case of fraud, false declarations or falsification of
documents submitted to QIDC or to the Lender, by the company
or its representatives;
5.1.9 if the Company defaults in fulfilling any of the conditions
and clauses of the present offer, of the Loan Agreement
between the Company and the Lender, of any other document
accessory to the Loan and any amendment of these, as the case
may be.
5.2 Notwithstanding any disposition to the contrary contained in the
present offer, and even if the conditions have been respected, QIDC
reserves the right to annul any unissued part of the loan guarantee
or to defer its putting into effect, at its sole discretion, in the
following cases:
5.2.1 if the Company hasn't presented to QIDC any requests for
disbursement of the Loan, supported by justifying documents
required by QIDC within six (6) months of the date of
acceptance of the present offer;
5.2.2 if, in the opinion of QIDC, there has been an important
unfavourable change in the financial situation of the Company.
6 GENERAL TERMS AND CONDITIONS
6.1 This contract will be governed by the laws of Quebec and, in case of
dispute, only the courts of Quebec will have jurisdiction. In
addition, this offer is subject to the application of the terms and
conditions enunciated in the Law respecting the Societe de
developpement industriel du Quebec (*QIDC) and its regulations.
6.2 By its acceptance of the present offer, the Company declares that
all information conveyed to QIDC or to the Lender which gave rise to
the present offer is exact, complete and true.
6.3 The Company cannot cede or transfer the rights conferred upon it
under the terms of the present offer without the prior written
consent of QIDC.
6.4 By accepting this offer, the Company consents that a public
announcement be made by QIDC, communicating the following
information: the name and
485
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
address of the Company, the nature of the Company and the amount of
the Guarantee.
6.5 If the Company wishes to officially announce a project related to
the present offer, make public the financial intervention of QIDC,
or proceed to an official opening, the Company must advise QIDC
fifteen (15) days in advance, so as to permit QIDC to participate.
6.6 The Company commits itself to pay all expenses related to the
preparation, execution and registration, if applicable, of the
documents required to give effect to the present offer and any
amendments thereto.
6.7 QIDC and its representatives can, without prior notice to the
Company, enter the premises of the Company during normal business
hours for purposes of conducting audits judged useful or necessary.
6.8 For purposes of the present offer, all notices must be sent in
writing by certified mail, registered mail or hand delivery. Notices
originating from QIDC will be sent to the Head Office of the
Company, to the attention of the authorized representative who will
sign the present offer for and in the name of the Company. All
notices originating from the Company or its shareholders will be
sent to QIDC, at its Head Office, to the attention of the Secretary.
All notices will be deemed to have been received the date of their
delivery in the case of hand delivery, or the third working day
following the date of mailing in the case of certified or registered
mail.
7. FEES
The present offer is subject to the payment of Guarantee fees equal to 2%
of the amount of the Loan, to wit $18,740 (*Canadian) as well as
management fees, hereinafter called the Commitment Fee, of 1% of the
amount of the Loan, to wit $9,370, and to the payment of the Federal Goods
and Services Tax (*GST) ($655.90) and of the Quebec Sales Tax (*QST)
($651.68) applicable to the Commitment Fee. These Guarantee Fees and
Commitment Fees, which must be remitted to QIDC upon acceptance of the
present offer, will not be refundable under any circumstances, in whole or
in part.
The cashing of the Guarantee Fees or of the Commitment Fees does not
confer any right on the Company and in no way obliges QIDC to put into
effect all or any part of the Guarantee, these rights and obligations
being only created to the extent that the terms and conditions indicated
in the present offer are met.
486
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
For information purposes, QIDC possesses the GST registration number R
107-442- 428 with respect to the federal government and the QST
registration number 1013387857 TQ 0001 SS with respect to the Quebec
government.
8. GUARANTEES
For purposes of the present offer intervene:
Mr Terence Byrne
489 Grosvenor
Westmount, Quebec H3Y 2S5
Mr. Ken Forbes
2076 Sherbrooke West
Montreal, Quebec H3H 1G5
Mr. Louis Muro
374 Oliver Street
Westmount, Quebec H3Z 3C9
stipulating at his time jointly and sevrally, hereinafter designated
collectively as the Intervenors .
The Intervenors declare that they are shareholders or Directors of the
Company, that they have been made aware of the contents of the present
offer, its terms, conditions and application, that they understand its
implications and that they are satisfied.
The Intervenors declare that it is to their advantage that the QIDC Loan
Guarantee be conferred upon the Company.
The Company and the Intervenors declare that the Intervenors are
shareholders of the Company or that they maintain close and continuous
business relations with the Company.
The Intervenors, as joint and sevral guarantors, hereby guarantee to QIDC,
the repayment of all sums which QIDC might have to pay to the Lender under
the terms of the guarantee in the event of the non-respect by the Company
of its obligations to provide to QIDC, as produced or as received, all tax
filings, Notices of Assessment, as well as any correspondence related to
Tax Credits, or its obligation to apply any cheque or amount received as
Tax Credits to the reduction of the balance of the Loan.
The Intervenors, as joint and sevral guarantors, hereby guarantee to QIDC
the repayment of any sum which QIDC might have paid to the Lender under
the terms of
487
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
the Loan Guarantee, up to the amount of any portion of Tax Credits
refunded or credited which might have been withheld by the federal and
provincial governments against payment of obligations by the Company to
those governments. (*offsets...substantial rewording required to translate
the meaning of the paragraph from French into English)
The Intervenors will be considered and will find themselves in the same
situation as the Company, and they expressly renounce all requests for
payment, claims, protests and notices of same as well as all notices of
default and they also renounce any benefits of division and discussion.
Notwithstanding Article 2363 of the Quebec Civil Code, the Intervenors
respectively agree that their above-mentioned obligations toward QIDC will
continue beyond the term of their functions within the Company, unless
they each substitute, following their mandate (*translated in terms of
meaning rather than words insofar as there is no easy English equivalent
of the sentence and grammatical structure), a successor acceptable to
QIDC.
SOCIETE DE DEVELOPPEMENT INDUSTRIEL DU QUEBEC
By: Original signature Date 98-01-16
- ----------------------------
Daniel Vincent
Technology Director
ACCEPTANCE BY THE COMPANY
After having become knowledgable of the terms and conditions of the present
offer, we accept the present offer of a loan guarantee and we attach a cheque in
the amount of $29,417.58(*Cdn) in payment of the Guarantee Fees ($18,740) the
Commitment Fees ($9,370) and the GST ($655.90) and QST ($651.68)
3143619 CANADA INC.
488
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
By: _____________________________ Date _____________
Terence C. Byrne (handwritten)
- ----------------------------------
Name of authorized signatory
489
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
GUARANTEES
After having read the present offer of a Loan Guarantee, its terms and
conditions, the Intervenors declare in understanding its implications, that they
are satisfied and consent to their respective personal commitment enunciated in
Article 8.
/s/ Terence C. Byrne Date 19 Jan. 1998
- ----------------------------
Terence C. Byrne
____________________________ Date ____________________________
Ken Forbes
/s/ Louis Muro Date 19 Jan 1998
- ----------------------------
Louis Muro
490
EXHIBIT 10 (jjj)
491
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
LOAN AGREEMENT ON BANK OF MONTREAL FORM,
DATED DECEMBER 17, 1997. THIS IS A STANDARD BANK FORM INCLUDING MANY BOXES TO BE
CHECKED OFF, LINES TO BE FILLED IN, ETC.
Where a box was checked off, the box is not on this document but a capital
letter "X" appears (word processing problem). In some cases, there are boxes
which one might think should have been checked off or lines filled in, but where
no such actions are evident on the original document. Such apparent anomalies
have been faithfully reproduced in this translation. Use of the word "blank"
denotes a line not having been filled in.
Page 1 of 7 (on the original)
02.21.96
Bank of Montreal Loan Agreement - Quebec Guarantee Program
- --------------------------------------------------------------------------------
BETWEEN
Bank of Montreal
3300 Cote Vertu, Suite 100 (handwritten)
St-Laurent, QC December 17, 1997
AND
3143619 Canada Inc. (handwritten)
740 St-Maurice
Mtl., Qc
H3C 1L5
The Bank of Montreal (hereinafter called "the Bank") agrees to put at the
disposal of 3143619 Canada Inc. (handwritten), (the "Borrower"), a loan in the
capital amount of $ (left blank) (the "Loan"), authorized by the Bank under the
framework of the "Programme d'aide au financement des entreprises (decret
709-96), tel qu'il pourra etre modifie de temps a autre" (*Assistance Program
for the Financing of Enterprises (Decree 709-96, as it will be modified from
time to time) (the "Program") of the "Societe de developpement industriel du
Quebec" (*Quebec Industrial Development Corporation) (SDI), subject to the terms
and conditions described below, which could be the subject of periodic
re-evaluation by the Bank:
PURPOSE The Loan must serve exclusively to finance:
Translation provided by management of the
corporation. This is not an official document.
492
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
75% of the Research and Development Tax Credits for the fiscal
years terminating June 30, 1997 and June 30, 1998 (handwritten
starting at "75%") (The "Project")
INTEREST RATE The interest rate on the Loan is fixed or variable according
to the option chosen below:
(Check as applicable) X Variable rate: prime rate of the Bank (*of
Montreal) plus 1.25% per year, i.e. 7.25% as
of December 17, 1997, calculated daily and
payable monthly.
|_| fixed rate: i.e. (blank) % per year, calculated daily
and payable monthly.
The Borrower cannot convert a fixed-rate loan under the
current Agreement to a variable rate loan, according to the
current rate, until the maturity of the fixed rate loan.
Interest on the Loan is payable to the Bank monthly starting
with the month where the Loan is disbursed.
TERM _______________ Years, expiring on _________________.
EXEMPTION
FROM CAPITAL
REPAYMENT |_| The Borrower benefits from an exemption of capital
repayment. The commencement of capital repayment will be
deferred for a period of _______________ months (maximum
period of 24 months) from the date that the Project is
(*was) completed, determined as __________________
(insert date)
REPAYMENT
(tick appropriate box) The Borrower commits to repay the capital of the Loan to
the Bank by means of (*the following) payments
Translation provided by management of the
corporation. This is not an official document.
493
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
|_| monthly
|_| quarterly
|_| semi-annually
|_| annually
|_| equal amounts of $ (blank) , starting on
___________, or
|_| equal amounts of $ (blank) , starting on
____________, except for the month (s) of
____________ and ______________ of each year.
PREPAYMENT The Borrower cannot prepay the Loan in whole or in part where
the interest rate of the Loan is a fixed rate.
DISBURSEMENT The Loan will be disbursed on one or more disbursements of
which the Bank can determine, at its sole discretion, the
amounts and the dates and this, on the condition that the
Borrower not be in default of the terms of the present
(*Agreement). The disbursement (s) will be effected after the
execution and publication (*registration) of the Guarantee (s)
as described following, and the respect to our satisfaction,
of the conditions of the Loan Le complete disbursement must be
effected before ____________________; after this date, the
Bank will be liberated from the obligation to advance any
amount by virtue of this Loan, in the absence of a written
agreement.
GUARANTEES The Loan will be guaranteed by (one "Guarantee" and
(Tick the collectively the "Guarantees").
applicable
box (es))
X Guarantee of a loss on the Loan provided by SDI, in
accordance with the Program.
|_| Mortgage Guarantee of __________ rank for an amount of $
(blank) on the building situated at ___________________.
|_| Chattel mortgage on equipment or machinery, or both
|_| chattel mortgage on inventory or on accounts receivable,
or both.
Translation provided by management of the
corporation. This is not an official document.
494
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
|_| chattel mortgage on all of the moveable tangible and
intangible assets, present and future.
|_| guarantee by virtue of Article 427 of the Bank Act.
X universal mortgage on all of the moveable assets,
present and future.
|_| cession of fire-insurance policy with the indemnities
(proceeds) payable to the Bank.
X personal guarantee of (*handwritten) $200,000 signed by
T. Byrne and L. Muro.
X other Guarantee (s) (describe as appropriate) Corporate
guarantee in the amount of $1,000,000 signed by Tirex
Corporation. (handwritten)
- All Guarantees must be prepared according to the forms
in use by the Bank, including the usual protection
clauses in favor of the Bank, or must be of a form and
content acceptable to the Bank.
DECLARATIONS OF
THE BORROWER - The Borrower declares that his Project will be completed
no later than June 30, 1998 (handwritten). The period of
the undertaking of the Project cannot exceed three (3)
years from the date of the first disbursement.
- The current Agreement, the Guarantees, as well as the
promissory note, duly completed and submitted by the
Borrower to the Bank, constitute valid obligations which
bind the Borrower and are executory according to their
respective "modalites" (* a very difficult word to
translate in that it implies both clauses and procedures
simultaneously...like "workings")
- All of the elements of the assets pledged by the
Borrower to guarantee the repayment of the Loan are not
encumbered by any privileges, mortgages, priorities or
other charges.
Translation provided by management of the
corporation. This is not an official document.
495
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
- The Project is not the beneficiary of any financial
assistance made available by another government
organization (*apart from the Tax Credits)
- Without limiting the generalities of the foregoing, the
Borrower declares that he meets the conditions of the
Program.
(*Programme Garantie Quebec)
CONDITIONS - Legal costs related to the preparation and execution of
the legal documents required by this Agreement will be
the responsibility of the Borrower, regardless of
whether the Loan is granted or not.
- All costs due to SDI are, and will be satisfied when due
to the satisfaction of the Bank. On request, proofs of
payment will be submitted to the Bank.
- The Borrower will submit to the Bank, within ninety (90)
days following the end of his fiscal year, copies of the
financial statements accompanied by the auditors' report
thereon, and at all times will furnish all other
information which the Bank might reasonably require.
- The Borrower will furnish to the Bank supplementary
guarantees, at the request of the Bank and as often as
the Bank judges appropriate.
- The Borrower will submit to the Bank any invoices and
proofs of payment concerning the acquisitions of capital
assets foreseen in the Project and any other document
deemed necessary.
- The Borrower will effect all registrations and deposits
(*of documents) required from time to time by virtue of
the laws of the Province of Quebec, including the "Loi
sur la publicite legale des entreprises individuelles,
des societes et des personnes morales" (An Act
Respecting the Legal Publicity of Sole proprietorships,
Partnerships and Legal Persons). On demand, a proof of
registration will be submitted to the Bank.
- Throughout the duration of this Loan, the Borrower
commits:
Translation provided by management of the
corporation. This is not an official document.
496
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
|_| to maintain a working capital ratio equal or superior to
_________________ and a minimum amount of working
capital of $________________.
|_| to maintain a ratio of long-term debt to shareholders'
equity equal to or less than ___________________ %.
|_| These ratios will be calculated according to the methods
normally used by the Bank.
- The Borrower shall not, without having obtained the
prior consent of the Bank:
|_| contract for debt to third parties, for purposes of
capital assets for an amount exceeding $_____________ in
the course of the same fiscal year;
|_| declare or pay dividends on its share capital;
|_| purchase back (*redeem) preferred or common shares;
|_| change substantially the nature of its business;
|_| modify the control of the company, which is presently
held by: ________________________, at
____________________% ________________________, at
____________________% and ___________________________,
at __________________%
- If a significant change occurs, which the Bank judges to
be unfavorable, in the nature of the risk before the
date of disbursement of the funds, the Bank can refuse
to disburse the Loan (in whole or in part) and annul the
present Loan Agreement.
- A sum of $3,500 (handwritten) paid with the Loan request
represents negotiation fees. If the Loan would not be
granted or disbursed for reasons unattributable to the
Bank, these fees are not refundable, understood that
(these fees) are paid to cover the costs of evaluating
the request.
Translation provided by management of the
corporation. This is not an official document.
497
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
- No rights or obligations of the Borrower by virtue of
the present (offer) nor any amount of the Loan can be
transferred or ceded by the Borrower. Any transfer or
cession undertaken despite this condition will be null
as far the Bank is concerned and will render the entire
balance of the Loan, at the discretion of the Bank, due
and payable and will liberate the Bank from any
obligation to make any further disbursement or advance,
by virtue of the present (offer).
ARTICLES OF DEFAULT
The Borrower will be in default under the terms of the
present (offer) in the event of the occurrence of one or
more of the following events:
- The Borrower does not effect when due a
repayment of capital or a payment of interest,
costs or any other sums due and payable by the
present (offer);
- The Borrower defaults in accomplishing one or
other of its obligations by virtue of the
present (offer) and/or of the program;
- The Borrower becomes insolvent, bankrupt, in
liquidation, or makes a proposal to its
creditors or files a notice of intent to make a
proposal to its creditors;
- the filing of procedures to dissolve or
liquidate the Borrower or to suspend its
operations;
- the assets of the Borrower, or a significant
portion of same become the object of seizure by
a creditor or placement under trusteeship;
- the Borrower creates or permits the creation of
a mortgage, surety or other charge ranking equal
to those of the Bank, or having priority to
(those of the Bank) with regard to the
guarantees which were given (ceded) to the Bank
or which should have been (should be) accorded
by virtue of the present (offer);
Translation provided by management of the
corporation. This is not an official document.
498
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
- The Borrower is in default in paying any sums
due to another financial institution or to the
state (government) by virtue of any fiscal law;
- The Borrower is the author of a false or
incorrect declaration in the present Agreement,
the Guarantee (s), or any related document;
- There occurs a deterioration of the financial
situation of the Borrower;
- A Guarantee becomes null, tainted with
irregularities, withdrawn, suspended, or, for
whatever reason, is unenforceable or if the bank
has reasonable reason to believe that a
guarantee will not be honored;
- The Borrower defaults in respecting one or more
dispositions or conditions of the program.
In the event of default, the Bank reserves the right to demand
immediate payment of the total balance of the Loan and the
Loan will be annulled at that instant. The Bank will thus be
able to terminate the right of the Borrower to use any portion
of the Loan available.
GENERAL
CONDITIONS - If the Borrower includes more than one person,
the obligations of the Borrower by virtue of the
present (offer) are indivisible and jointly
binding.
- All clauses or parts of clauses which can be
null and unexecutable will not invalidate the
other conditions of the present (offer), have an
impact (on the other clauses) or diminish their
scope.
- If the Borrower requests of the bank to reserve
an interest rate, the Borrower consents to
discharge, the ______________, the costs of
reserving the interest rate corresponding to
(Blank) per cent of the capital amount of the
Loan.
Translation provided by management of the
corporation. This is not an official document.
499
<PAGE>
Certain annotations and explanations may have been added by management to
enhance clarity. See asterisks for such additions. Some punctuation may have
been modified in recognition of certain differences between French and English
grammar.
- The Borrower can have the interest rate
established up to 30 days prior to the first
disbursement. The Borrower must thus pay, on
_____________, a commitment fee corresponding to
1% of the capital amount of the Loan.
- The costs referred to in the previous paragraph
will be reimbursed to the Borrower on the day of
the total disbursement of the loan. If the
Borrower annuls all or part of the Loan, the
Bank will retain the costs in question.
- The present Agreement is governed by the Quebec
Civil Code and other Quebec laws.
- The privileges and obligations of the present
Agreement commit the parties, their successors
and assigns, their liquidators, and judicial
administrators; the Borrower, however, cannot
cede (the privileges and obligations) without
the written consent of the Bank.
- The present Loan Agreement must be accepted by
the Borrower no later than __________________,
19 by signing and returning this document, in
the absence of which the Bank reserves the right
to annul or modify this (Agreement), and to do
so unilaterally.
Bank of Montreal
By: /s/ Nathalie St-Pierre
- ------------------------------------
ACCEPTANCE
WE ACCEPT THE TERMS AND CONDITIONS OF THE PRESENT LOAN AGREEMENT
3143619 Canada Inc.
Name of Borrower
Translation provided by management of the
corporation. This is not an official document.
500
<PAGE>
By: /s/ Terence C. Byrne
-------------------------------
By: /s/ John Threshie
-------------------------------
Signed at Montreal (handwritten), this 17 day of December 1997
501
EXHIBIT 10 (kkk)
502
<PAGE>
IDEA-SME Project No: H30600526
3143619 Canada Inc.
(Operating under the name Tirex Canada)
3767 Thimens Boulevard
Suite 207
St. Laurent, Quebec
H4R 1W4
Attention: Mr. Terence C. Byrne, President
Subject: Contribution for the preparation of market development
studies for the Iberian peninsula
Dear Sir:
The Government of Canada, as represented by the Federal Office of
Regional Development -Quebec ("the Minister") hereby offers to make a repayable
contribution under the Quebec SME Development Assistance Program (IDEA-SME) to
3143619 Canada Inc. (operating under the name Tirex Canada) for the
implementation of the project described in Appendix A, under the following
conditions.
1. THE AGREEMENT
1.1 The present letter of offer, including appendices A, B and C, constitutes
an agreement legally binding on the parties once it has been fully
accepted by the client ("the agreement").
2. THE PROJECT
2.1 The client shall carry out the project at:
St. Laurent, Quebec and on the Iberian peninsula
2.2 The client shall
.1 commence the project on or before January 31, 1997;
.2 complete the project on or before March 31, 1997.
503
<PAGE>
3. THE CONTRIBUTION
3.1 Subject to the other provisions of this agreement, the Minister agrees to
pay to the client a maximum contribution of $20,000, based on 50% of the
approved eligible costs.
3.2 The Minister shall not contribute to any cost incurred by the client prior
to December 31, 1996.
4. TERMS AND CONDITIONS OF PAYMENT
4.1 On submission of a documented claim by the client, the Minister shall pay
the contribution as follows:
.1 no more than once per quarter, the Minister shall pay financial
assistance corresponding to the eligible costs incurred and invoiced
to the client;
.2 payments made pursuant to paragraph 4.1.1 shall not exceed 90% of
the authorized contribution.
.3 once the project is completed to the Minister's satisfaction and all
costs claimed have been paid, the Minister shall pay the balance of
the contribution owing.
4.2 All payments to the client are subject to:
.1 the submission of such invoices and other vouchers that the Minister
may require;
.2 the submission of any report or information that the Minister may
reasonably require from the client.
4.3 The client shall have six months from the project completion date to
submit its last claim for payment to the Minister, after which the
minister is under no obligation to make payment in respect of the amount
being claimed if he deems the delay to be unjustified.
4.4 The Applicant will repay the contribution to the Minister in amounts equal
to 1% of the annual gross sales in Spain and in Portugal (before GST and
TVQ or their equivalent in Spain and in Portugal) realized by the
Applicant or by any other company associated with the Applicant within the
meaning described in the Income Tax Act, occuring after June 1, 1997. The
first instalment shall become due and payable on June 30, 1998. Each
subsequent instalment will become due and payable at twelve month
intervals thereafter, until such times as the Applicant will have
completely repaid the contribution, or until, and including the payment
which might become due on June 30, 2007, whichever is sooner.
5. OTHER GOVERNMENT ASSISTANCE
5.1 The Applicant states that he has neither requested nor received any other
financial assistance for the purposes of the project.
5.2 The client agrees to disclose without delay, and in all cases no later
than the moment that such assistance is received, any other assistance
provided for the purposes of the project; and the
504
<PAGE>
client hereby acknowledges that the minister may reduce the amount of the
contribution under this agreement by an amount equal to or less than the
additional assistance anticipated or received.
6. GENERAL CONDITIONS
6.1 Any notice shall be sent to the following address:
.1 to the Minister
Federal Office of Regional Development-Quebec
3800-800 Stock Exchange Tower
P.O. Box 247
Montreal, Quebec
H4Z 1E8
Attention: Director
Montreal Island
.2 to the client, at the address in the letter of offer.
6.2 The parties agree that any disclosure of this financial assistance shall
be made in accordance with the provisions of section 6 of Appendix B.
6.3 In the event of incompatibility or conflict of interpretation between the
letter of offer and Appendix A, on the one hand, and Appendix B, on the
other, the latter shall prevail.
6.4 This offer shall become null and void if it is not returned duly signed
and accepted without conditions by the client within 90 days of being sent
by the minister.
For further information, please contact Mr. Michael Ash at 283-3621, or
the undersigned at 283-2500
Yours truly,
Germain Pare
Director
Montreal Island
Enclosures
Appendix A Project Description
Appendix B General Conditions
Appendix C Fact Sheet for Press Release
The offer and related conditions are hereby accepted this
____________________ Day of ________________, 1997
505
<PAGE>
3143619 Canada Inc. ( operating under the name Tirex Canada)
__________________________________________________
(signature)
__________________________________________________
(Title)
__________________________________________________
(signature)
__________________________________________________
(Title)
506
<PAGE>
ANNEX "A"
PROJECT NUMBER: H30600526
PROJECT DESCRIPTION
OBJECTIVE OF THE PROJECT
3143619 Canada Inc. (Operating under the name Tirex Canada and hereinafter
referred to as "the Applicant") agrees to commission consulting studies, the
purpose of which will be to develop a strategic marketing plan for the sale of a
new tire disintegration system, referred to by the Applicant as the TCS-1, in
Spain and in Portugal. The total cost of the study, as per the proposal
submitted by GAPCO S.L. is Cdn.$40,000. The study is to be completed prior to
March 31, 1997 and is to be carried out in accordance with the consultant's
proposal, as submitted by the Applicant as supporting documention under IDEA
file # H30600526.
TOTAL ELIGIBLE COST $40,000
=======
N.B. The costs incurred to engage a consultant with whom the Applicant is not
dealing at arm's length, as defined by the Income Tax Act are not
eligible. Authorized costs exclude any taxes and duties for which the
Applicant would be eligible to receive a refund or an input tax credit
against other taxes payable, such as (without limitation) GST and TVQ.
507
<PAGE>
APPENDIX B
GENERAL CONDITIONS
1. Interpretation
Unless the context dictates otherwise, the following terms have the meaning
stipulated, for the purposes of this agreement:
1.1 "Eligible costs": all the costs necessary to carry out the project. They
may include:
- fees for professional and technical services;
- the cost of labour assigned to the project;
- equipment rental fees;
- the cost of a demonstration project or of a development project for
a process, product or service, and the dissemination of the results;
- the cost of producing and disseminating promotional material;
- the cost of organizing an exhibition, conference, seminar or
symposium;
- the cost of organizing a contest or of awarding grants;
- operating fees paid to an association of SME's or a support
organization for SME's;
- travel expenses;
- in exceptional cases, the cost of fixed assets deemed necessary to
execute an eligible catalyst project, with the exception of the cost
of land, motor vehicles not exclusively used on the project site and
the portion of the cost of any asset that exceeds the fair market
value of the asset.
1.2 "Authorized costs": eligible costs listed in Appendix A that are deemed
reasonable and necessary to carry out the project, subject to the sharing
ratios, restrictions and terms of this agreement.
1.3 "Approved costs": costs claimed by the client that are, in the minister's
opinion, authorized costs.
1.4 "Government of Canada": Her Majesty the Queen in right of Canada.
2. Duration of the Agreement
2.1 The effective date of the agreement is the date on which the minister
receives a duly signed copy of the agreement.
508
<PAGE>
2.2 The agreement shall terminate 12 months after the date on which the
project is completed; in the case of a repayable contribution, the
contract shall terminate on the date of the last repayment of the
contribution.
3. Representations and Undertakings by the Client
3.1 The client knows of no existing, imminent or probable legal proceedings,
or no reason, fact or event that could seriously compromise the project's
chances of success.
3.2 The client states that the project description in Appendix A faithfully
reflects its intentions, and that the information contained therein are
true, and that all relevant information has been disclosed.
3.3 Until the project is completed, the client undertakes to:
.1 do everything necessary to carry out the project successfully and
within the agreed upon schedule and costs, in workmanlike fashion
and employing qualified personnel;
.2 immediately disclose to the minister any fact or event that might,
immediately or in the long term, jeopardize the project's chances of
success;
.3 comply with all laws, regulations, orders, and legal, quasi-legal
and administrative decisions applicable to the client and to the
project.
3.4 For the duration of this agreement, the client undertakes to do everything
necessary to maintain its corporate existence and legal competence and
inform the minister of any failure to do so.
3.5 For the duration of this agreement, the client undertakes not to amend the
project with respect to its cost, scope, completion date, location or any
other aspect, without the minister's prior written consent.
4. Reports and Information
4.1 The minister may require the client to produce promptly, free of charge
and without delay any information that the client has or may have
concerning the project.
4.2 The client shall at all times ensure that the minister or his
representative has access to its ledgers, information, documentation and
receipts in respect of the project's costs and financing, as well as any
other document that the minister may reasonably require for the purposes
of this agreement.
4.3 The minister, through his own auditors or recognized chartered
accountants, may conduct the audits provided for in the agreement, at the
minister's expense and according to a reasonable time schedule.
4.4 For 24 months after the project completion date, the client shall, at its
own expense
.1 keep and hold available for examination and audit by the minister
ledgers, accounts and cost records of the project; and
509
<PAGE>
.2 promptly supply upon request such data in respect of the project and
its results as the minister may require to establish the level of
financial assistance or for statistical purposes.
4.5 The minister agrees, subject to the Access to Information Act of Canada,
to preserve the confidentiality of any data, reports and other information
provided in confidence by the client pursuant to this agreement, and not
to disclose them to any third party without the client's prior written
consent.
4.6 In the case of a contribution for a study, should the client decide not to
follow through with the consultant's recommendations, the client shall,
upon request, cede to the minister all the information obtained or
developed in consequence of the services provided by the consultant.
5. Default and Recourse
5.1 The following constitute events of default:
.1 a) the client becomes bankrupt or requests protection under the
Bankruptcy and Insolvency Act;
b) the client goes into receivership;
c) an order is made in accordance with the Companies' Creditors
Arrangement Act (c 36);
.2 an order is made or resolution passed for the winding up of the
client, or the client is dissolved;
.3 the client ceases activities related to the project;
.4 in the opinion of the minister, there has been a significant
increase in the degree of risk relating to the execution of the
project;
.5 the client has made a false declaration or a false representation to
the minister, directly or through its representatives;
.6 a term, condition or undertaking provided in the agreement has not
been fulfilled;
.7 the client is not entitled to the contribution.
5.2 In the event of default, pursuant to clauses 5.1.1 and 5.1.2, all monies
paid to the client under this offer of contribution shall become
immediately due and payable.
5.3 If there is default, or if, in the minister's opinion, default is likely
to occur pursuant to clauses 5.1.3 to 5.1.7, the minister may exercise any
or all of the following remedies:
.1 adjust the amount of the contribution and notify the client
accordingly;
.2 suspend any payment of the contribution, either for amounts due or
future payments;
510
<PAGE>
.3 terminate the agreement and immediately end any financial obligation
under the agreement;
.4 require the immediate total or partial repayment of any financial
assistance received.
5.4 The fact that the minister refrains from exercising a right conferred on
him by this agreement shall not be construed as a waiver of that right.
6. Announcements and Ceremonies
6.1 The client hereby agrees to a public announcement by the minister in the
form of a press release containing the information outlined in Appendix C
of this agreement.
6.2 The minister shall inform the client promptly in writing of the date on
which the public announcement is to be made and the client shall maintain
the confidentiality of this agreement until that date.
6.3 The client shall notify the minister in writing, at least 14 days in
advance, of any official ceremony organized with regard to the project.
6.4 The client hereby consents to the participation of the minister or his
representatives in any official ceremony.
7. Notice
7.1 Any notice, information or document required to be sent under this
agreement shall be effectively given if delivered by hand or sent by telex
or facsimile. Any notice shall be deemed to have been received on
delivery; any notice sent by telex or facsimile shall be deemed to have
been received one working day after being sent; any notice sent by mail
shall be deemed to have been received eight working days after being
mailed.
7.2 Each of the parties may amend the address given in this agreement by
informing the other party of its new address and any such changes shall
come into force 15 days after receipt of the notice.
8. General
8.1 No member of the House of Commons or Senator shall be admitted to any
share or part of this agreement or to any benefit to arise therefrom.
8.2 The client confirms that no former public office holder in the Government
of Canada benefits directly or indirectly from this agreement, or, that if
such is the case, the said former public officer holder complies with the
provisions of the Conflict of Interest and Post-Employment Code.
8.3 This agreement and its benefits shall not be assigned without the prior
written consent of the minister.
8.4 The parties acknowledge that nothing in this agreement shall be construed
as creating a partnership or joint venture or agency relationship between
the minister and the client.
511
<PAGE>
8.5 The parties hereto agree that this agreement be drafted in English only.
Les parties a la presente entente acceptent qu'elle soit redigee en
anglais seulement.
8.6 This agreement is made to the advantage and the benefit of the parties
hereto, their respective successors and assigns, and is binding upon them.
.7 This agreement is subject to and shall be construed in accordance
with the laws of the province of Quebec.
8.8 Recourse provided under this agreement is cumulative and shall not exclude
any other recourse provided by law.
8.9 Any payment due under this agreement is subject to there being an
appropriation for the fiscal year in which the payment is to be made.
512
<PAGE>
APPENDIX C
================================================================================
PROJECT FACT SHEET
FOR THE MINISTER AND PRESS RELEASE
- --------------------------------------------------------------------------------
IDEA-SME Project no H30600526
- --------------------------------------------------------------------------------
Client's name and address Resource persons:
3143619 Canada Inc, (Tirex Canada) Name Mr. Terence C. Byrne
3767 Thimens Boulevard Title President
Suite 207 Telephone 335-0111
St-Laurent, Quebec Fax 334-1477
H4R 1W4
- --------------------------------------------------------------------------------
Project location Federal riding
Spain and Portugal St-Laurent (note)
- --------------------------------------------------------------------------------
Project description: Strategic marketing plan for the sale of a new tire
disintegration system in Spain and in Portugal.
- --------------------------------------------------------------------------------
Total cost of project $40,000
- --------------------------------------------------------------------------------
Authorized assistance (type of financial assistance and amount)
Repayable contribution
50% X $20,000 = $10,000 MAXIMUM
- --------------------------------------------------------------------------------
Effect on jobs (specify whether any will be created or preserved) Impossible to
predict at this time.
- --------------------------------------------------------------------------------
Estimated project start date Estimated project completion date
January 31, 1997 March 31, 1997
- --------------------------------------------------------------------------------
Date offer made Date offer accepted
================================================================================
While the company is still technically located in St-Laurent (St-Laurent
riding), it is expected that the company will soon be locating into the
territory of Southwest Montreal in the federal riding of St-Henri-Westmount.
513
EXHIBIT 10 (lll)
514
<PAGE>
IDEA-SME Project No: H30600761
3143619 Canada Inc.
(Operating under the name Tirex Canada)
3767 Thimens Boulevard
Suite 207
St. Laurent, Quebec
H4R 1W4
Attention: Mr. Terence C. Byrne, President
Subject: Contribution for market development activities for
the Iberian peninsula
Dear Sir:
The Government of Canada, as represented by the Federal Office of Regional
Development -Quebec ("the Minister") hereby offers to make a repayable
contribution under the Quebec SME Development Assistance Program (IDEA-SME) to
3143619 Canada Inc. (operating under the name Tirex Canada) for the
implementation of the project described in Appendix A, under the following
conditions.
1. THE AGREEMENT
1.1 The present letter of offer, including appendices A, B and C, constitutes
an agreement legally binding on the parties once it has been fully
accepted by the client ("the agreement").
2. THE PROJECT
2.1 The client shall carry out the project at:
St. Laurent, Quebec and on the Iberian peninsula
2.2 The client shall
.1 commence the project on or before June 30, 1997;
.2 complete the project on or before June 30, 1998.
3. THE CONTRIBUTION
3.1 Subject to the other provisions of this agreement, the Minister agrees to
pay to the client a maximum contribution of $95,000, based on 50% of the
approved eligible costs.
3.2 The Minister shall not contribute to any cost incurred by the client prior
to May 29, 1997.
4. TERMS AND CONDITIONS OF PAYMENT
515
<PAGE>
4.1 On submission of a documented claim by the client, the Minister shall pay
the contribution as follows:
.1 no more than once per quarter, the Minister shall pay financial
assistance corresponding to the eligible costs incurred and invoiced
to the client;
.2 payments made pursuant to paragraph 4.1.1 shall not exceed 90% of
the authorized contribution.
.3 once the project is completed to the Minister's satisfaction and all
costs claimed have been paid, the Minister shall pay the balance of
the contribution owing.
4.2 All payments to the client are subject to:
.1 the submission of such invoices and other vouchers that the Minister
may require;
.2 the submission of any report or information that the Minister may
reasonably require from the client.
4.3 The client shall have six months from the project completion date to
submit its last claim for payment to the Minister, after which the
minister is under no obligation to make payment in respect of the amount
being claimed if he deems the delay to be unjustified.
4.4 The Applicant will repay the contribution to the Minister in amounts equal
to 1.5% of the annual gross sales in Spain and in Portugal (before GST and
TVQ or their equivalent in Spain and in Portugal) realized by the
Applicant or by any other company associated with the Applicant within the
meaning described in the Income Tax Act, occuring after June 1, 1998. The
first instalment shall become due and payable on June 30, 1999. Each
subsequent instalment will become due and payable at twelve month
intervals thereafter, until such times as the Applicant will have
completely repaid the contribution, or until, and including the payment
which might become due on June 30, 2004, whichever is sooner. From each
instalment, the Applicant will deduct any amounts repaid to the Minister
in respect of IDEA-SME file number H30600526 with respect to the same
year.
5. OTHER GOVERNMENT ASSISTANCE
5.1 The Applicant states that he has neither requested nor received any other
financial assistance for the purposes of the project.
5.2 The client agrees to disclose without delay, and in all cases no later
than the moment that such assistance is received, any other assistance
provided for the purposes of the project; and the client hereby
acknowledges that the minister may reduce the amount of the contribution
under this agreement by an amount equal to or less than the additional
assistance anticipated or received.
6. GENERAL CONDITIONS
516
<PAGE>
6.1 Any notice shall be sent to the following address:
.1 to the Minister
Federal Office of Regional Development-Quebec
3800-800 Stock Exchange Tower
P.O. Box 247
Montreal, Quebec
H4Z 1E8
Attention: Director
Montreal Island
.2 to the client, at the address in the letter of offer.
6.2 The parties agree that any disclosure of this financial assistance shall
be made in accordance with the provisions of section 6 of Appendix B.
6.3 In the event of incompatibility or conflict of interpretation between the
letter of offer and Appendix A, on the one hand, and Appendix B, on the
other, the latter shall prevail.
6.4 This offer shall become null and void if it is not returned duly signed
and accepted without conditions by the client within 90 days of being sent
by the minister.
For further information, please contact Mr. Michael Ash at 283-3621, or
the undersigned at 283-2500
Yours truly,
Germain Pare
Director
Montreal Island
Enclosures
Appendix A Project Description
Appendix B General Conditions
Appendix C Fact Sheet for Press Release
The offer and related conditions are hereby accepted this
________________________ Day of ______________________, 1997
3143619 Canada Inc. ( operating under the name Tirex Canada)
517
<PAGE>
____________________________________________________________
(signature)
____________________________________________________________
(Title)
____________________________________________________________
(signature)
____________________________________________________________
(Title)
518
<PAGE>
ANNEX "A"
PROJECT NUMBER: H30600761
PROJECT DESCRIPTION
OBJECTIVE OF THE PROJECT
3143619 Canada Inc. (Operating under the name Tirex Canada and hereinafter
referred to as "the Applicant") agrees to undertake market development work for
the sale of tire recycling equipment referred to by the Applicant as the TCS-1,
on the Iberian peninsula. The total cost of the activities, to be carried out
over the space of one year, is estimated at $190,000. The activities to be
undertaken as well as approximations of their cost follow.
Office rent $ 20,000
Sales and showroom director salary 75,000
Office and marketing assistant 25,000
Advertizing and publicity 20,000
Multi-lingual translation of product information
(excluding both English and French) 15,000
Legal costs 10,000
Travel to potential clients (see details below) 15,000
Attendance at trade shows (see details below) 10,000
--------
TOTAL ELIGIBLE COST $190,000
========
Travel to and from clients
Expectation of 10 trips at an average cost of $1500 per trip including airfare,
ground transportation hotels, meals and other necessary costs.
10 x $1,500 = $15,000.
Attendance at trade shows.
- --------------------------------------------------------------------------------
Show Airfare Hotels Meals Promo material Total
- --------------------------------------------------------------------------------
Malaysia $2,000 $525 $400 $500 $3,425
- --------------------------------------------------------------------------------
Shanghai $1,900 $1,030 $500 $800 $4,230
- --------------------------------------------------------------------------------
Cleveland $1,200 $450 $400 $500 $2,550
- --------------------------------------------------------------------------------
TOTAL $5,100 $2,005 $1,300 $1,800 $10,205
- --------------------------------------------------------------------------------
TOTAL ROUNDED $10,000
-------
COMPLEMENTARY NOTES
1. The undertaking of the project should, in general terms, respect the
objectives, the project description, methodology and timing as indicated
in the various documents submitted to the Federal Office of Regional
Development - Quebec in support of the request for financial
519
<PAGE>
assistance. Costs estimated for individual cost categories are estimates
and are not intended as limitations per category. Subject to note 3 below,
the Applicant may, within reason, substitute costs in one category for
another.
2. Eligible costs specifically exclude:
a) costs related to the hiring of a consultant with whom the Applicant
is related as defined in the Income Tax Act;
b) any taxes paid for which the Applicant is eligible for a refund or
an input tax credit (e.g. GST/TVQ); c) any costs related to
hospitality, entertainment and other costs of a similar nature.
3. The Department reserves the right to reduce costs claimed relative to
hotels and subsistence where such amounts significantly exceed amounts
specified by Treasury Board in the Travel Directive for federal public
servants in travel status. Hotel rates and daily subsistence rates are
available upon request. For information purposes only, approximations of
daily rates for hotels and subsistence are as follows:
- --------------------------------------------------------------------------------
City Hotel rates Subsistence rates per person /day
- --------------------------------------------------------------------------------
Madrid $210 US 7200 Pesetas
- --------------------------------------------------------------------------------
Barcelona $128 US 7200 Pesetas
- --------------------------------------------------------------------------------
Kuala Lampur $92 US 106 Ringgit
- --------------------------------------------------------------------------------
Shanghai $147 US 465 Renminbi
- --------------------------------------------------------------------------------
Cleveland $78 US $48 US
- --------------------------------------------------------------------------------
520
<PAGE>
APPENDIX B
GENERAL CONDITIONS
1. Interpretation
Unless the context dictates otherwise, the following terms have the meaning
stipulated, for the purposes of this agreement:
1.1 "Eligible costs": all the costs necessary to carry out the project. They
may include:
- fees for professional and technical services;
- the cost of labour assigned to the project;
- equipment rental fees;
- the cost of a demonstration project or of a development project for
a process, product or service, and the dissemination of the results;
- the cost of producing and disseminating promotional material;
- the cost of organizing an exhibition, conference, seminar or
symposium;
- the cost of organizing a contest or of awarding grants;
- operating fees paid to an association of SME's or a support
organization for SME's;
- travel expenses;
- in exceptional cases, the cost of fixed assets deemed necessary to
execute an eligible catalyst project, with the exception of the cost
of land, motor vehicles not exclusively used on the project site and
the portion of the cost of any asset that exceeds the fair market
value of the asset.
1.2 "Authorized costs": eligible costs listed in Appendix A that are deemed
reasonable and necessary to carry out the project, subject to the sharing
ratios, restrictions and terms of this agreement.
1.3 "Approved costs": costs claimed by the client that are, in the minister's
opinion, authorized costs.
1.4 "Government of Canada": Her Majesty the Queen in right of Canada. 2.
Duration of the Agreement
2.1 The effective date of the agreement is the date on which the minister
receives a duly signed copy of the agreement.
2.2 The agreement shall terminate 12 months after the date on which the
project is completed; in the case of a repayable contribution, the
contract shall terminate on the date of the last repayment of the
contribution.
3. Representations and Undertakings by the Client
521
<PAGE>
3.1 The client knows of no existing, imminent or probable legal proceedings,
or no reason, fact or event that could seriously compromise the project's
chances of success.
3.2 The client states that the project description in Appendix A faithfully
reflects its intentions, and that the information contained therein are
true, and that all relevant information has been disclosed.
3.3 Until the project is completed, the client undertakes to:
.1 do everything necessary to carry out the project successfully and
within the agreed upon schedule and costs, in workmanlike fashion
and employing qualified personnel;
.2 immediately disclose to the minister any fact or event that might,
immediately or in the long term, jeopardize the project's chances of
success;
.3 comply with all laws, regulations, orders, and legal, quasi-legal
and administrative decisions applicable to the client and to the
project.
3.4 For the duration of this agreement, the client undertakes to do everything
necessary to maintain its corporate existence and legal competence and
inform the minister of any failure to do so.
3.5 For the duration of this agreement, the client undertakes not to amend the
project with respect to its cost, scope, completion date, location or any
other aspect, without the minister's prior written consent.
4. Reports and Information
4.1 The minister may require the client to produce promptly, free of charge
and without delay any information that the client has or may have
concerning the project.
4.2 The client shall at all times ensure that the minister or his
representative has access to its ledgers, information, documentation and
receipts in respect of the project's costs and financing, as well as any
other document that the minister may reasonably require for the purposes
of this agreement.
4.3 The minister, through his own auditors or recognized chartered
accountants, may conduct the audits provided for in the agreement, at the
minister's expense and according to a reasonable time schedule.
4.4 For 24 months after the project completion date, the client shall, at its
own expense
.1 keep and hold available for examination and audit by the minister
ledgers, accounts and cost records of the project; and
.2 promptly supply upon request such data in respect of the project and
its results as the minister may require to establish the level of
financial assistance or for statistical purposes.
4.5 The minister agrees, subject to the Access to Information Act of Canada,
to preserve the confidentiality of any data, reports and other information
provided in confidence by the client pursuant to this agreement, and not
to disclose them to any third party without the client's prior written
consent.
522
<PAGE>
4.6 In the case of a contribution for a study, should the client decide not to
follow through with the consultant's recommendations, the client shall,
upon request, cede to the minister all the information obtained or
developed in consequence of the services provided by the consultant.
5. Default and Recourse
5.1 The following constitute events of default:
.1 a) the client becomes bankrupt or requests protection under the
Bankruptcy and Insolvency Act;
b) the client goes into receivership;
c) an order is made in accordance with the Companies' Creditors
Arrangement Act (c 36);
.2 an order is made or resolution passed for the winding up of the
client, or the client is dissolved;
.3 the client ceases activities related to the project;
.4 in the opinion of the minister, there has been a significant
increase in the degree of risk relating to the execution of the
project;
.5 the client has made a false declaration or a false representation to
the minister, directly or through its representatives;
.6 a term, condition or undertaking provided in the agreement has not
been fulfilled;
.7 the client is not entitled to the contribution.
5.2 In the event of default, pursuant to clauses 5.1.1 and 5.1.2, all monies
paid to the client under this offer of contribution shall become
immediately due and payable.
5.3 If there is default, or if, in the minister's opinion, default is likely
to occur pursuant to clauses 5.1.3 to 5.1.7, the minister may exercise any
or all of the following remedies:
.1 adjust the amount of the contribution and notify the client
accordingly;
.2 suspend any payment of the contribution, either for amounts due or
future payments;
.3 terminate the agreement and immediately end any financial obligation
under the agreement;
.4 require the immediate total or partial repayment of any financial
assistance received.
5.4 The fact that the minister refrains from exercising a right conferred on
him by this agreement shall not be construed as a waiver of that right.
6. Announcements and Ceremonies
6.1 The client hereby agrees to a public announcement by the minister in the
form of a press release containing the information outlined in Appendix C
of this agreement.
6.2 The minister shall inform the client promptly in writing of the date on
which the public announcement is to be made and the client shall maintain
the confidentiality of this agreement until that date.
523
<PAGE>
6.3 The client shall notify the minister in writing, at least 14 days in
advance, of any official ceremony organized with regard to the project.
6.4 The client hereby consents to the participation of the minister or his
representatives in any official ceremony.
7. Notice
7.1 Any notice, information or document required to be sent under this
agreement shall be effectively given if delivered by hand or sent by telex
or facsimile. Any notice shall be deemed to have been received on
delivery; any notice sent by telex or facsimile shall be deemed to have
been received one working day after being sent; any notice sent by mail
shall be deemed to have been received eight working days after being
mailed.
7.2 Each of the parties may amend the address given in this agreement by
informing the other party of its new address and any such changes shall
come into force 15 days after receipt of the notice.
8. General
8.1 No member of the House of Commons or Senator shall be admitted to any
share or part of this agreement or to any benefit to arise therefrom.
8.2 The client confirms that no former public office holder in the Government
of Canada benefits directly or indirectly from this agreement, or, that if
such is the case, the said former public officer holder complies with the
provisions of the Conflict of Interest and Post-Employment Code.
8.3 This agreement and its benefits shall not be assigned without the prior
written consent of the minister.
8.4 The parties acknowledge that nothing in this agreement shall be construed
as creating a partnership or joint venture or agency relationship between
the minister and the client.
8.5 The parties hereto agree that this agreement be drafted in English only.
Les parties a la presente entente acceptent qu'elle soit redigee en
anglais seulement.
8.6 This agreement is made to the advantage and the benefit of the parties
hereto, their respective successors and assigns, and is binding upon them.
8.7 This agreement is subject to and shall be construed in accordance with the
laws of the province of Quebec.
8.8 Recourse provided under this agreement is cumulative and shall not exclude
any other recourse provided by law.
8.9 Any payment due under this agreement is subject to there being an
appropriation for the fiscal year in which the payment is to be made.
524
<PAGE>
APPENDIX C
================================================================================
PROJECT FACT SHEET
FOR THE MINISTER AND PRESS RELEASE
- --------------------------------------------------------------------------------
IDEA-SME Project no H30600761
- --------------------------------------------------------------------------------
Client's name and address Resource persons:
3143619 Canada Inc, (Tirex Canada) Name Mr. Terence C. Byrne
3767 Thimens Boulevard Title President
Suite 207 Telephone 335-0111
St-Laurent, Quebec Fax 334-1477
H4R 1W4
- --------------------------------------------------------------------------------
Project location Federal riding
Spain and Portugal St-Laurent (note)
- --------------------------------------------------------------------------------
Project description: Market development activities on the Iberian peninsula for
the sale of tire recycling equipment.
- --------------------------------------------------------------------------------
Total cost of project $190,000
- --------------------------------------------------------------------------------
Authorized assistance (type of financial assistance and amount)
Repayable contribution
50% X $190,000 = $95,000 MAXIMUM
- --------------------------------------------------------------------------------
Effect on jobs (specify whether any will be created or preserved) Impossible to
predict at this time.
- --------------------------------------------------------------------------------
Estimated project start date Estimated project completion date
June 30, 1997 June 30, 1998
- --------------------------------------------------------------------------------
Date offer made Date offer accepted
================================================================================
While the company is still technically located in St-Laurent (St-Laurent
riding), it is expected that the company will soon be locating into the
territory of Southwest Montreal in the federal riding of St-Henri-Westmount.
525
EXHIBIT 21
526
<PAGE>
Subsidiaries of the Company
The Company has the following four subsidiaries:
Tirex Canada R&D Inc. (formerly "3143619 Canada Inc." which was
formerly known as Tirex Canada Inc.), a Canadian Corporation
The Tirex Corporation Canada Inc., a Canadian Corporation
Tirex Advanced Products Quebec, Inc., a Canadian Corporation
Tirex Acquisition Corp., a Delaware Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 398,471
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,232,892
<PP&E> 994,035
<DEPRECIATION> 16,747
<TOTAL-ASSETS> 3,814,648
<CURRENT-LIABILITIES> 1,859,694
<BONDS> 0
0
0
<COMMON> 63,642
<OTHER-SE> 390,418
<TOTAL-LIABILITY-AND-EQUITY> 3,814,648
<SALES> 880,000
<TOTAL-REVENUES> 880,000
<CGS> 796,490
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,564,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,387
<INCOME-PRETAX> (4,570,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,570,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,570,441)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
